Given the expenditure process, the following strengths and weakness in the internal control procedures of Melcher enterprises can be identified.
Strengths
Melcher expenditure process shows that the company is capable of purchasing high-quality products at favorable prices. The reason for this is that the company gets quotations from various suppliers as opposed to one single supplier.
Delegate your assignment to our experts and they will do the rest.
Melcher enterprises are in a position to buy given products when required and the orders can be made in exact required amounts. The process makes it possible for staff to avoid overbought situations that usually block funds and controls process sufficiently as provided by ( Turner, Weickgenannt, & Copeland, 2017) .
Melcher enterprises internal control process shows that accuracy is key as the managers in the purchasing department have to approve a PO before mailing is done.
The company also shows proper care for accounts as the PO prepared in four different sections are sent to a different department where they can be used in the future. Importantly, goods are returned if they do not have a PO.
The receiving reports prepared are produced in three copies which are then sent to different appropriate departments. It would be prudent for the company to send a separate copy to the department that controls inventory.
Efficiency is also assured as the accounts payable matches the PO, invoice, and the receiving PO before making payments. Additionally, the manager reviews the three documents that are matched.
Finally, checks are only prepared and signed by the treasure
Weaknesses
Melcher enterprises do not have a separate inventory control department that will maintain inventory records.
The warehouse employees request and make orders when they see that there is a need to add a product to the store. The process is thus discretionary and it gives the warehouse employees chances to request products that are not required. Importantly, the requisition should be made by the staff that controls inventory and not the warehouse ( Barwa, 2015) . In this case, all inventory items at Melcher enterprises need to have a pre-established reorder level.
Thirdly, Melcher staff compares the packing slips to the orders purchased as opposed to counting and inspection of the orders.
The staffs do record orders in the receiving report using the packing slip. There is thus discretion as recording should be done of a count made by employees receiving the orders. For this, the company needs to employ receiving personnel that will facilitate the job of counting and inspects goods as well as compile reports based on what they find.
The process of making a purchase is tedious and long. Employees first call for quotations from three different vendors when purchases are needed. Afterward, the vendors are analyzed critically for price and quality using the inviting quotations before a decision is made.
The process requires regular reports of stocks; therefore, the purchasing department has to keep monitoring reports and they have to set a re-order level. According to Barwa (2015), regular monitoring and making of reports are critical for the company and at this stage, purchases ordered by the warehouse department can be checked a second time to determine the necessity of the product to the company.
When the purchasing department places an order, buyers’ complete order from vendors by first looking at the last item purchased. Thus, the client has to depend on one vendor when buying goods. As a result, products may be sold at higher prices or favoritism may be experienced as the chosen vendor cannot be ruled out. The company’s system needs to have a system that does not use the last vendor automatically.
The process shows that there are no purchasing journals; therefore, Melcher enterprises need a system that will update the journals as purchases are made.
Generally, the internal control process has no full information about the records kept. Usually, record keeping needs detailed information about individuals that update the inventory, ledger records, and accounts payable.
Installation of a New IT System
Alternatively, Melcher enterprises have an option of adopting and new IT system that will process purchases, goods received, accounts payable, and checks. One major factor determining the benefits that the company will enjoy are dependent on the type of system to be installed. However, with the installation of the IT system, the company will experience benefits the reduce errors, decrease costs, improve efficiency and eliminate some manual work ( Pacheco, López, & Marín-Raventós, 2016) . Such benefits include the following benefits.
Benefits
Implementation of an IT system will monitor inventory automatically at all levels. Thus, it will be able to generate automatic purchase order whenever quantities of orders reach a point where reorder is required.
Also, the IT system will give managers timely feedback on inventory levels, details on expenditures, future expected cash flows, and items on order. Thus, the system will be better compared to the manual processes.
Recording of goods will be made effective as the IT system will record items ordered, received, or paid in real-time.
The IT system will ease the work of employees as it will eliminate paper handling as documents are forwarded from one department to the other. In this case, the IT system will store documents like receiving reports and the PO.
Further, the work of accounts payable personnel will be made easier with the IT system. This is so because the system will match the invoice, receiving report and PO leaving the staff to deal with reconciliation.
The IT system could eliminate the work of treasure of signing checks as it can print them.
Overall, the work at the company will be easier, faster, and efficient. Redundancy will be reduced as records and documents will be automatic. Additionally, database management system, a feature in the IT system will ensure that all jobs are consistent.
References
Barwa, T. M. (2015). Inventory Control as an Effective Decision-Making Model and Implementations for Company's Growth,". International Journal of Economics, Finance and Management Sciences , 3 (5), 465-472.
Pacheco, A., López, G., & Marín-Raventós, G. (2016, December). Visualizing IT budget to improve stakeholder communication in the decision making process. In International Conference on Research and Practical Issues of Enterprise Information Systems (pp. 277-290). Springer, Cham.
Turner, L., Weickgenannt, A., & Copeland, M. K. (2017). Accounting information systems: The processes and controls (3rd ed.). John Wiley & Sons
