Question

Purchases Department Receiving Department Central Computer Facility Account Payable Department Warehouse Packing Slip D Vendor PO Invoice Rec Reprt Identify Items and Select Vendor Prepare Receiving report Accounting System Packing Slip Recomcile documents and set up Liability Reconcile and Update Inventory Rec Reprt PO have Hory Records Rec Reprt Rec Reprt PO Invoice D MECOURT Payable PO Rec Reprt Vendor

Required:

1. Describe the risks associated with the system depicted in the flowchart.
2. Describe the physical controls needed to mitigate each risks.

Answer 1

Answer:-

The key risks associated with this system include;

1. Risk of fire outbreaks in the warehouse
2. Risk of accepting goods without a physical count
3. Poor supply chain management
4. Accounting system failure

Explanation:

Question (a)The key risks associated with this system include;

• Risk of fire outbreaks in the warehouse

This is the risk that may faced in this system where there might be an outbreak of fire in the warehouse thus damaging the stored stock and inventories of goods resulting to losses (Emily, 2018). These fire outbreaks might be caused by electric faults.

• Risk of accepting goods without a physical count

During the process of receiving goods from various suppliers, there is likely a risk of receiving goods without making full physical count and therefore, distorting the amounts of quantities received by the organization. This thus causes inaccuracy in stock levels as well as payments for these supplies received. This failure to physically count all goods received may be cause by human or machine errors.

• Poor supply chain management

This is one of the risks that might faced by the purchasing department when sourcing or purchasing materials from various suppliers. In this regard, there might not be centralized, transparent and also easy-to-use method of evaluating suppliers. This exposes the organization to significant risks such as unscrupulous suppliers, false invoices, etc. (Rob, 2019).

• Accounting system failure

This is the risk associated with the use of the accounting systems within the organization. This might be caused by out-of-date software, physical damage of computers, etc.

Question (b) the physical controls needed to mitigate each risks

1. The risk of fire outbreaks in the warehouse can be mitigated by installing fire and smoke detectors, fire extinguishers, etc.
2. The risk of accepting goods without a physical count is by hiring adequate staff to undertake a physical count of goods received. An electronic count system should also be installed to enhance the accuracy of the physical counts made.
3. The risk of poor supply chain management can be managed by the adoption of artificial intelligence and a centralized procurement solution to make it to set up a supplier portal and fully automate its management and evaluation (Rob, 2019).
4. The risk of the accounting system failure can be mitigated by regularly updating the accounting software to enhance their efficiency and avoid being outdated. Also, accounting system failures can be managed by proper handling and storage of the computer systems to avoid breakdowns.