5. Solution to AV Safety, Inc. (Manual and Standalone Computer Processing) a), b), See diagrams on the following pages. c) Internal Control Weaknesses Purchases Procedures 1) The inventory clerk in the warehouse department has asset custody, transaction authorization and record keeping responsibility. 2) The receiving clerk prepares the receiving report from the packing slip information. The receiving department clerk should receive a ‘blind copy’ of the purchase order to force the receiving clerk to count and inspect the items before preparing the receiving report. 3) Accounts Payable does not verify that the good have been received via a receiving report. Payment approval is based on a PO and invoice only. 4) A copy of the PO is sent to the General Ledger, presumably for updating purposes. Its use, however, is unclear from the case. Only journal vouchers should be used to update the GL accounts. Cash Disbursements Procedures 5) The company may be paying for items not received. The cash disbursement voucher is based on a flawed process to set up the AP. A proper 3-way match needs to be performed prior to establishing the liability. 6) No valid vendor file is used to approve payment. 7) No formal Journal vouchers are used to update the General Ledger.
5. Solution to AV Safety, Inc. (Manual and Standalone Computer
Processing)a), b), See diagrams on the following pages.c) Internal
Control WeaknessesPurchases Procedures1) The inventory clerk in the
warehose department has asset cstody, transaction athori!ation and
record keeping responsibility.") The receiving clerk prepares the
receiving report from the packing slip information. The receiving
department clerk shold receive a #blind copy$ of the prchase order
to force the receiving clerk to cont and inspect the items before
preparing the receiving report. %) &cconts 'ayable does not
verify that the good have been received via a receiving report.
'ayment approval is based on a '( and invoice only. )) & copy
of the '( is sent to the *eneral +edger, presmably for pdating
prposes. Its se, however, is nclear from the case.(nly ,ornal
vochers shold be sed to pdate the *+ acconts. Cash is!ursements
Procedures-) The company may be paying for items not received. The
cash disbrsement vocher is based on a flawed process to set p the
&'. & proper %.way match needs to be performed prior to
establishing the liability. /) 0o valid vendor file is sed to
approve payment. 1) 0o formal 2ornal vochers are sed to pdate the
*eneral +edger. 3evised &4 Safety, Inc. System Stdent responses
will vary for this part of the assignment.0otwithstanding the
internal control isses already covered that need to be addressed,
&4 Safety$s new system design cold reflect featres similar to
those in figre 15.%
