DinZee Co assembles fridges, microwaves, washing machines and other similar dome

Question

DinZee Co assembles fridges, microwaves, washing machines and other similar domestic appliances from parts procured from a large number of suppliers. As part of the interim audit work two weeks prior to the company year-end, you are testing the procurement and purchases systems and attending the inventory count. On the day of the inventory count, you attended Depot 9 at DinZee. You observed the following activities: 1. Prenumbered count sheets were being issued to client’s staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory. 2. All count staff were drawn from the inventory warehouse and were counting in teams of two. 3. Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted. 4. Information was recorded on the count sheets in pencil so amendments could be made easily as required. 5. Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets which were numbered by staff as they were used. 6. At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.

Required: In relation to the information provided above: i. Identify four (4) weaknesses in the internal control of counting inventory at Depot 9. ii. For each weakness, explain why it is a weakness. iii. For each weakness, suggest a change that would minimise the weakness.

Explanation / Answer

Answer: Weaknesses observed in the internal control of counting of inventory at Depot 9:

1) The count sheets showed the inventory ledger balances for checking against physical inventory. :

Weakness: The count sheet should only show the material code and not the inventory ledger balance as it could lead to misappropriation by the counting staff in case he is an interested party. The counting staff shoud mention the physical quantity against the material code and reconciliation with ledger balance should be performed by another person. This will ensure proper segregation od duties.

2) All count staff were drawn from the inventory warehouse and were counting in teams of two.:

Weakness: There should be at least one Independent person (may be from another warehouse), to avoid any possibility of collusion between the staff

3) The teams were allowed to decide which pair of staff counted which inventory within each area.

Weakness: The allocation of duty should have been done in such a manner as to have atleast one independent person within each area.

4)  Information was recorded on the count sheets in pencil so amendments could be made easily as required.

Weakness: It would be more appropriate to use ball pen to record the count to avoid any misappropriation at the later stage.

5) At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.:

Weakness; The sheets should be signed by the counting staff to fix the responsibility & accountability at the later stage.  

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.