Question

Case Study 2 Last year the AMS Manufacturing Company purchased over 10 million worth of office equipment under its special ordering system, with individual orders ranging from 55.000 to $30.000 Special orders are for low-volume items that have been included in a department manager's budget. The budget, which limits the types and dollars of office equipment a department head can requisition, is approved at the beginning of the year by the board of directors. The special ordering system functions as follows A purchase requisition form is prepared and sent to the purchasing department. Lipom receiving a purchase requisition, one of the five purchasing agents (buyers) Verifies that the requester is indeed a department head. The buyer next selects the appropriate supplier by searching the various catalog on file. The buyer then phones the suppliet, requests a price quote and places a verbal order. A pre-numbered purchase order is processed with the original sent to the supplier and copies to the department head, receiving and accounts payable One copy is also filed in the open-requisition file. When the receiving department Verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders The receiving department gets a copy of each purchase order. When equipment is received. that copy of the purchase order is stamped with the date and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The receiving ckrk then forwards the stomped purchase order and equipment to the requisitioning department head and verbally notifies the purchasing department that the goods were received Upon receipt of a purchase order the accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning department's pment account. Unpaid invoices are filed by due date. On the due date, a check is prepared forwarded to the treasurer for signature. The invoice and purchase order are the filed by purchase order number in the paid invoice file. Checks received daily from the accounts payable department ate sorted into two groups those over and those under $10,000. Checks for less than 510,000 are machine signed. The cashier maintains the check signature machine's key and sapnature plate and monitors its wic. Both the cashier and the treasurer sign all checks over $10,000. Required: Identify at least five activities for sub-processes within the expenditure process described above. (5 points) b. Identify five risks associated with the five activities identified on a. (5 points) c. Propose a control for each risk identified on b. (5 points)

Answer 1

a). The following are list of activities under the expenditure. Process is identified as follows:

Expenditure: purchase of office eqipment worth $10 million of various products ranging from $5000 to $30000.

i) departmental head sending requisition to the purchase department.

ii) after receipt of requisition purchase department verifies the product availability with the suppliers and asks them to quote the price for the requested quantity.

ii) after the prices are quoted the purchase department analyses the range of purchase prices quoted and the quality of the products and places the order verbally.

iii) after placing the order tge supplier provides with copy of purchase order and which also sent to the departmental head.

iv) after that the order is received by the receiving department wher quality testing and inspection is carried out.

v) later the products delivered are handed over to the stores from where the required department takes the required quantity for its operations.

b) the five risks associated are as follows:

i) as the chain is so long lead time will be more.

ii) more lead time leads to break in the operations of the comlany.

iii) idle time due to late receipt of goods if returned after testing due to defects.

iv) as the priduct specificatons are clearly known to the requested department there might be a mistake while ordering the product by the purchase deparment.

v) testing and inspection may take more time.

c) controls proposed are as follows:

i) order with more than one supplier.

ii) maintain safety or buffer stock.

iii)verify the particulars of order with the concerned requisition department before order is made.

iv) define time schedules preplanned for testing and inpection.