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Name Student ID
Tan Liang Aik Chin Wei Feng Goh Boon Sheng Neo Seow Hui Ahmed Abdel rahman Mustafa
1091102205
1091105622
Question 1
Prepare an analytical flowchart of purchasing system in order to analyses its internal control
Question 2
Identify weaknesses of internal control and recommend improvement to the internal control weaknesses
Improvement
1. Lack of account payable Department in the internal control system of PCI Sdn Bhd. -The Company has not established account payable departments to handle the process of the invoicing and to accommodate the need for accurate and timely payables. - There will be a misappropriation of assets. - PCI Sdn Bhd needs to establish account payable Department.
- The Accounts Payable Department is responsible for the payment of goods and services to vendors, also to keep track on the payment to the suppliers. - Account payable department helps to organizes and maintains vendor contact information.
Improvement
2. There is no proper establishment of responsibilities. Cik Anne received the Delivery Order (DO) and Store Received Notes (SRN) from Encik Min and invoice from supplier, at the same time she is also responsible for allocating the account payable reference number and update the account payable list in the computer. - The Delivery Order (DO) should be sent to the Receiving Department, and then the Receiving Department has to issue the SRN and send it to the purchasing Department as well as Accounts Payable Department.
- If Cik Anne prepares the PO, she can order raw material without authorization. This is because she is the one who ordering raw materials and check the invoice. -There could be manipulation of account and misuse of cash.
- The invoice should be then sent to the Account Payable Department where the clerk in AP is responsible to reconcile the information.
Improvement
3. There is no independent internal verification procedure. - Encik Razi responsible to call for quotation -Three copies of the Purchase Order should and purchase order from available registered be sent to vendor, receiving and account vendor of PCI Sdn Bhd through email or by payable Department. telephone, without any proper verification and documentation. -The vendor, account payable and receiving Department will be unable to make the review and comparison between the quantities ordered as there is no PO copy to them. -The copies of the PO would allow for the review and comparison for each department.
-The quantities received may not be the same as the quantities ordered because there is no document for them to make the verification.
-The copies of PO will ensure Independent internal verification involves the review, comparison, and reconciliation of data prepared.
Improvement
-In the resource material planning, Cik Lim is approving and recording the PO into the accounts payable with the value below the RM100,000, at the same time, she is the who approves the Monthly Raw Material Summary (MRMS). - Cik lim she is the one who update the accounts payable, therefore, she can easily manipulate the account The material resources figure because she is the one who approve the MRMS.
- The Company shall assign one clerk from financing Department to be responsible to update accounts payable. This is to make sure there wont be any misappropriation of cash or manipulation of accounts.
- Source documents for accounting entries should be promptly forwarded to the accounting department to help ensure timely recording of the transaction and event.
-The improper documentation process could lead to manipulation of accounts and misuse of cash as wells.
Improvement
-The finance clerk Encik Faris he is the one - The cheque and voucher should be who responsible for preparing the voucher and prepared by two different clerks from the cheques or Telegraphic Transfer (TT). accounts payable Department. This is because the payment to supplier should be authorized by account payable Department. - There will be misuse of cash and unauthorized payment could be made to vendor. - Voucher should be prepared by the one who updated account payable. This is to ensure the payment of bills is authorized by account payables not the finance clerk.
-If Encik Faris prepares the voucher and cheque, unauthorized cheque could be made to vendor.
Improvement
-The Company inventory holding cost had increased dramatically in 2007. This is mainly due to the weakness in the current purchasing system.
- To implement replenishment system to accurately predict inventory needs and dynamically adjusts to accommodate fluctuating demand across the entire distribution network.
- The Company will be suffering from -To have auto order approval, this is could be overstocking; therefore, sometimes it may lead done by having consistent vendor to stock obsolescence. relationship and standing order.
- Implement just in time (JIT) to make only what is needed, when is needed and in the amount needed, this inventory plan can eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity
Question 3
Ensuring good supply quality Suppliers would reduce the price of raw material at the expense of quality reduction on the raw materials Good ties and keeping supply price down
Technical analysis Technical analysis done on materials, overheads, labor and on profits. Used as tools in future leverages of cost with suppliers Analyzing on price history, inflation of economy and many more available information
Business to government
Enable PCIs purchasing department to order, track and manage supply purchases over the internet Improves time efficiency
Shipping Notice Catalogue management Order Status Purchase Order Integration Contract management
Strategic sourcing
Systematic approach for optimizing an organization's supply base and improve the overall value proposition
It requires analysis of what an organization buys, and from whom, at what price and at what volume.
Fundamental part of purchasing and supply management process.
There are 7 steps for the implementation. Step 1: Understand the spend category
- develop a supplier survey for both current and potential suppliers to evaluate the supplier capabilities
- First three steps provides the essential ingredients for the sourcing strategy
Step 5 request for proposal (RFP)
- Define and make clear the requirements to all prequalified suppliers - Include product or service specifications, delivery and service requirements, evaluation criteria, pricing structure, and financial terms and conditions
Step 6 Selection
It would means that virtually no safety stock and thus little inventory carrying costs. It also reduces slow moving stock and eventually removes it from a system with a careful planning.
PCI Sdn Bhd can improve their service by only reacting to those areas where they seem to be having problems. Furthermore, continuous improvement through small steps (kaizen costing) can also be used.
Kaizen costing
A process that the product undergoes cost reduction even when it is already on the production stage. The cost can be reduced by better deals with acquisition of raw material and also continuous product improvement