Weakness
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Recommendation
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1. Cash balances are distorted when checks are drawn when due but are not mailed until sufficient cash is available. Cash management will also be affected by inaccurate due dates, lack of procedures for taking vendor discounts, and inaccurate information for EOQ calculations.
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Checks should be drawn only when cash is available and mailed immediately. Procedures should be established for taking advantage of vendor discounts when appropriate.
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2. Accounts payable information is distorted by drawing checks and then holding them for future payment, by entering invoices without supporting documentation, and by inaccurate receiving documentation.
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Invoices should not be entered into the system until matched with supporting documents, and receiving documents should be matched against original purchase orders.
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3. Inventory balances are likely to be misstated because of no physical counts.
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Periodically count inventory and reconcile the counts to inventory records.
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4. Calculating due dates by hand and using the invoice date instead of the date the goods are received could lead to inaccurate due dates that could damage vendor relations.
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The system should calculate due dates from the date goods are received, not based on the date they are invoiced.
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The lack of control over emergency orders could distort inventory balances and cause duplicate purchases.
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Implement appropriate controls to prevent duplicate purchases, such as immediate entry of emergency orders so the system has a record of them.
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