3.4 & 3.5

P-1: Approve purchase requisition

1) Purchase requisition input validity: The operational manager reviews and approves the purchase requisitions. The support manager reviews and approves any special order purchase requisitions. This authorization ensures validity of the purchase requisition.

2) Security of resources: Approving requisitions helps to ensure the prevention of unauthorized access to the requisition process. (Gelinas Jr, Dull & Wheeler 2012).

P-2: Use authorized vendor data

1) Effectiveness goals A and C: Analyzing the vendors can assist the firm in selecting a supplier who can meet its quality and price needs. Also, the process could help the firm in identifying the suppliers who engage in activities that comply with the stated code of conduct.

2) Efficient employment of resources: Company’s human resources are used efficiently and effectively because time is not wasted in penetrating for vendors that might not even provide the required goods or services (Gelinas Jr, Dull & Wheeler 2012).

3) Purchase requisition input validity: The blanket of approved vendors ensures validity as they are placed on the authorized vendor file

P-3 : Compare vendors for prices ,term, quality and product availability : : Before make any purchase requisition purchase manager has to compare the vendor's price to select the best price for the purchase order.

1) Effectiveness of operational goal A : with the compare of prices and terms and condition , it is very easy and fair for the purchase decision maker. The comparison of vendor's price, terms and conditions can increase the effectiveness to achieving the goal. (Gelinas Jr, Dull & Wheeler 2012).

P-4: Review and Approve purchase order:

1) Effectiveness goal A: when the purchase manager is finish checking with the purchase order with the purchase order the next step is to approve the purchase order. This approval includes the vendor chosen by the buyer and the terms and quantity purchased.

2) Effectiveness goal C: This control plan could control the situation with the vendors which appears to be favoured in the vendor’s selection process and maintain the corporate code of conduct.

3) Purchase requisition input validity: By the approval of purchase order, the purchase manager helps to ensure validity of the purchase order. (Gelinas Jr, Dull & Wheeler 2012).

P-5 : Updated data transfer :

1) Ensure security of resources: By updating the data from vendor to purchase department data file and vendor to purchase and also from purchase department to another data file of the company.

2) Update completeness: This program make a process complete when the data is being updated for the purchase order master file.

3) Input validity: These processes also complete the input validity of vendor input which is needed to compare with the vendor as well.

4) Input Accuracy: After select the vendor and completing all the process updated the information complete the input accuracy.

M-1 Inspect goods quality:

1) Effectiveness of operational goal (B): As in purchase sub-system we can analyse the price ,term and condition but cannot inspect the goods quality if it possible it would be a effectiveness.

2) Input validity: Inspect goods is a mistake but it can be rectify, if it being rectify would ensure the input validity.

M-2 independent vendor master data maintenance:

1) Effectiveness goals A and C, security of resources: By having someone other than the buyers add vendors to the vendor master data, we can obtain independent sustain for the feature of their products and procedure (goal A) and ensure that there will be no conflict of interest for the buyer (goal C).

2) Ensure security of validity :This analysis would help the firm in determining the suppliers who are best able to meet that stated code of conduct.

3) Purchase requisition input validity: Since the information relating to the supplier would be subject to analysis and approval, the purchase orders that would be created from this information would be regarded as containing valid information. (Gelinas Jr, Dull & Wheeler 2012).

M-3: Encrypt data and transmit to vendor

1) Security of resources: Maintaining the purchase order data implicit would help the firm in ensuring that the information sent out to the supplier is not corrupted by any deceptive orders within the firm or external to the firm. Moreover, it will ensure that the firm’s resources are not worn out in acquiring information that are unofficial.

2) Purchase requisition input accuracy: The encrypted information would ensure that the firm’s data is not accessed by any external parties who are not connected with the purchasing process.

P1 - Document Design & Preformatted Form

1) Effectiveness of operations (Goal A) – A well designed document can be accomplished more quickly and it saves more time. It tries to achieve Goal A of effectiveness of inventory system, i.e. ‘Minimising cost of carrying inventory and prevents stock-out’.

