Sampin & Songkok Enterprise (SSE) - Table of Entities and Activities

Entity Paragraph

Inventory Clerk 1

Purchasing Clerk 2

Receiving clerk 3

Storekeeper 4
Inventory Clerk 4

Accounts Payable 5

Accounts Payable 6

Manager 6
able of Entities and Activities

Activity
1. checks the inventory subsidiary ledger in PC

2. identify inventory items that need to be

replenished.
3. sends email to the purchasing clerk requesting
for a purchase order
4. the clerk makes a phone call to purchasing
clerk informing of the urgent request

5. checks email requesting a purchase order

6. notes down all details
7. selects a supplier from supplier records in the
computer
8. prepares and prints three copies of purchase
order

9. forward first copy of the purchase order to

supplier forward second copy of the purchase
order to receiving department

10. files third copy of the purchase order in

purchase order file
11. temporarily files the purchase order

12. inspects goods and reconciles the items

against the purchase order and the packing slip

13. prepares four copies of receiving report

14. sends first with the goods to the store room

15. sends second copy to accounts payable

16. sends third copy to inventory control
17. files fourth copy with the packing slip and
purchase order in an inventory received file
chronologically

18. updates the inventory subsidiary ledger in

the computer.
19. files the receiving report
 20. updates the inventory control account in
General Ledger
21. files the receiving report in a receiving
report file
22. temporarily files the receiving report
23. match receiving report against the invoice

24. update purchases journal, Accounts Payable

subsidiary ledger and Accounts Payable General
Ledger.
25. files the receiving report and the supplier's
invoice

26. reviews the Accounts Payable subsidiary

ledger in the computer to determine due
liabilities
27. prepares the payment voucher
28. prints a hard-copy of the payment voucher

29. prepares check for the payment voucher

30. sends check and payment voucher to the

manager for approval and signature.

31. mail signed check to supplier

32. files approved payment voucher with

receiving report and supplier's invoice.

33. updates the payment in the Accounts

Payable subsidiary ledger and the Accounts
Payable General Ledger

34. Approve payment voucher and signs check

 Purchase and Cash
Disbursement System

purchase order

packing slip
Supplier

invoice
 Inv sub
ledger
Suppliers file Supplier
inv level
supplier's PO 1
details

1.0 Packing Inv sub

Monitor slip ledger
email 2.0
inventory Prepare
records Purchase 4.0
Order (PO) RR 1 inv received
3.0 Update inv
PO 2
sub ledger
Receive
goods

RR 2

RR 3
Supplier
6.0
inv details 5.0 Invoice
Update
Inv gen Update inv Account Purchase
ledger gen ledger Payable details Purchase journal

Invoice check
details
AP sub
Invoice ledger
details
Amt due &
due date
Payment
details
AP gen
ledger
Payment
details 7.0

Prepare &
update
payment
 Inv Control Purchasing Receiving

PO2 Supplier
Email

Check Supplier
Inv sub inventory & record
ledger send email File
packing slip
Print PO

PO2
Supplier
Email
PO1

PO2

Check &
PO3 reconcile
Prepare RR

RR1

RR3 RR2
B
RR3

RR4
A
General PO2
Update ledger

packing slip

RR3
 Store room AP

B
RR1
Supplier
RR2

Temp
Invoice
Inv sub
Update ledger
RR4
General
ledger

RR1 AP update

Purchase
journal AP sub
ledger

Invoice
RR4

Prepare and
update payment

Approved
Payment
voucher
Signed
Check

Supplier
 Assess at least THREE (3) possible strengths of internal
control procedures that are present in the SSE’s purchase
and cash disbursement system. Justify each of the strength
identified.

No. Strength

Inventory control clerk monitors inventory level before

1
requesting the purchase order

Authorization of purchase order by the inventory control

2 department (although no proper document i.e. purchase
requisition is used).

3 Computer login password.

4 Installation of CCTV and employ security guard

5 The cheque book is kept is a safe and locked cabinet.

Weakness, associated risk and internal control procedure

No. Weakness (c)

No proper purchase requisition and authorization. Only

1
use email to initiate the purchase order

The receiving clerk uses the purchase order and the

packing slip to reconcile with the goods received. Does
2
not use the blind copy of the purchase order to verify the
goods received

Storekeeper should not be updating the inventory

3 subsidiary ledger. The storekeeper has asset custody
and record keeping responsibility.
 AP Clerk does not perform a three-way match. The clerk
4 sets up a liability based only on a receiving report and
the vendor’s invoice, but no PO.

The AP clerk should not update the general ledger AP

5
Control account.

The AP clerk should not prepare checks and perform the

recordkeeping (i.e. AP subsidiary ledger and the AP
6
Control account in the GL). The AP clerk has asset
custody and record keeping responsibility.

Manager approves and signs check without verifying with

7
supplier’s invoice (i.e. only referring to payment voucher)
 Justification
Ensure that stock items are sufficient and
order is made only on items that reach
reorder level.
Segregating the authorisation of purchase
requisition and the preparing PO ensure that
only approved orders are processed.

Access control to prevent unauthorized

access.
CCTV is beneficial in monitoring activities
inside/outside the outlet. Employing guard
can safeguard the premise from unauthorized
access. Both are important preventive
measures.

The cheque book is another crucial

company’s resource. Making the cheque
book accessible to anyone may cause
fraudulent act by the unauthorised employee
e.g. forging the cheque for unapproved
payment.

Risk (d) Internal control procedure (e)

Several risk possibilities by the purchasing
Inventory control department should issue
clerk which includes miss/overlook/delete the
purchase requisition to initiate the purchase
email, error in preparing PO, prepare PO for
order
the same email twice.
Purchasing department should issue the
This situation would allow the receiving clerk
blind copy of the purchase order to ensure
to complete a receiving report without actually
the receiving clerk performs actual counting
counting and inspecting the items.
and inspecting the items
Segregation of duties should be
implemented for asset custody and record
The storekeeper could steal inventory and
keeping responsibility. Updating the
adjust inventory records to conceal the theft.
inventory subsidiary ledger should be
assigned to inventory control department

The company may be paying for items not
ordered.
With access to both the sub ledger and
control account, discrepancies caused by
errors and fraud can be concealed.
The clerk prepares check and updates the AP
subsidiary and GL accounts. The clerk could
set up a fraudulent AP and pay it (vendor
fraud).
The clerk could set up a fraudulent payment All payment vouchers must be supported by
voucher and pay it (vendor fraud).
A three-way match or reconciliation of
purchase order, receiving report and the
vendor’s invoice should be performed. The
purchasing department should prepare and
issue a copy of the purchase order to AP
department for the purpose
The AP clerk should only be assigned to
maintain AP subsidiary ledger whereas
maintaining the general ledger AP Control
account should be assigned to GL
function/department. This is important to
ensure independent verification in the
system
Segregation of duties should be
implemented for asset custody and record
keeping responsibility. Hence, cash
disbursement function need to be created for
the purpose of preparing check. Meanwhile,
AP clerk is only assigned to maintain AP
subsidiary account as stated above.
original supplier’s invoice