Question

Prepare a document flowchart to depict the following partial process from the Purchasing transaction cycle of Smith Corporation.

When raw materials are needed for production, the factory manager sends a written request (requisition form) to the Purchasing Department to initiate the ordering process with the vendor. A copy of this form in kept with the factory manager and the file is organized by date of the request. For orders above $10 thousand, a written approval from the CFO is needed for the Purchasing Dept to proceed to placing the Purchasing Order "PO") with the vendor. The process in the CFO order is for staff to initially review the request and to tract the cumulative amount of PO's issues for raw materaials for the quarter. Assuming everything looks in order, the request is forwarded to the CFO for signature. If there are problems with the request, the staff will loop back to the Purchasing Department for clarification. Once the signed approval is in hand, the Purchasing Dept issues the PO and staples a copy of the PO to the approval form and also to a copy of the initial request - all of these are filed by vendor name. As a courtesy (or "heads up"), the Purchasing Dept also send a copy of the PO to the accounts payable Dept to help the financial people forecast cash flow/liquidity.

Additionally, please answer the following questions:

Do you see a good control or two in place?

Do you remaining risks as to efficiency or similar attricbute relative to the current state of the process described above?

What are the actual documents generated in this process?

If you were auditing this process, where might be the best place to look first? Why?

Any improvements you might suggest to the process from an advisory perspective?

Answer 1

1. The control implied by the organization seems to be effective and good as the purchase order are made only after the proper approval is taken in measure to counter any risk of fraud or mistatements at the purchase of raw material for the manufacturing of goods.

2. There exists a risk of efficiency in the process followed by the organization for the amount exceeding 10k order.

• As the documents are prepared by the purchase department and then sent to CFO , who further sends then to employees, who again checks for any Fraud risk.
• Then CFO approves the same.
• Thereafter , these documents are again sent back to purchase department. This , whole process may take a long time in sending purchase Order. Thus may effect manufacturing process of the organization.
• Thus , the process followed for approval is too lengthy and time consuming . Making it ineffective.

3. Documents generated in this process are as follows.

• Written Request (Requisition form ) by factory manager.
• Purchase order by purchasing department.
• If purchase order is above 10k then , approval form for CFO.
• Then , atlast copy of Purchase Order for financial department for liquidity analysis.

4. As an auditor , the following were the steps to be looked at

• The ''Purchase order '' and "Requisition form " should be compared at the first step for any difference between the two. If any must be reported in the auditors Report or communicted to the authorised person.
• For the CFO approval, the amount of purchase order should be checked , to ascertain that no purchase was made above 10k without , prior approval from the CFO.
• Working of the staff , done for the analysis of 10k purchase order must be obtained to ascertain whether computation was done in appropriate manner.

5. The improvement that can be made in the process may be as follows

• The purchase order should be imidiately sent to the vendor ,after the approval from the CFO , this will save time on the purchase process.
• The risk of alterations to be made by the purchase department after the approval is received is also reduced by this step.
• Further, for Purchase of raw material above 10k the Requisition form can be directly sent to CFO , insted of purchase department.