Question

The following cases describe internal control structures for companies. (a) When Sharon Leung, purchasing agent for Charlie Cosmetics Ltd., orders materials, she sends a duplicate copy of the purchase order to the receiving department. When materials are received, Joe Chang, receiving clerk, records the date of receipt on the copy of the purchase order but does not count the goods received. The same copy of the purchase order is sent to accounting, where Lisa Ho uses it to support the purchase entry in the voucher register. The copy is then sent to raw materials stores, where William Kwok uses it to update the perpetual inventory cards. (b) At Halfiva Manufacturing Company Ltd., timecards of 450 employees are collected weekly by the supervisor and delivered to the data- processing department. There the cards are sorted and the hours are entered on to magnetic tape, and then input into the computer. These records are used to prepare individual payroll records, pay cheques and for labour cost distribution records. The payroll cheques are compared with individual payroll records and signed by the treasurer, who returns them to the data processing supervisor for distribution. (c) A sales branch of Rocklin Manufacturing Company Ltd. has an office force consisting of the branch manager, Ida Pong, and two assistants, Tony Fung and Jerry Mok. The branch has a local bank account in which it deposits cash receipts. Cheques drawn on the bank account require Pong's signature or the signature of Roger Tong, treasurer of the company. Bank statements and paid cheques are returned by the bank to Pong, who retains them in his files after preparing the monthly bank reconciliation. Reports of disbursements are also prepared by Pong and submitted to Tong at the home office on scheduled dates. For each of the internal control structures described, point out: *) the weaknesses, if any, that exist. (i) the material errors or irregularities, if any, that might occur because of those weaknesses. (iii) give your recommendations for improvements in the system. (AICPA adapted)