ELF Ltd is an Edinburgh based company that has been under the control of the same family for the past 50 years. During that time the company has been run on a friendly, informal basis with little reference to the principles of internal control and/or formal documentation. As a result of a recent fraud by a purchasing assistant, just over two years ago the directors of the company reorganised the company’s purchasing and receiving procedures in order to guard against a recurrence of the purchase fraud. The directors have asked you to review the current system of internal control and the functions of the documents in the company’s purchasing and receiving of goods for resale. In particular, the directors have asked you to prepare a system flowchart of the current purchasing/receiving system.
Following discussions with the company directors, you are aware that the company operates the followingdepartments:
§ a requisitioning department,
§ a purchasing department,
§ a receiving department,
§ a stores department,
§ a purchasing ledger (accounts) department,
§ cashier/treasury department.
The general purchasing procedures are as follows. The requisitioning department raises a purchase request. This purchase request is forwarded to the purchasing department. The purchasing department then obtains a quotation from an approved supplier. Once the quotation has been received and approved, the purchasing department raises a purchase order (four copies). Two copies of the purchase order are sent to the supplier, one is sent to the receiving department and one to the purchase ledger department.
Prior to delivery the supplier is requested to send one copy of the purchase order back to the purchasing department as acknowledgement of the purchase order receipt. When the goods are delivered a goods received note (GRN) (three copies) is received. One copy is filed in the receiving department, one is kept by the stores department and one is sent to the purchase ledger department, where it is matched and filed with the appropriate purchase order. The supplier retains a delivery note – authorised (signed) by an appropriate member of staff from the receiving department. When the invoice is received from the supplier the purchasing department matches the purchase order, GRN and invoice, and authorises payment. All payments are made by cheque and require authorisation from the company cashier.
Required
Prepare a document flowchart of the above purchasing system and comment on any problem areas.