Platinum Manufacturing Group is a medium scale manufacturing company that deals with the production of various electrical goods. The company procures the raw materials from some regular vendors through a specific sequence of processes. For the purpose of ordering, delivery and payment for the raw materials, the company uses a specific framework that includes the sequence of events like publishing the list for requirements, placing the order based on the list, delivering the goods to the storeroom staff, providing the invoice, making payments based on the invoice and others. However, in addition to the operational benefits provided by this particular framework, there are some loopholes and issues as well (Benaroch & Chernobai, 2015). These issues may result in several risk events for the company in the near future if not identified, analyzed and addressed within a short time. The changes required to solve these problems include the development of a new automated inventory management system and others. The objective of the implementation of the new system is to ensure the errors occurring due to manual errors and the gaps within the operational framework are addressed with the help of more efficient and automated processes.
In this report, the main weaknesses and issues with the existing operational framework of the company have been identified and suitable recommendations have been provided.
The current expenditure process of the company mainly follows a particular chain of actions based on the availability of the stock of the raw materials in the storeroom. The company has a particular long term supplier from whom, the materials are purchased every month. Based on the purchase record of every month, a list of required raw materials is sent to the purchasing team at the start of each month (Komala, 2017). The team compares this list to the existing balance in the inventory. If the balance is negative, the purchasing team places the order to the supplier. The supplier delivers the materials directly to the storeroom staffs who then checks the invoice with the number of items received and signs off. Another copy of the invoice is also sent by the seller to the purchasing team for filing. At the end of each month within the due date, the purchasing team completes the payments for the purchase of the raw materials. However, there is no additional stage for the purchasing team to ensure the ordered amount of the materials have been delivered to the storeroom (Huang et al., 2015). Since there is not any direct mode or scope of communication between the purchasing team and the storeroom staff, there is no way to verify whether the seller delivered the right amount of materials and sent the right invoices to the storeroom staff and the purchasing team. As a result, the company comes across financial losses if the seller is not honest and cheats the company by taking advantage of the flaw of the system.
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Internal Control Weakness |
Impact of the weakness |
Control to mitigate the weakness |
Latest IT developments |
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The first control weakness identified is the communication gap between the storeroom staff and the purchasing team. While the storeroom staffs are responsible for handling the raw materials like receiving the deliveries from the supplier, placing and taking out the raw materials to and from the inventory, managing the inventory and other responsibilities, it is also required to some important information from the storeroom to the purchasing team like the exact amount of the materials delivered, invoice provided by the supplier to the storeroom staff and others. Without this communication, there will always be errors in the purchasing system as it is easier for the supplier to cheat the company. |
This particular control weakness can have a major negative impact on the company. Due to the communication gap, the purchasing team cannot verify the actual amounts of products delivered. The supplier can take advantage of this situation and delivers lesser amount of the materials than the actual amount ordered but in the purchasing team’s copy of the invoice, the supplier shows that the actual amount has been delivered. The main flaw here is that after receiving the invoice, the purchasing team do not further communicate with the store room staff to determine whether the right amount of materials have been delivered or not. |
The main control measure that needs to taken in this regard is to establish a communication medium between the storeroom staffs and the purchasing team. This is to ensure the development of coordination between the two teams such that each and every delivery report is sent to the purchasing team at the moment the materials are delivered by the supplier (Evans et al., 2015). This process will also be faster if the delivery verification system is automated using suitable technology. With the use of technology, the verification process will be much easier and faster. Some relevant technologies that can be included are bar / QR code scanning, automated inventory record system and others. |
There are several IT developments that can help Platinum Manufacturing Group. The technology that is to be implemented must be focused on automating most of the operational processes like inventory update, delivery receipt and others. One major technology that can be suggested is the bar code reading system. The supplier will be asked to provide bar codes with each quantity of material that can be scanned using a bar code scanning device (Simkin, Norman & Rose, 2014). After scanning, the device will automatically update the purchase in a specific portal that will be accessible by both the storeroom staff and the purchasing team. As a result, there will be no further verification required while receiving the delivery. |
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Another major flaw in the system is the use of paper documents. Moreover, all the processes are handled manually that result in increasing the overall processing time as well as handling errors. The paper document include list of requirements, invoices, purchase bills and others. If not stored correctly, these documents can easily be lost, destroyed or even stolen. Paper document tampering is also an issue that can be done by some unethical personnel for personal gains. In addition, it is also extremely hard, hectic and time consuming for the team members to keep track of information using these paper documents. |
The main impact of this weakness is that the entire process is very much time consuming and hectic. Keeping follow up of information using all paper documents is a difficult task to maintain and naturally, numerous errors occur during the same. The paper documents can also be altered, tampered or stolen and hence, these are not reliable sources of storing valuable business related data and information. Hence, it is important to replace this system with an efficient and faster system that will not also require hectic effort to manage or maintain. |
The use of the virtual media is a suggested method to take care of this weakness i.e. the information can be stored online using virtual documents instead of the paper documents (Prasad & Green, 2015). This system will not only reduce the effort of the data managers in the company, but will also additionally help in data analysis and analytics as each and every piece of data will be stored online. It will also not require any additional storage space / physical space as all the documents will be stored online in the cloud. However, this will only require some technical expertise to manage and maintain and this can be achieved by some training sessions on the employees. |
Implementation of a cloud based data management infrastructure is recommended for Platinum Manufacturing Group (Komala, 2017). This new system will help to store and manage any type of data anytime that can also be accessed for analysis anytime. This system will be entirely based on virtual storage interface and hence, it will not require any additional physical storage space. |
Conclusion
This report is mainly based on the identification of the main control issues associated with the operational processes of Platinum Manufacturing Group as well as identification of the main aspects of the existing system along with the recommendations IT implementation that will solve the problems and issues of the system. As per the overall analysis of the system, there are some issues and gaps in the system. The first main gap identified is the lack of suitable communication between storeroom staff and the purchasing team that has also resulted in inability to build continuity within the entire system framework. This issue causes financial losses for the company on a regular basis. Again, most of the operational processes like handling of paper invoices, sending requests in paper documents and others have been controlled manually. This has resulted in the slow processing and operational time as well as several manual errors that are not desired if the company is to grow from medium to large scale. Hence, it is recommended for the company to develop a new automated system that will be much more efficient as well as faster than the manually operated process.
References
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Evans, I., Long, F., Otgonbaatar, U., Shrobe, H., Rinard, M., Okhravi, H., & Sidiroglou-Douskos, S. (2015, October). Control jujutsu: On the weaknesses of fine-grained control flow integrity. In Proceedings of the 22nd ACM SIGSAC Conference on Computer and Communications Security (pp. 901-913). ACM.
Hassan, H., Nasir, M. H. M., & Khairudin, N. (2017). Accounting Information Systems. In SHS Web of Conferences(Vol. 34). EDP Sciences.
Huang, P., Guo, J., Ma, T., & Zhang, Y. (2015). Does the value of cash holdings deteriorate or improve with material weaknesses in internal control over financial reporting?. Journal of Banking & Finance, 54, 30-45.
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Prasad, A., & Green, P. (2015). Organizational competencies and dynamic accounting information system capability: impact on AIS processes and firm performance. Journal of Information Systems, 29(3), 123-149.
Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting information systems. John Wiley & Sons.
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