2) Ensure efficiency – A preformatted form can be prepared and recorded into the computer with less effort, which saves human resource time and enhance efficiency.

3) Input Accuracy – User tend to fill in a proper formatted document completely and legibly and chances of misinterpretation is less. So, likelihood of missing information or error minimises.

P2 Written Approval & authorisation -

1) Security of resources – The gift shop has 3 places of keeping the stock and goods are continuously moving from all these locations. Proper approval procedure will help to keep the track of goods or maintain transit system. Otherwise, it is easy to lose stock or misplace something.

2) Input Validity –There is two warehouse and a shop locations are present to keep the goods. The authority of editing, adding, deleting and approving any transaction should be remaining with particular person. For example, only the fulltime warehouse person does sign all the approval documents & only he has the authority to enter new documents.

3) Input Completeness – It will maintain pre-numbered form of sales order, purchase order and picking ticket and authorised person will check the pre-number form before approving it. It will reduce chances of duplicate or error event.

P3 - Monitoring and internal transfer of information

1) Effectiveness of operations (Goal B & C) – Effectiveness Goal B and C are Integration with other sub-systems and Ensure proper Quality of goods and availability of information. Inventory provides valuable information to other departments, which help them to take decisions like re-order, and safety level of stock to purchase departments and regarding sold goods to customers.

2) Ensure efficiency – System should maintain ‘Reference numbers’ for different jobs like inventory items coding, customer number, general ledger coding and right suppliers’ name. All printed picking documents should be filled as per the reference number sequence.

3) Input Accuracy – When received sales order , check the Sales order number before packing goods and while entering stock into system make sure right quantity and right product codes are entered.

P4 - Manual stock take

1) Effectiveness of operations (Goal C) – Physically counting goods not only represent control for proper quantity of goods but all people can check the quality or physical condition or misplacement of stock can be included. This process will ensure the quality and actual availability of goods.

2) Security of resources – Physical checking ensures the proper placement of stock as well like stocks are kept according to the categories and procedure of securing goods like locking the door properly can also be scrutinized.

3) Input Completeness – All shipped goods & received goods are present in the system. For that, monthly basis physical stock take & compare will record data. (Not the whole stock, some sections as per categories).

4) Input Accuracy - Check for any duplication of documents like recording same stock twice or putting wrong quantity. As this system support bar coding, so coding procedure should be done carefully.

P5 - Analysing rejecting Inputs & excess inventory control program

1) Effectiveness of operations (Goal B) – exception reports & receiving rejections process used to identify any differences among quantities on the purchase order and received goods or physical and reported variance of stock. If customer return any goods or organisation returns back something to the supplier, there must be some process involves. This process needs to integrate with other sub-systems as well. For example, initiate excess inventory is usually considered to be costly for the organisation. So system is able to notify regarding non-moving stock to the sales department for putting some discount or offer special on those.

2) Input Completeness – This program make a process complete as if something is not according the plan then there is a backup or alternative steps exists. It creates a complete circle of steps.

3) Input Accuracy – The rejection steps involves proper checking and editing process which makes the information more accurate.

P6 - Protect against theft and damage inventory

1) Effectiveness of operations (Goal A & C) – The inventory process is effective if all the received products are stored & recorded immediately. Protecting company against theft involves moves like making sure that only one person in each warehouse has access to the system and authorisation power and most importantly he is accountable for any misconduct or mistake.

2) Security of resources – Few security steps like locking the warehouse doors and Lock the computer (access codes/ password). Make sure every employee is aware of the cost of bad inventory management – Inventory loss through theft, breakage, or loss must be paid for with net profit dollars.

3) Input Completeness - It guarantees the data and files to be saved and secure.

M1 - Review open sales orders

1) Effectiveness of operations (Goal C) – Warehouse pick goods for shipping based on sales order copy. It normally does not prepare a comparing or cross-checking procedure for sales order. If the sales department has done some mistake, it cannot identify that.

