Weakness 1:

JYM’s purchases did not go through authorization and approval.

Implication:

This could result in non-business-related purchases and there is an increased fraud risk as Ellen
could place orders for personal goods up to any amount and conceal the actual amount, which is
vital. It will lead to unnecessary cash outflows (AccountingTools, 2021).

Recommendation:

Hence, JYM needs to get authorization from the purchasing director or be authorized by a
responsible official (Australia, 2019). Authorized signatories should be established with varying
levels of purchase order authorization prior to being sent to the purchase ordering department.
The purchase ordering department should not process any unauthorized purchase requisition
(AccountingTools, 2021).

Reason of recommendation:

It should be checked by the higher-level person to confirm that the transactions are valid, protect
assets and reduce fraud. It cannot be checked by the person who was in charge of the purchase
order, proper authorization, and approval to prevent from committing fraud, deceiving and
concealing the actual amount (AccountingTools, 2021).
Weakness 2:

Ellen checks and approves the purchase invoice for payment.

Implication:

It would be easier to increase the risk of fraud. Ellen will collaborate with suppliers since there is
only one person executing the work. Ellen, who has payment controls, might cooperate with an
external supplier to arrange for unauthorized payments to the supplier (AccountingTools, 2021).
This can occur through a payment exploiting duplicate payments or entirely fabricated payments.
Furthermore, unnoticed clerical errors may result in the organization incurring additional
expenditures or losses. Therefore, the company's profitability may be affected. It is easy to
conceal the actual amount when Ellen checks and approves the purchase invoice. It might lead to
unnecessary cash outflows.

Recommendation:

There should be a segregation of duties.

Reason of recommendation:

The roles of purchase ordering and processing of the related supplier invoices should be assigned
to different staff. For example, Ellen orders goods from the supplier and Ros, who is an account
clerk, logs in the received goods in the accounting system (AccountingTools, 2021). This
prevents the buyer from diverting arriving items for personal use. For example, Ellen will be in
charge of negotiating supplier prices and placing purchase orders, while Ros from accounting
will be in charge of verifying the supplier invoice against the purchase order during the payment
process (Kissflow, 2021).
Weakness 3:

The cheque will be prepared by Ros and signed by either James, Tony or Ms. Tong is a
deficiency.

Implication:

If they did not look at the details of the payments made, as well as supporting documentation,
there is a risk that suppliers could be being paid an incorrect amount, or that sums are being paid
to fictitious suppliers. It will result in the company may suffer additional costs or losses and
affect the company’s profit (Lumen, n.d.).

Recommendation:

Authorization & Approval is to ensure the transactions are approved by authorized personnel
before processed so that transactions are valid, protect assets and reduce fraud (Drupal, 2021).
Hence, James, Tony, and Ms. Tong should review the payment list before authorizing it. They
should also agree with the amounts to be paid to supporting documentation, as well as reviewing
the supplier names to identify any duplicates or any unfamiliar names. Then, they should also
sign on the payment list to evidence their review.

Reason of recommendation:

JY Miko Sdn. Bhd. can request that the cheque for payment should be signed by two people as
the approval to prove that the cheques issued were for business transactions (Business, 2021).
This is a double signature to ensure that the amount of the check issued is accurate (Hamblar,
2020). It can prevent the clerks from writing checks for personal expenses. James or Tony can
request the clerks to provide evidence of actual transactions to verify that the checks were issued
correctly.
Purchasing & Payment System - TOC

Audit Procedure 1:

Auditors should carry out inspection of documentation to test authorization & approval. Auditor
should check on the vouching documents. For example, the auditor selects a sample of purchase
request to evaluate whether it was authorized and approve by manager before make order from
supplier. The auditor checks the payment voucher according to the authority to approve the
payment voucher by the director JYM (Michigan Technological University, n.d.).

Audit procedure 2:

Auditors should carry out enquiry to test segregation of duties. Auditors can inspect a copy of the
JYM’s procurement process to identify there are several people in charge in the process (AICPA,
n.d.). For example, auditor can ask purchase manager who is responsible to negotiate the price
with supplier, create purchase order and approve the purchase invoice for payment.

Audit procedure 3:

Auditor should carry out inspection of documentation to test the approval of cheque are issued
for the business. Auditor should authorize the cheque are double signed implemented (Business,
2021). For example, auditor must vouch the cheques implemented contain both signature, which
sign either by James and Tony, James and Ms. Tong or Tony and Ms. Tong (Hayes, 2021).
Purchasing & Payment System - Assertion

To ensure the amount of purchase recorded in the transaction are accuracy, auditor should carry
out recalculation by examining the amount of purchase and return outwards. For example,
auditor may request the sample of purchase invoice or credit note to recalculate the amount
recorded are accurate.

To ensure the purchase transaction recorded by JYM are classification (SUMMARY PLANET,
n.d.), auditors should carry out inspection of documentation by examining the purchase return
and discount received record were correctly classified in the appropriate account
(AccountingTools, 2021). For example, auditor may check the amount of return outwards and
discount received are recorded in the purchase ledger.

To ensure the recorded payment paid to supplier of JYM are occurrence (SUMMARY PLANET,
n.d.), auditors should carry out confirmation to a third-party. For example, auditor may send a
confirmation letter to supplier, requesting them to confirming their sales account balance
associated with purchase account balances of JYM (AccountingTools, 2021).
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