Chapter 10
Internal control Purchase system
General weaknesses in purchase system :
1. Purchase orders are not sequentially numbered.
2. Purchase order not being authorised or only an order over a certain amount being
authorised.
3. Not using any specific approved supplier and ordering from anyone
4. Unnecessarily delaying payments to suppliers.
5. Senior personnel viewing the total payments not the entire list.
6. Reconciliation not on a regular basis.
7. Invoices manually checked against G.R.N.
8. Goods being received without checking against a purchase order.
9. Just checking the quantity of the goods instead of the quality on receival of order.
10. Inventory records not being perpetual.
11. Purchase order being authorised by just one person or not even a single person at all.
12. Placing orders without consulting the sales manager.
Fox indrustries :
, Following weaknesses were identified during the course of the audit work which has
primarily been conducted to express an opinion on the financial statements.
Weakness Recommendation
Purchase orders are not sequentially All purchase orders should be sequentially
numbered. If any order goes missing it will numbered and a sequence check should be
be very hard to track and trace it. performed at regular intervals with any
missing orders being identified and
reported.
Savings account is reconciled at a 2 month Like the current account the savings
interval, this will lead to errors and account should also be reconciled regularly
discrepancies not being identified on a so that any errors are identified on a timely
timely basis causing problems in the future. basis and are resolved before the situation
gets out of hand.
Fox company has a policy of delaying The policy of delaying payments should be
payments to suppliers. This policy can cause reviewed and suppliers should be paid on a
the loss of supplier goodwill giving the timely basis so that the company can
company a bad reputation in the market as maintain its supplier goodwill.
well. This will also lead the company to miss
out on early settlement trade discounts.
Only orders above 5000 $ require All purchase orders regardless of the
authorisation. A person who wants to amount on them should require purchase
commit fraud will make unnecessary small authorisation so that fraud chances are
purchases ensuring that he orders in small minimised.
pieces all below 5000 $ as to avoid any
authorisation.
Company is choosing those suppliers who An approved supplier list should be created
can despatch the goods first, this can result considering all important factors like speed,
the company getting goods with a low price, quality etc. All purchases then must
quality but at a higher price because the be made by the approved supplier list.
only factor being considered here is the
delivery time.
This report only states those weaknesses that were found during the course of the audit.
Had a more detailed examination been done we would have found more weaknesses. This
report is for the sole use of the management and must not be disclosed to any third party
without permission of the auditor. We thank Fox company for their cooperation with us
during the audit.
Internal control Purchase system
General weaknesses in purchase system :
1. Purchase orders are not sequentially numbered.
2. Purchase order not being authorised or only an order over a certain amount being
authorised.
3. Not using any specific approved supplier and ordering from anyone
4. Unnecessarily delaying payments to suppliers.
5. Senior personnel viewing the total payments not the entire list.
6. Reconciliation not on a regular basis.
7. Invoices manually checked against G.R.N.
8. Goods being received without checking against a purchase order.
9. Just checking the quantity of the goods instead of the quality on receival of order.
10. Inventory records not being perpetual.
11. Purchase order being authorised by just one person or not even a single person at all.
12. Placing orders without consulting the sales manager.
Fox indrustries :
, Following weaknesses were identified during the course of the audit work which has
primarily been conducted to express an opinion on the financial statements.
Weakness Recommendation
Purchase orders are not sequentially All purchase orders should be sequentially
numbered. If any order goes missing it will numbered and a sequence check should be
be very hard to track and trace it. performed at regular intervals with any
missing orders being identified and
reported.
Savings account is reconciled at a 2 month Like the current account the savings
interval, this will lead to errors and account should also be reconciled regularly
discrepancies not being identified on a so that any errors are identified on a timely
timely basis causing problems in the future. basis and are resolved before the situation
gets out of hand.
Fox company has a policy of delaying The policy of delaying payments should be
payments to suppliers. This policy can cause reviewed and suppliers should be paid on a
the loss of supplier goodwill giving the timely basis so that the company can
company a bad reputation in the market as maintain its supplier goodwill.
well. This will also lead the company to miss
out on early settlement trade discounts.
Only orders above 5000 $ require All purchase orders regardless of the
authorisation. A person who wants to amount on them should require purchase
commit fraud will make unnecessary small authorisation so that fraud chances are
purchases ensuring that he orders in small minimised.
pieces all below 5000 $ as to avoid any
authorisation.
Company is choosing those suppliers who An approved supplier list should be created
can despatch the goods first, this can result considering all important factors like speed,
the company getting goods with a low price, quality etc. All purchases then must
quality but at a higher price because the be made by the approved supplier list.
only factor being considered here is the
delivery time.
This report only states those weaknesses that were found during the course of the audit.
Had a more detailed examination been done we would have found more weaknesses. This
report is for the sole use of the management and must not be disclosed to any third party
without permission of the auditor. We thank Fox company for their cooperation with us
during the audit.