2) Input Completeness – Mistakes involves lot of other steps of rectifying it, if identifiable and it increases the cost and effect efficiency of performance.

3) Input accuracy – the mistake of picking wrong product or wrong quantity cause inaccuracy in the system.

M2 - Maintaining uniqueness of coding system

1) Effectiveness of operations (Goal B & C) –– For some unique goods like art pieces the pattern of information differ and volume of required data is more. There are few judgemental questions are related with this like how to input those data, if the format of information keep changing then how to protect data, how much information should be kept . The questions are related with quality of data and minimising cost objective.

2) Input Accuracy – Where organisation maintains more than 2000 line of products and keep introducing new and unique goods, maintaining proper identification of each product is a challenge for the control system.

M3 - Human error

This key mistakes that occur when inputting data manually. There is no perfect system that can eliminate this error. This will exist in each process irrespective of how sophisticated that is. Significantly, inventory system is a place where most of the work is done manually like receiving stock, storing goods, coding stock and packing goods. There are high chances of inaccuracy.

P-1: Independent customer master file maintenance:

1) Effectiveness of operation (Goal- C): This operation provides assurance of customer’s creditworthiness. Only personal in the credit department that is separate from the sales department should add new customer to the customer master file.

2) Security of resources: The organization can secured its resources by preventing sales being made by the customer who are creditworthy.

3) Input validity: The orders cannot be processed without a valid customer record has been added to the customers’ master file, so it will make sure the input is valid. (Dull ,Gelinas, Wheeler, 2012)

P-2: Enter data close to the originating source:

1) Effectiveness of operation (Goal- A, B and D): This strategy to capture and entry of event related data close to the place and time that the event occurs help the sales person to process customer order immediately and respond quickly to customer inquiries.

2) Efficient employment of resources: The direct sales entry helps to eliminate the need for separate data entry as well as minimise cost.

3) Sales input completeness: By having the sales person input data there is no risk of orders getting lost.

4) Sales input accuracy: The sales person can directly corrects any input is wrong on the spot that will meet the criteria for input accuracy.

P-3 Rejection procedures:

1) Input validity: Data entered for processing in a computer system can make error and rejection procedures is designed to stop accepting for processing and corrected and resubmitted for processing that will make sure the input validity.

2) Input completeness: When ‘error suspense file” re-input all transaction through all the routines in which the input was processed originally, it meets the completeness criteria.

P-4 Customers existence and credit check:

1) Effectiveness of operation (Goal- C): This performance allows finding out that the amount falls within the credit limit establish by the credit department. It also prove the customers existence by matching the customer reference number or ( some other code) found in the customer master file with the number entered by the sales person.

2) Security of resources: By terminating of orders exceeding credit limits. The organization protects its resources by making transaction with those customers who will be able to satisfy their liability.

3) Sales input validity: A valid sales order represents that they fall within authorised credit limit. (Dull ,Gelinas, Wheeler, 2012)

P-5: Coding schemes:

1) Effectiveness of operation (Goal-A, B and D): It provides quick information of customer inquiry, acknowledgement of orders, shipments of good to customer. The code applies for customers, vendors and employees. The users can obtain certain records like who the customer is, address, sales order, sales person and the sales terms.

2) Efficient employment of resources: If the code is for an existing customer the system will show the standing data instantly.

3) Input validity: It assure customer master file input validity. (Dull ,Gelinas, Wheeler, 2012)

P-6: Maintain confidentiality:

Security of resources: Control plans exist to prevent an unauthorised access to or copying, changing, selling or destruction of the customer master file.

M-1: One for one checking of the customer order and the sales order:

1) Sales order input accuracy and completeness: This control plan will provide assurance to compare particular data field on customers’ orders with conforming data field on sales order.

M-2: Discount authorization:

1) Security of resources: There will be no situation that discount will give to any customer without notify the sales department. Based on situation the given discount that are authorised secured the organization’s resources.

