Problem
Case Study - Study and Evaluation of Internal Control
As a trainee accountant at Bradley & Jordan Incorporated (B&J) and you have been assigned to the audit of Net Solutions Limited (Net Solutions). The company's financial year end was 31 January 2018. During your assignment, you had the following observation and findings regarding the procurement and safekeeping of lease equipment of Net Solutions.
1. Apart from agreements with corporate clients, Net Solutions also offers walk-in clients the option to enter into short term contracts. This requires that the company have equipment readily available at the warehouse for immediate lease. Available lease equipment is displayed in the windows of the warehouse to show the variety of equipment.
2. Net Solutions sources the lease equipment from various local and overseas suppliers. It takes approximately four weeks for overseas procurements to arrive and shipment is done free on board. The equipment is stored at Net Solutions' warehouse situated in Johannesburg, alongside the N1 highway. This is the only place of business for Net Solutions. The warehouse building consists of three levels and is designed with a very modern touch. Net Solutions only utilize ground floor to house the equipment and lease the top two floors. The warehouse has high glass windows and a glass sliding door at the entrance that automatically opens as it senses movement. There are no other security measures to restrict access to the warehouse except for the glass sliding doors at the entrance. In addition to the lease equipment that is housed in the warehouse, the warehouse is also fitted with the latest air conditioning system. This air conditioning system is deemed as 'safety equipment' for the protection of the lease equipment and is the only 'safety equipment' that is installed in the warehouse.
3. Different depreciation methods such as the straight-line method or diminishing balance method are used for the lease equipment and the 'safety equipment' respectively.
Based on the information you gathered,
A. Enumerate the weaknesses in the general controls relating to Net Solutions' continuity of operations with specific reference to its warehouse.
B. For each weakness identified, recommend the general controls that Net Solutions Limited should implement to ensure the continuity of its operations into the future.