Question: Figure depicts the basic activities performed in Lexsteel\'s expenditu

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Question: Figure depicts the basic activities performed in Lexsteel's expenditure cycle. The following additional information supplements that figure: Because of cash flow problems, Lexsteel always pays suppliers on the last possible day before incurring a penalty for late payment. Supplier invoices are processed and paid weekly. Every Friday, the accounts payable clerk reviews and approves all invoices with a due date the following week. The purchasing manager reviews and approves all purchases prior to e-mailing them to suppliers. After counting and inspecting incoming deliveries, the receiving clerk enters the following information into the system Quantities received for each inventory item Date and time received Supplier number After entering that information, the receiving clerk takes the inventory to the inventory control department for storage. Access to the inventory control department is restricted. Inventory is only released to production when properly authorized request is received. When the inventory is released, the inventory control clerk updates the perpetual inventory system Physical counts of inventory are taken every three months. Discrepancies between the counts and recorded quantities on hand are investigated. Upon resolution of the investigation, the plant manager authorizes adjustments to the perpetual inventory records to change them to the amount actually on hand.

Explanation / Answer

The main control weaknesses found in the expenditure process are :

1. Purchase manager is the single approver for the purchase orders. There must be minimum two approvers at least for purchases above a threshhold limit to ensure rates, quantities , and vendors are double verified before release.

2. The receiving clerk does not refer to the purchase order and any excess or wrong receipt of material cannot be traced at this level and invetory will be handed over to inventory control. This mat result in overstocking and obsolescence and shortage of required materials.

3. The receiving clerk does quality inspection , it should be performed by quality assurance department. This may result in quality issue of the received material , higher rejection cost and increased cost of goods sold.

4. The outgoing payment is approved by treasurer. The payment should be approved by minimum two approvers and the Plant MAnager in addition to the Treasurere should review and approve the supplier payments.

The physical verification is done quarterly. There should be a system of perpetual inventory count as quarterly count may result is dicoveries of many mistakes after months resulting in higher write off cost and possible loss or production. Perpetual count can mitigate the risk.

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