Fox industries
Deficiencies
No approved suppliers
There is no approves suppliers by BOD and the
supplier is being selected based on the lead time,
that is who can dispatch the goods first and it
may be possible that materials are purchased at
high rates or even poor quality can be purchased
and ultimately profitability can be reduced.
P.O.s are not sequentially pre-numbered
The purchase orders are not sequentially pre-
numbered and without numbering it cannot be
ensured whether the orders are complete or not
and as a result it may be difficult to monitor
whether all orders have been fulfilled and
chances of shortage of materials and stock out
cost may be faced.
In addition, accurate and complete track record
of purchases may not be maintained.
Authorization of purchases
Purchases are being authorized if it exceeds 5000
which means that below this amount, there is no
authorization and there are chances of claiming
fake or over stated amounts less than 5000
fraudulently and company would be facing the
loss.
Lack of application controls
The purchases ledger clerk is not applying any
application control over the input of the invoices
and without information processing control, it
may be not be ensured whether the invoices
input are accurate/complete and if wrong
invoices are input then chances of paying wrong
amounts to the supplier leading to loss of
supplier goodwill.
Manual posting to G.L
The purchase day book automatically updates the
purchase ledger and there is a manual posting
from purchase ledger to the general ledger and
due to the manual exercise, there are chances of
errors like fail to post or posting twice or even in
the wrong head and the purchase and payable
records may not complete/accurate.
Bank account reconciliation
Recommendations
There should be approved suppliers by BOD and
that before purchasing quotations should be
received from all the approved suppliers and
should consider the entire purchase mix like
quality, quantity, price, lead time before
purchasing so that good quality at reasonable
rates can be purchased.
All purchase orders should be sequentially pre-
numbered and at the day end, it should be
arranged serial wise so that all purchases can be
ensured to meet the requirements.
In addition, completeness and accuracy of record
can even be ensured.
Company should also investigate for any missing
orders.
All the purchases should be authorized regardless
of any amount and authorization responsibility
should be given to the managers for the different
range of amounts so that all the purchases can be
monitored and ensuring that purchases are being
made for the genuine business need.
There should be the application control over the
input of the invoices like control total, sequence
check so that accurate and complete invoices can
be input and maintaining the complete/accurate
record and paying to the suppliers the right
amount.
Processing of the purchases and payable records
should be automatic and that system of purchase
day book, purchase and general ledger should be
integrated and upon posting in the day book, all
ledger should be updated so that accurate and
complete record keeping can be ensured of
purchases and payables.
Current accounts are reconciled every week but
the saving accounts are reconciled after two
months and this is assumed to be the long time
period and errors may not be spotted on time.
In addition, employees may take the advantage
of it and may commit fraud and loss to the
company.
Delaying payments to suppliers
To maximize the own cash flow, the company is
delaying the supplier payment as long as possible
and made a policy of it and it may deteriorate the
relationship with the supplier and may not give
materials on credit in the future and also loss of
goodwill in the supplier market.
In addition, early settlement discounts can even
be lost.
FD is not reviewing the details
The FD is having the total list of payments which
he review and authorize for the payments and
not reviewing the detail of every supplier and
there are chances that amounts may be shuffled
in the list or may be wrong amount discounts to
the suppliers.
Saving accounts should also be reconciled weekly
or if not possible then at least monthly and that
reconciliation should be reviewed by the
responsible official.
Any errors should also be resolved on timely
basis for the purpose of accurate and complete
maintenance.
Suppliers should be paid on time and also availing
the early settlement discount. However, in case
of any delay, it should be pre agreed with the
supplier so that relationship with them can be
ensured and ensuring the continuity of purchases
of materials on credit in the future.
Each and every detail like amount, invoices, time
etc. of individual supplier should be reviewed by
the finance manager and then FD should conduct
a second review and authorize for the payment.
This is likely to assure that suppliers are being
paid the correct amount on time.