2) Sales order input accuracy and completeness: Authorized discount for particular product will help to identify that the input is accurate. (Dull ,Gelinas, Wheeler, 2012)

The controls put in place under the purchasing structure presents support for selecting the most competent option of suppliers and ensuring that ordered goods are received in a timely approach. Controls put in place include:

Authorisation and Approvals –There are more than a few issues during the process of implementation a purchase order and receiving purchases that require authorisation, which include: approving the purchase requisition (in conjunction with budgeting), using preapproved vendors authorising the purchase order, confirming purchase order to requesting department (e.g. inventory or sales) through the awaiting stock-on-order application, authorising the receipt of purchases by comparing it to pending stock-on-order before accepting the goods. (Gelinas Jr, Dull & Wheeler 2012).

Segregation of duties – It ensure that business operations run efficiently and reduce the incident of errors or fraud. Having different individuals perform each function in a process allows particularly trained staff to professionally use their skills and it provides a means for defensive, detective and corrective action of inconsistencies. The purchasing system uses this control to some degree, for example, the person in control of purchase orders is a different person that is in charge of inspecting goods. However, the system lacks a great deal of segregation in other areas. For example, the person in charge of purchase orders also has access to the master supplier data and accounts payable system. This proves that the system lacks independent authorisation because one person has been given too much authority over different duties. (Gelinas Jr, Dull & Wheeler 2012).

Warehouse people responsibility - The employees with custody of and access to inventory have the responsibility to perform functions like perform physical inventory counts,

Modify perpetual inventory records, reconcile the physical inventory counts to the perpetual inventory records, reconcile perpetual inventory records to the inventory balance per the general ledger, record manual adjustments (i.e., write-offs) in the perpetual inventory system or the general ledger and calculate and record the inventory reserves. (Financial Executives Research Foundation, 2009)

Segregation of duties –In the proposed organisational structure, there will be 3 locations for keeping the stock, i.e. 2 warehouses and the store. The recommended require people are 2 full time storeman for 2 warehouses & 2 casual basis (only for certain hours in a day based on requirement). They will work on shift basis on keep rotating between 2 stores. All should know about both stores as storing design will be similar for both places and no one has complete possession at one place. Only fulltime store people have the approval & system access authority & that only inventory portion. At the present organisational structure, company is maintaining quarterly stock take, which is a vital control system. During the stock take process one admin staff should accompanied warehouse person and do the stock count.

Just-in-time materials acquisition – This prevents the risk of stock-outs and minimises the costs of holding large quantities of non-moving inventory (Dull et al 2012, p.576). This control is integrated with the inventory sub-system and purchasing sub-system as the purchasing department due to the previously applied JIT controls receives order requisitions put in place by the inventory department. This control is especially important for fast-moving products that need to be replenished in a timely manner to meet customer demand. Specially, when company has 3 places of keeping stock, it is costly to maintain all of them. (Inventory skills, 2010 )

Review of stocking levels – The products should maintain as per location specific or price or volume specific. However, as Crazy Kev has a large product range in terms of value and volume. In case of preparing purchase requisition, the high value items will generally have greater impact on estimated investment and purchasing spend, and therefore should be managed more crucially in terms of minimum and maximum inventory levels. On the other hand, inactive items will drop to the bottom of the prioritized list and high chances of being obsolescence.

Identifying items for potential consignment or vendor stocking – The chosen software produces lot of different king of reports, which helps different departments to make decisions and investigating the potential for alternative stocking arrangements that would reduce investment liability and associated carrying costs.

Turnover ratios and associated inventory goals – As the range of product is different so each product turnover rate will also differ. When establishing investment and turnover metrics, inventory data can provide useful information.

(Inventory skills, 2010 )

Centralised database system – The new system maintain a centralised database and its get updated automatically from the transactions data. The main control objectives of master file information process are Update completeness and update accuracy. Update completeness means all events entered into a system must reflect in the master file. Update accuracy recommends that all entered data must be correct.

