Reference no: EM132210203

Task You have been recently employed as an accountant for the Platinum Manufacturing Group. The CEO, Ms James, has tasked you with reviewing their system for the purchase, receipt, storage and issuance of raw materials as part of their expenditure process. To facilitate this, she has provided you with key information relating to Platinum’s raw materials purchasing processes (available in Interact). Using the information provided to you, prepare a business report to the CEO including the following:

1. A summarised overview of the expenditure process relating to the purchase, receipt, storage and issuance of raw materials. [This should be no longer than one (1) paragraph and need to focus on the key relevant facts. The CEO is already aware of this information, but this overview helps bring your report together for other readers]

2. Use a system tool to develop a level 0 data flow diagram to document the raw materials purchasing process.

3. Identification of: internal control weaknesses relating to Platinum’s inventory management and expenditure process;

4. The impact these weaknesses could have on the organisation;

specific internal controls which could be implemented by Platinum in the coming weeks to mitigate the weakness posed by the internal control weaknesses you have identified. The CEO does not want theoretical controls suggested. They want practical controls that they can implement; and

how the control procedures you recommended in part c. above could be implemented using the latest developments in IT such as automation and electronic forms

All parts of question 3 must be answered a table in your report. Answer this question using the following headings in table format:

Internal Control Weakness I

mpact of the weakness

Control to mitigate the weakness

Latest IT developments

Case Study of Platimum Company

Below is the information provided to you by Ms Lisa James, the CEO of Platinum Manufacturing Group Platinum Manufacturing Group (Platinum) are a medium sized manufacturer of electrical equipment. Their primary customers are small to medium sized businesses around Australia. Their annual turnover in the last 12 months was $3.5 million, growing from $1m only 2 years ago. Due to the growth of the business, Platinum have hired you to review their system for the purchase, receipt, storage, and issuance of raw materials. Ms James has already had some basic discussions with key staff and has provided you with the detail below:

Storeroom: The storeroom is run by the Storeroom supervisor and three staff. The storeroom is locked with Storeroom staff requiring a password to access the room. The primary raw materials kept in the storeroom are high cost electrical components, which are often small in size. Raw materials are removed from the storeroom only upon written or oral authorisation by a production supervisor. Ordered materials: Ordered materials are delivered directly to storeroom staff. The staff members count all items received and check that the count agrees with the details on the packing slip received with the goods. The packing slip is then initialled, date stamped and used as a receiving report for the order. The stamped packing slip is scanned and emailed to the purchasing team who file it with the purchase order. The stamped packing slip is placed in a file on a shelf in the storeroom.

Purchasing team: The purchasing team clear their emails at the beginning of each day. All stamped packing slips are printed and reviewed with the following possible outcomes:

The packing slip is matched to a valid purchase order found in the Open Purchase Order file – it is filed in the filled purchase orders file pending receipt of a valid tax invoice for payment.

The packing slip does not have a corresponding purchase order - it is filed in an outstanding items file and followed up at the end of the month.

The quantity or items on the packing slip are different to the approved purchase order - it is filed in an outstanding items file and followed up at the end of the month.

Purchasing team: The purchasing team also receive the invoice directly from the supplier. All invoices are paid on the due date and filed with the purchase order and packing slip to be reconciled at the end of the month.

Inventory System: Platinum have not implemented a perpetual inventory system. Storeroom staff are therefore not required to keep records for the goods received or issued. To manage this, inventory is reconciled at the end of each month when the storeroom staff perform a physical inventory count.

Ordering of raw materials: The Storeroom supervisor uses the physical count to match quantities on hand against Platinum’s predetermined reorder level. If the count is below the reorder level, the supervisor enters the items inventory number on a materials purchase requisition list that is emailed to the purchasing area.

Purchasing raw materials: Upon receipt of a materials requisition form, the purchasing team prepares a purchase order for each item on the list and emails it to the supplier from whom Platinum last purchased the item. A copy of the Purchase order is retained in the Open Purchase Orders file.