Question

June 12, 2019 Dear Members of ACC 331 As CFO of Diaz-Dillion's Diamonds (DDD), I would like to engage your services and the services of your firm to provide recommendations for the following situation Last year DDD purchased over $100 million worth of office equipment under its "special ordering" system, with individual orders ranging from $5,000 to $40,000. Special orders are for low-volume items that have been included in a department manager's budget. The budget, which limits the types and dollar amounts 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 for functions as follows: Purchasing: A purchase requisition form (PR) is prepared and sent to the purchasing department. Upon receiving a PR, 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 catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A purchase order (PO) 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 PO is transferred from the open to the filled file. Once a quarter, the buyer reviews the unfilled file to follow up on open orders a. Describe the weaknesses relating to purchases of "special orders" at DDD b. Provide recommendations that must be added to mitigate weaknesses identified in part My team of advisors would really appreciate your advice. Sincerely, CFO, Diaz-Dillion's Diamonds (DDD)

Answer 1

Part A - Weakness	Part B – Recommendations
1. The purchasing agent (buyer) failed to verify if the request of department head is within budget.	It is essential to compare budgeted amount requested for purchase and year to date expenditures to control cost.
2. No systematic process was developed and undertaken to ascertain that the prices obtained are the best prices.	The vendors should be asked to submit quotation or bids for large orders.
3. The purchasing agent (buyer) failed to verify the past performance of vendor.	The checklist and performance report for vendor should be prepared. It should be used every time while selecting the vendor for order placement.
4. At the time of receiving order, the cross checking order quantity was not performed through blind counts.	The paper documents are being used then the quantity ordered field should be blacked on receipt of department’s copy of Purchase Order. Moreover, an employee should be offered incentive who detects the discrepancies between packing slip and actual delivery.