SpeeDIY Sdn. Bhd. is an online Do-It-Yourself (DIY) store located in Sintok that provides home delivery of DIY products purchased via the Internet. SpeeDIY uses a fully integrated accounting system and practices automated Economic Order Quantity (EOQ) model in managing its inventory. For each registered item in the inventory database, the system specifies quantity on hand and a desired quantity on hand. When the quantity on hand falls below the desired quantity on hand, a notification automatically pops up on the purchasing clerk's computer screen, alerting the clerk to reorder the item. The purchasing clerk can proceed with the reordering of items simply by checking the acceptance box. When the acceptance box is checked, the purchase order transaction file is created. In addition, the vendor is notified electronically through a transmission from the purchasing system. The purchasing clerk prepares a purchase summary report to his manager at the end of the day.

SpeeDIY warehouse has a large spacious area and stores massive quantities of inventory. There are three access doors which are opened at 8 a.m. and locked at 5 p.m. every day. Item ordered will be delivered through the main access. Every day, a high volume of items ordered are received and managed by a warehouse manager and a clerk. Due to a limited number of employees in the warehouse, staff from other departments often called to assist in receiving and storing the received items. When the items are received from the vendor, a packing slip is attached. The warehouse clerk keys in the purchase order number to retrieve the electronic purchase order from the system and accepts the purchase order as appears on the screen. The system then generates receiving summary report and updates inventory master files. Bar codes, which are automatically printed in the warehouse department, are used to label the boxes received. The items are stored in the warehouse.

Upon acceptance, accounts payable balances are updated automatically. As agreed with suppliers, all payments are due within seven days after receipt of shipped items. When a payment is due, a screen pops up in the account payable clerk's computer notifying that a payment is to be made. The account payable clerk connects to SpeeDIY’s electronic banking system via the bank's website and initiates payments to all vendors via electronic transfers. A confirmation number is received from the bank simultaneously when entering the payment transaction and the account payable clerk enters the confirmation number into the SpeeDIY’s computer and the account payable balances are updated.

The 4 weakness in the purchasing system are:

The expected quantity and actual quantity on hand are not crossed checked by any person manually.

The entry is made by an employee for all the items received in the warehouse which leads to a possibility of committing an error and fraud on the part of the employee.

The staff members from other departments are called for to fulfill the requirement of purchase department. The limited no. of employees may hamper the work and the staff from other department may not be skilled enough to complete the task.

Most of the activities in the warehouse are done automatically without any manual check. Depending solely on technology is also one of the weaknesses.

Risk exposure for each weakness:

The expected quantity and actual quantity on hand are not crossed checked by any person manually- The actual and desired inventory may be incorrect due to theft, spoilage etc.

The entry is made by an employee for all the items received in the warehouse which leads to a possibility of committing an error and fraud on the part of the employee- Wrong entry made by the employee.

The staff members from other departments are called for to fulfill the requirement of purchase department. The limited no. of employees may hamper the work and the staff from other department may not be skilled enough to complete the task- The efficiency of work will be hampered.

Most of the activities in the warehouse are done automatically without any manual check. Depending solely on technology is also one of the weaknesses- There is a risk of authenticity of the data being hampered.

Improvement to remove risk:

In first case, an audit committee can be set up to keep a manual tab on inventory.

In second case, segregation of duties can be opted.

In third case, more skilled staff can be hired.

In fourth case, regular monitoring and tight security controls can help in maintaining the authenticity of the data.

Required:

d) Suggest FOUR (4) input controls to ensure data input integrity in SpeeDIY’s purchasing and cash disbursement system.

e) For each suggestion in (d), define and provide ONE (1) appropriate example to support your

Question

SpeeDIY Sdn. Bhd. is an online Do-It-Yourself (DIY) store located in Sintok that provides home delivery of DIY products purchased via the Internet. SpeeDIY uses a fully integrated accounting system and practices automated Economic Order Quantity (EOQ) model in managing its inventory. For each registered item in the inventory database, the system specifies quantity on hand and a desired quantity on hand. When the quantity on hand falls below the desired quantity on hand, a notification automatically pops up on the purchasing clerk's computer screen, alerting the clerk to reorder the item. The purchasing clerk can proceed with the reordering of items simply by checking the acceptance box. When the acceptance box is checked, the purchase order transaction file is created. In addition, the vendor is notified electronically through a transmission from the purchasing system. The purchasing clerk prepares a purchase summary report to his manager at the end of the day.

SpeeDIY warehouse has a large spacious area and stores massive quantities of inventory. There are three access doors which are opened at 8 a.m. and locked at 5 p.m. every day. Item ordered will be delivered through the main access. Every day, a high volume of items ordered are received and managed by a warehouse manager and a clerk. Due to a limited number of employees in the warehouse, staff from other departments often called to assist in receiving and storing the received items. When the items are received from the vendor, a packing slip is attached. The warehouse clerk keys in the purchase order number to retrieve the electronic purchase order from the system and accepts the purchase order as appears on the screen. The system then generates receiving summary report and updates inventory master files. Bar codes, which are automatically printed in the warehouse department, are used to label the boxes received. The items are stored in the warehouse.

Upon acceptance, accounts payable balances are updated automatically. As agreed with suppliers, all payments are due within seven days after receipt of shipped items. When a payment is due, a screen pops up in the account payable clerk's computer notifying that a payment is to be made. The account payable clerk connects to SpeeDIY’s electronic banking system via the bank's website and initiates payments to all vendors via electronic transfers. A confirmation number is received from the bank simultaneously when entering the payment transaction and the account payable clerk enters the confirmation number into the SpeeDIY’s computer and the account payable balances are updated.

The 4 weakness in the purchasing system are:

The expected quantity and actual quantity on hand are not crossed checked by any person manually.
The entry is made by an employee for all the items received in the warehouse which leads to a possibility of committing an error and fraud on the part of the employee.
The staff members from other departments are called for to fulfill the requirement of purchase department. The limited no. of employees may hamper the work and the staff from other department may not be skilled enough to complete the task.
Most of the activities in the warehouse are done automatically without any manual check. Depending solely on technology is also one of the weaknesses.

Risk exposure for each weakness:

The expected quantity and actual quantity on hand are not crossed checked by any person manually- The actual and desired inventory may be incorrect due to theft, spoilage etc.
The entry is made by an employee for all the items received in the warehouse which leads to a possibility of committing an error and fraud on the part of the employee- Wrong entry made by the employee.
The staff members from other departments are called for to fulfill the requirement of purchase department. The limited no. of employees may hamper the work and the staff from other department may not be skilled enough to complete the task- The efficiency of work will be hampered.
Most of the activities in the warehouse are done automatically without any manual check. Depending solely on technology is also one of the weaknesses- There is a risk of authenticity of the data being hampered.

Improvement to remove risk:

In first case, an audit committee can be set up to keep a manual tab on inventory.
In second case, segregation of duties can be opted.
In third case, more skilled staff can be hired.
In fourth case, regular monitoring and tight security controls can help in maintaining the authenticity of the data.

Required:

d) Suggest FOUR (4) input controls to ensure data input integrity in SpeeDIY’s purchasing and cash disbursement system.

e) For each suggestion in (d), define and provide ONE (1) appropriate example to support your

Accepted Answer

Internal control is an important part of every organization. It helps in maintaining the efficiency…