Perpetual Inventory management system – involves the continuous detailed recording of warehouse stock information in the inventory master file. This provides support for inventory management by identifying fast-moving or slow-moving stock that need to be controlled in order to avoid stock-outs or stock spoilage (Dull et al 2012, p.576). Using identification code for each individual item such as electronically scannable barcodes reduces the possibility of inaccuracy and incomplete data because the relevant data is automatically scanned into the system for accurate and up-to-date information on inventory.

Physical stock take procedures –involves the physical count of inventory items in stock, which can be compared to the perpetual inventory records for accuracy. This is a detective control that identifies any divergences between the recorded inventory balance and the physical stock balance that may exist due to error or theft. The inventory master data and sales master data that records details of employees and customers responsible for certain stock movement provides corrective control information that allows people to trace the source of the variance detected. Then reconciliation of the physical inventory counts to the perpetual inventory records is done. (Dull ,Gelinas, Wheeler, 2012, p.576).

Organization are more likely concern about controlling environment which means ability to manage risk, take advantages of the existing opportunities and counter the threats. To analyse the effectiveness of overall control procedures the following key components are used in the organization.

Operational control:

The sales procedures follow up basically the system goals which mainly address the issue of satisfying customer confirming the control goal deploy successfully. In Tencia’s sales subsystem deigned that comply with law and regulation in term of contractual agreement. So, customer’s information’s are captured and stored in a way that there is no direct access for any unauthorised person. At the same time return policy and warranty provide assurance of the value of customer. Tencia not only support a single goal rather than provide a overall control of input validity, accuracy and completeness.

System control:

The preformatted screen and online prompting and coding scheme guide sales person as well as the online users the data or information need to enter in the required field, thus increasing the accuracy and efficient use of the resources .As this systems database is centralized so, there is no need to keep the master file updated. After preparing a valid authorised sales order a new customer data stored in customer master file to make sure customers are identified, using the reference number the customer can track their product and inquiry if there is any delay. The delivery of goods to the customer is very important as the date is given with the acknowledgement letter, the correspondence is vital with the other department like the shipping notice obtained from the shipping department. Our suggested software efficiently integrated all subsystems in a manner that it minimise cost and time to pass the information from one department to other.

The programmed edit check procedures include several forms like whether the entered data fall within predetermined limits and make sure that all required data are present in the correct format. So, the missing data, mathematical accuracy all come upfront when producing invoice.

Compensatory controls: The concept of segregation of duties is hard to accomplish in a small organization. In that case we have to rely on personnel control plans for example hiring honest employee and motivating them to stay honest, coupled with close supervision by top management (Gelinas, Sutton & Oram 1999). Control plan for information system: The systems development, technical services and operation need to handle by separate individual. It reduces the risk of unauthorised transaction input or unauthorised program and data filed modification.

It is important to Examine and document purchases problems that have occurred in the past as it is often a useful way of avoiding them in the future. Assess the structure or operations of comparable business may also provide ideas on how to develop your business.

1) The information on Reconciling inventory records: Employees in the purchasing subdivision should not be concerned with the receiving of goods in the system. In view of the fact that these workers are liable for negotiating the vendor payment terms and placing the order with the vendor, they should not be in charge of documenting the number of goods essentially received by the vendor.

Review the various purchasing procedure from time to time asking why the various tasks are being carried out and determining if the tasks add any value to the process, or if there is a better way to get them done.

2) Approving purchase requisitions and order: Employees concerned with the purchasing procedure should not be accountable for endorsing vendor invoices. Instead, this endorsement should be restricted to the employee who started and certified the purchase requisition or another person who is independent of the purchasing role altogether. An authorized individual or several individuals should approve purchase requisitions to ensure that the purchase is within an applicable budget and the purchase is desirable. The personnel should approve purchase order to guarantee that a right supplier has been chosen; the right merchandise and services are being purchased. Failure of this control will lead to financial loss if the goods are not desirable and cannot be returned.

3) Supplier’s documentation: It is beneficial to maintain suppliers’ activity and track report. By doing this to get information of best suppliers in the whole market, discounts, prices and delivery. This guarantees that the correct goods are received in satisfactory state.

