Revision question on internal control (NBAA, C2, NOV 2018)



You are the Internal Audit Manager of the Internal Audit Department of Kibo Textiles Mills Ltd. (KTML). Your Department is auditing the company’s procurement system. Extracts from your system notes, which are reliably correct (contain no errors) are provided as follows:

Details of the Ordering Department

  • (1) There are six members of staff, one purchasing manager and five purchasing clerks.
  • (2) The department receives about 75 orders per day. Many orders for duplicate items come from different departments in the organization.
  • (3) Initial evaluation of internal controls is very high.

Procurement systems:

Ordering Department

All orders are raised on pre-numbered purchase requisitions and sent to the Ordering Department.



In the Ordering Department, each requisition is signed by the Purchasing Manager. Then the Purchasing Clerk transfers the order information onto an order form and identifies the appropriate supplier for the goods.

One copy of the two-copied order form is sent to the supplier and the second copy to the Accounts Department. The requisition is then destroyed.



Goods Received Notes (GRNs) from the Inward Department are separated from Damaged Goods Notes (DGNs). The DGNs are filed while the GRNs forwarded to the Accounts Department.

Goods Inwards Department

All goods received are checked for damage. Damaged goods are returned to the supplier and a Damaged Goods Note (DGNs) is completed.

For undamaged items, a two-copied pre-numbered Goods Received Note (GRN) is filled.

-One copy of GRN is sent to the Ordering Department attached with the DGN.

– Second copy is filed in order of the reference number for goods being ordered (obtained from the supplier’s goods dispatched documentation), in the goods Inwards Department.

Accounts Department

The GRNs are matched with the orders awaiting the receipt of the invoice (s).

REQUIRED:

Using the system notes provided:

(i) Identify and explain the internal control weaknesses and provide a recommendation to overcome each weakness.
(ii) Identify and explain the additional weaknesses that should be raised by a value for money audit and provide a suitable recommendation to overcome each weakness.

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