Mitigating Internal Control Weakness In Purchase Process Of Platinum

Internal Control Weakness in Purchase Process of Platinum

Discuss about the Purchasing Procedure Of Platinum.

The expenditure process for the special order of the Platinum manufacturing is completed in multiple steps the first being the head of the department sending a purchasing requisition to the purchase department. In the next step one of the five buyers out of the five employed by the organisation verifies the order to ensure that the request is being made by the head of the department. Post the verification the buyer selects the most suitable buyer for the operation and asks for a price quotation while placing a verbal order. A pre-numbered purchase order is then processed and sent to the head, accounts and other departments. The receiving department on receiving the purchase order verifies that the received equipment and the placed order are similar or not. After the verification is successful they forward to the relevant departments. The accounts department on receiving the purchase order, verifies the purchase order with the invoice received by the vendor and after it is justified a payable is forwarded to the treasurer. The checks below $10,000 are signed through machine while above them are signed by the cashier and machine as well before completing the purchase process and paying the vendor.

Internal control weakness of an organisation is a rational that defines the weaknesses that are associated with the organisational operations (Prabowo, Christy & Nitasari, 2017). The internal control weakness in the discussed scenario is relevant to the purchase process and the following section will identify, measure the impact and recommend potential solutions for the identified internal control weakness. The justification over the compatibility of the proposed methodologies with the changeable IT infrastructure of the organisation will also be considered before concluding the paper. The first step is to evaluate the internal control weakness of the purchase process of the discussed organisation which has been discussed as follows:

The first and foremost of the weakness identified in the purchase process of special orders by the Platinum is there verbal communication mode. It is evident from the discussion that the organisation believes in verbal notifications rather than offering notifications that are paper or electronic based. The discussed measure by the organisation may lead to multiple issues within the organisation that are associated with the auditing process, storage of data properly and justifying the purchase process in dire situations (Gallenmore & Labro, 2015). The lack of proper data (writer or electronic data) will prove to be troublesome for the organisation during the times of tax returns, justifying themselves legally and similar other situations (Su, Zhao & Zhou, 2014). Additionally, the verbal communication even increases the chance of internal and external fraud which can prove to be very chaotic for the organisation (Yu, Zhang & Zheng, 2016). The processing of the purchase process is also very vague in the organisation because they go through the verification process multiple time which is time and effort consuming (Guo et al., 2015). Hence, in conclusion, it can be stated that the core internal control weakness of the discussed organisation lays in their communicational means and the vagueness of the departmental operations.

Impact of Internal Control Weakness

Impact of the internal control weakness within an organisation can have catastrophic effect on the organisation. The foremost and one of the most prominent impact that the organisation faces due to the internal control weakness is the over or under payment on the purchased item. If, the organisation overpays then they will suffer financial and will even cite negative impact on their financial assets (Feng, McVay & Skaife, 2014). While, in case of under payment they will suffer from poor quality of the received item which will prove to be trouble for the organisation in the long run. The poor quality of the work will lead to maintenance expenditures that includes time, effort and money along with halts in the organisational operations. The next most prominent challenge they will face is the legal and auditing issues as stated in the section above. Due to improper documentation the deemed organisation may get into legal troubles as they will be unable to produce the necessary data to the legal authorities and it is very well known that the legal issues can affect the sustainability of an organisation (De Simmone, Ege & Stomberg, 2014). Then during the time of auditing processes due to lack of proper documentation, the results will be inaccurate and will ultimately lead to formulation of financial budget that is inaccurate and hence, negatively impact the organisation. Other significant challenges are also offered by the internal control weakness to an organisation and hence, it is recommended to mitigate the identified weakness in shortest possible time. The potential measures in the following section may assist Platinum to tackle the identified weaknesses.

Platinum is suffering from internal control weakness and it is affecting the organisation and hence they need to mitigate the risks. To achieve the above-stated objective the first step that the organisation need to take is to change their communicational measure and instead of making verbal notifications within or outside the organisation they should opt for written notifications (Bauer, Henderson & Lynch, 2017). The organisation can achieve it by introducing electronic communicational means which will ensure that the sharing of information is recorded. The electronic communicational means include the tools which can be audited when necessary and even offers assistance in communication (DeFond & Lennox, 2017). Emails, official chats messengers, fax and other tools are the discussed communicational tools. In case, the organisation is not obsolete with the electronic means then they should use notepads and other means for communicational purpose. However, electronic sharing of information is recommended because it will save the organisational resources and is hassle free. Additionally, the use of electronic means will also reduce the chance of frauds relevant to the organisation from both within and outside.

Mitigating Internal Control Weakness

Another significant weakness identified in the organisation is the purchase process and the vagueness it offers. The purchase process within the organisation makes multiple verifications and even offers no specific control over the procedure. The purchase team can make the budget according to their need because no proper monitoring body supervises over them. Additionally, the repeated verification of deliverable and other relevant documentations also consumes time (Feng et al., 2014). Hence, it is advised that the organisation should equip electronic purchase order system which offers the capability of mitigating the above mentioned challenges. The discussed system notifies the user that the purchase order is going over the budget, if the user is attempting to make a fraud. Additionally, the system will electronic verify the deliverables that includes the invoice, items and others with the purchase order to ensure the success of the discussed process. The adoption of the discussed system will even assist in the auditing and safekeeping of the documents which can be used by the organisation during the time of needs (Khairi & Baridwan, 2015). Another notable advantage that adopting the system will offer is of competitive advantage in the market because of fast and accurate accounting that the organisation will enjoy. The documentation will also be accurate and the security concerns can also be avoided by buying the system from reliable source such as Oracle, Xero and other major IT giants who offer similar services (Roffel & Chin, 2017). Hence, it can be stated that adopting the accounting information system can assist the organisation in mitigating all of its identified internal control weakness.

The changes that are recommended for the purchase process of the Platinum are based on the IT services which can easily be integrate with the changing organisational IT infrastructure (Akpolat, 2017). The reason lays on the fact that the recommended measures are adoption of Accounting IS which is an advance version of It and if the organisation decides to equip another IT system then they would not have to buy new tools instead they can merge the services together. Hence, it is stated that the adoption of Accounting IS is the most suitable method for Platinum to mitigate their internal control weakness and earn competitive advantage at same time.

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