7. | Purchases could be recorded at incorrect, amounts; that is, at amounts other than those stated on the invoices or pre-arranged with ‘Accuracy of expenditure ay ‘Valuation of accounts payable inaccurate) could be made to suppliers. @ suppliers, Q a 8. | Notall purchases (and corresponding ‘Completeness of expenditure liabilities) could be recorded in the accounting | (1) records. Completeness of accounts aq) payable Wrong payments (fictitious, duplicated, @ Occurrence and accuracy of payment transactions @ QUESTION 15 Available marks [25]; maximum marks [20] LEVEL 2 Weaknesses and recommendations [25 marks] Suggested solution IDENTIFY AND EXPLAIN WEAKNESS RECOMMENDATION Failure to identify the appropriate number of tea packets needed to be purchased could lead to tea becoming stale (as the number of tea packets required is overestimated), thereby contributing to financial losses for the company. a Sales forecasts and budgets should be prepared based on market research or historical sales data. a Failure by Mr Louis Flether (storeman) to submit purchase Regular inventory counts and reviews of balances in perpetual inventory records should be performed in order to identify low levels of inventory. (1) The supervisor should authorise each requisition before it is sent to 2urequisitions to the warehouse the procurement department for supervisor for authorisation could _/ further processing lead to goods being ordered that | (1) are not needed by the entity, or incorrect goods being requisitioned. (3) 212The supervisor should inspect the supporting documentation attached and cross-referenced to the requisition (such as the sales order or the inventory reorder report) a Goods being ordered from one supplier only (just one quotation submitted) could result in excessive prices being paid to the supplier, which could result in financial losses for the company. ( The company should have a policy stating that at least three quotations should be obtained from suppliers. ay Goods being ordered from inappropriate suppliers (suppliers who cannot deliver on time) could result in dissatisfied customers and subsequent financial losses for the company. ao Both Mr Lynol not reviewing the file of all purchase orders for any missing purchase order numbers, and Mrs Ndungu communicating orders only telephonically could result in purchase orders not being executed, which could result in a loss of sales and dissatisfied customers. (1) Appropriate suppliers should be sourced and approved by senior staff members. An approved suppliers list should be prepared. (1) Mr Lynol should regularly review the purchase order file for any missing purchase order numbers, following up on orders that have not been submitted. (1) No segregation of duties (Mr Lynol both approves the purchase orders and receives goods at the receiving bay) could result in him receiving goods for his personal benefit, thereby defrauding the company. () Mr Ndgunda should inform suppliers formally (by sending them purchase orders) about the orders being placed with them. (1) ‘An independent clerk should receive the goods at the receiving bay. The warehouse supervisor should supervise the receiving of goods. a 213The purchase order is not compared to the supplier's delivery note, which could result in goods being received that have not been ordered. a The goods receiving clerk should agree the supplier's delivery note with the purchase order (agree quantities and descriptions) before accepting the goods. a Damaged goods or those of inferior quality could be received, which could result in inventory and financial losses for the company. (a The goods receiving clerk should inspect goods for damage or inferior quality before the supplier's delivery note is signed and the goods are accepted. @ 214Inaccurate quantities of inventory could be recorded on the GRNs, which could result in the over- or understatement of purchases and inventory. (1) A second staff member in the warehouse section should check the GRNs to the actual quantities of goods received before accepting the goods into the warehouse. (1) Only three copies of the GRNs are made, which does not allow the requisition department to match them with the requisitions. This could result in new requisitions being raised for goods already received (resulting in double costs) or no goods being received for a requisition not acted upon, which could lead to out-of-stock situations. e) Four copies should be made of the GRNs, and not three. The fourth one should be sent to the requisition department. (cn) Supplier's invoices could be recorded inaccurately in the accounting records since nobody reviews the calculations. e) Accounts payable clerk should reperform all calculations on the suppliers' invoices before they are recorded, a Any other valid weakness and corresponding explanation a Any other valid recommendation a Available marks [12] Available marks [15]; maximum marks [13] Question 16 LEVEL 2 Weaknesses and recommendations [30 marks] Suggested solution umse | IDENTIFY AND EXPLAIN R WEAKNESS 142) | Failure to Identity the appropriate quantity of food RECOMMENDATION Pre-programmed limit checks should be installed in the 215