Describe the Weaknesses That Exist in Alden’s Expenditure Cycle

Week 5

13.12.

Required

1) Describe the weaknesses that exist in Alden’s expenditure cycle.

The weaknesses that exist are no system of inventory is employed; No perpetual inventory is used- no record of goods received or issued are kept. They rely solely on the inventory count that is done by a storeroom clerk once a month to place orders. That could result in overstock or under stock of material and or theft. They are purchasing from suppliers based off the last ordered received, which could result in purchasing at inflated prices, purchasing goods of inferior quality, unreliable suppliers and or purchasing from unauthorized suppliers. The purchase requisition is not approved by the supervisor prior to placing the order. The bill of lading is not reviewed to check accuracy and for approval. The bill is not checked by AP to verify the correct pricing and to double check quantity.

2) Suggest control procedures to overcome the weaknesses noted in part a.

They need to employ a system of inventory to track the inventory on hand and the inventory needed. They should generate a master file from the system of inventory to record and deduct goods received and issued. Inventory should be counted periodically; once a week on the same day, each employee rotates. To minimize the chances of ordering inventory at inflated prices they should have a price list, have more than one supplier listed to compare prices and most importantly have a budget and review in the purchase order. To prevent ordering inferior products they must only order from approved suppliers and continuously check and monitor the product quality from each supplier. If a new supplier must be added, they must check and receive approval of the purchase order. Orders should be reviewed and approved prior to requisition. Segregation of duties should also be employed: custody of inventory versus receiving. The storeroom clerk should not use the