WALTER SISULU UNIVERSITY

DEPARTMENT OF ACCOUNTING AND TAXATION

CONTROL OF FINANCIAL INFORMATION SYSTEMS -CFIS

[AUD37W1]

2024

REVISION PACK
QUESTIONS

INVENTORY AND PRODUCTION

QUESTION 1 (30 MARKS – 36 MINUTES)
You are currently involved in the audit of BPM (Pty) Ltd, a company specialising in the
production of video game consoles like the Xbox and PlayStation, among others.

Apart from your primary audit duties, Quinton Mabaso, the financial manager, has asked
for your assessment of specific aspects within the inventory and production cycle and for
any suggestions for improvement if needed. He is of the opinion that improvements are
necessary and that the Board would be open to considering sensible recommendations.
Here is the narrative description he has shared with you:

Systems description - production

1. The company manufactures a standard range of products, each of which has its own
product code.
2. Manufacturing is carried out by ten technicians who each have their own workstation
in the factory. The workstation consists of a bench and all the necessary equipment the
technician requires to build and test the products.

3. The factory foreman, Colin Peters, oversees the factory and reports to the production
manager.

[Link] sales department notifies the production manager of demand for the company's
products on a weekly basis. The company considers that this procedure works well.

5. A large "production blackboard" is positioned at the entrance to the factory. This

blackboard displays each workstation number and the name of the technician assigned
to that workstation. Below these headings are columns to enter the date, product code
and quantity of the product to be manufactured.

[Link] Monday morning the production manager assigns work to the technician by
updating the date, product code and quantity columns on the blackboard.

7. All of the technicians are trained to manufacture all of the company's products and have
an assembly manual to which they can refer if necessary.

8. Components for manufacture are kept in a warehouse adjoining the factory. As

technicians generally know what components are needed to manufacture each product
(they can also refer to the assembly manual), they will personally select the components
from the warehouse shelves as they require them.

[Link] the technician has constructed and thoroughly tested a batch of items, he loads
them onto a trolley and takes them to the finished goods warehouse.

10. On arrival at the finished goods store he unloads the items in the receiving area and
returns to his workstation.

11. Before the end of each working day a warehouse clerk, who is responsible for keeping
the components warehouse and finished goods warehouse clean and tidy, takes the items
manufactured from the receiving area and places them on the allocated shelves in the
warehouse.
No perpetual inventory records are maintained.

REQUIRED

Identify the weaknesses in those aspects of the inventory and production cycle
described above, and for each weakness make suitable recommendations for
improvement. (28 marks)
(Do not concern yourself with the costing of manufactured items).

Present your answer in a table format below:

Weakness Recommendation

UFH EXAM 2023

QUESTION 2 PURCHASES AND PAYMENTS CYCLE:

Taxi Or Nothing (Pty) Ltd (hereafter referred to as “Taxi’s”) is a company that sells taxi
spare parts. It operates in two branches, Mthatha and Butterworth, in the Eastern Cape,
with its head office in Mthatha. You are the Internal Audit intern, and you are assigned to
review Taxi’s internal controls.

Purchases and Payments

Ordering

Upon receipt of an approved requisition notification, the ordering clerk accesses the
ordering function by using a unique username and password. The ordering clerk will then
enter the supplier code to retrieve supplier information and proceeds to capture the order
details as per the approved requisition. Once the order has been captured by the ordering
clerk, it is automatically directed to the senior buyer, who clicks the “approve” button after
necessary cross-referencing and making changes where necessary. The order will
immediately be redirected to the ordering clerk to place the order with the supplier by
clicking the “submit” button,

The company places orders with approved suppliers only and keeps a supplier Masterfile
containing the supplier code, business address, and banking details. On receipt of the
supplier invoice, the creditor’s clerk cross-references the information on the invoice
against the supplier Masterfile. If discrepancies are noted, the Masterfile is immediately
updated and saved by the creditor’s clerk.

Payment preparation

Upon receipt of the supplier invoice, the creditor’s clerk prepares a payment schedule by
selecting the “prepare payment” option and selecting the supplier and order number being
paid, then proceeds to capture the invoice number and amount. The schedule is sent to
the payments clerk, who trusts the creditor’s clerk and uploads the payment to the EFT
software for approval by the finance manager. The finance manager, upon receipt of the
notification of a pending payment, opens the banking system, enters the known password
“Payments@2024” and approves the payment after checking if there is an invoice number
and the supplier’s name and code.

Note: You do not need to include weaknesses relating functional areas not included

above.

REQUIRED

Identify and explain the weaknesses present in the purchases and payments cycle.

(10 marks)
QUESTION 3 HUMAN RESOURCES CYCLE

The company's management has an excellent reputation in the industry and it has a 30
September financial year-end.

The following wages system has been implemented at all three plants:

• Wages, which are paid every Friday, are based on hours worked during the
previous week.
Each plant has its own wages department. Only the human resources
department is centralised at head office.
• New workers are employed by the human resources division at head office only
after proper interviews and background checks have been performed. At the start
of each working week (Monday), the foremen at the various plants hand blank
clock cards to their workers, who fill in their names and employee numbers.
These cards are then used that working week. The clocking devices are situated
at the entrances to the plants, where workers clock in by inserting their clock
cards into the clocking device.
• The foremen hand the used clock cards to a wages clerk every Monday morning
without checking them. The cards are divided alphabetically among three wages
clerks who are rotated every week so that a clerk is not always allocated the
responsibility for the same group of workers.

The clerks perform the following tasks:

• They calculate the total number of hours worked by each worker and record this
on the relevant clock card.
• They enter the hours worked per individual (by employee number) into the
weekly wages file on the computer.

After the wages clerks have captured the hours worked, the computer calculates each
worker’s gross pay, his/her deductions and net pay by using the wage rates and
deductions as per the personnel information in a database at head office. Frequent
changes are made to this database in order to keep the information up to date. The weekly
wage report for each plant is then printed out by the computer. These wage reports are
kept in the various wages departments at each plant.

One of the wages clerks at the plant informs the plant’s accountant by phone of the
amount needed for the week’s net wages. The accountant then prepares a cash cheque
for the exact amount, after which the cheque is cashed by a wages clerk.

The computer prints pay envelopes bearing the names and employee numbers of each
of the workers to be paid. The wages clerks fill the pay envelopes for those alphabetically
listed employees for whom they are responsible. If any money is left unaccounted for after
all the pay envelopes have been filled, the pay envelopes are checked and corrected by
the wage clerks. The envelopes are then sealed.

On Friday afternoons, the pay envelopes are handed to the relevant foremen for the
weekly pay-out. Each foreman pays out the wages to the workers working under his
supervision, each worker being properly identified before he/she is handed a pay
envelope. Unclaimed wages are returned by the foremen to a wages clerk at the plant.

REQUIRED

Discuss the weaknesses in the wages system described above and recommend
improvements in order to rectify each weakness. Answer the question in tabular form.

Auditing Fundamentals in a South African Context – Graded Questions 3e

REVENUE

Question 2 of Term Test 3

INVESTMENTS AND FINANCE

Question 1 of Term Test 3