There should be sovereign authorization to record receipt and evaluate input data to purchase order: Before a receipt can be accepted and recorded, the receipt data should be compared with the purchase order master data to conclude. It is to determine that an approved Order, prepared by someone other than receiving employees, is on file.

Few recommended improvement organisation can adopt to enhance the function of inventory sub-system are as follows -

1) ABC analysis (inventory) system - ABC analysis is an inventory categorization method which consists in dividing items into three categories, A, B and C: A being the most valuable items, C being the least valuable ones. This method aims to draw managers’ attention on the critical few (A-items) and not on the trivial many (C-items). For example – ‘A’ items are goods which annual consumption value is the highest, C-items are items with the lowest consumption value and ‘B’-items are the medium consumption value and it involves little bit of judgemental view for categorising stocks.

2) As Crazy KEV ‘s gift shop has lot of unique product line so categorising products and maintaining ABC analysis will be helpful to use the inventory space and record properly and it will make the process more effective. For example, the higher the usage, the more activity an item is likely to have, hence the greater likelihood that transaction issues will result in inventory errors. Therefore, to ensure accurate record balances, higher priority items are cycle counted more frequently. (ABC analysis Inventory, 2010)

3) Proper training – The new software is quite different from the existing system (MYOB), and the new system requires few more add-ons of 3rd party software for perform efficiently like ‘Barcode maker’ for inventory system. So, people, who will use it needs training and understanding regarding the whole process.

4) Security procedures - Based on cost-benefit analysis, if possible can have security guard at night-time or may be alarm system in the warehouses or specially in that where organisation keeps the valuable and unique products.

5) Segregation of duties control - Employees who have access to the physical inventor should not be responsible for performing inventory counts. In addition, these employees should not be responsible for modifying the perpetual inventory records or the general ledger. Modifications to inventory records are reviewed and approved by a supervisory-level employee who is independent of the inventory process. (Financial Executives Research Foundation ,2009)

6) Managing scraps or obsolesce goods – Organisation needs to specify who will be handling obsolesce goods or responsible for the sale of scrapped goods and collect money for these sales? Ideally An independent employee in the accounting department should involve in this process. (Financial Executives Research Foundation ,2009)

1) The Sales sub-system should be comprised of highly experienced, well-informed and motivated staff member which is an important element to an effective operation. Employees should be provided sufficient training opportunities and understand what is expected of them. Good lines of communications are important.

2) Internal controls should be set up in all subsystems : Sales contracts should be approved by personnel who head the subsystem for checks and balances within the sales department prior to processing the customer order. This employee should be sovereign of the sales order being processed. Employees, who issue, sustain or approve client credit limits should not be involved in making or recording sales. Customer invoices should be generated by someone in the finance department and or by an employee who is not involved in the sales process

3) Client details and credit check: Employees who are in charge of sales orders should not be allowed to modify the Customer Master File. Especially information of online order customer are vital mainly address and order. It also provides information of what are they are buying mostly and what not. This internal control ensures that the Crazy Kev’s curio does not extend more credit to a customer that is reckless.

4) Some area, by the nature of their magnitude, is not able to implement fundamental controls such as separation of duties without unreasonable expenses of funds e.g. expenditure of the control surpasses the benefit of separating the duties. In this case, it is imperative that management set up compensating controls to cover for the need of a basic control. This protects the staff and the business.

5) Compensating controls :Compensating controls  are less popular than the separation of duties internal control since they generally come about after the transaction is complete. Also, it takes more resources to investigate and correct errors and to recover losses than it does to prevent them in the first place. A manager may periodically select a sample of transactions, request and review the supporting papers to ensure that they are complete, appropriate, and precisely developed. This monitoring practice should be acknowledged.

6) Compare shipment to sales order and picking ticket: these checks are to ensure that the consignment will be authorised and accurate. Any inconsistency amongst these items may indicate a duplicate shipment or a wrong shipment.