You are the internal auditor of SuperHero Ltd and you have made the following notes during the audit of the company’s inventory management activities:
SuperHero Ltd’s raw materials are mainly high-cost electronic components. The raw materials are kept in a locked warehouse. The warehouse team has a manager and four clerks. Raw materials are removed from the warehouse only on written or oral authorization of one of the production supervisors of the factory.
SuperHero Ltd uses a period inventory system. To compensate for the lack of perpetual records, a physical inventory count is taken monthly by the warehouse clerks. After the physical count, the warehouse manager matches quantities counted against a predetermined recorder level. If the count for a given component is below the reorder level, the manager enters the part number on a material requisition sheet and sends this form to the accounts payable clerk. The accounts payable clerk prepares a purchase order for a predetermined reorder quantity for each component using a purchasing information system and mails the purchase order to the vendor who supplies that component.
When the ordered components arrive at the warehouse, they are received by the warehouse clerk. The clerks count the components and reconcile the counts with the supplier’s bill of lading. All suppliers’ bills of lading are initialized, dated and filed in the warehouse to serve as receiving reports.
Required:
(a) Develop a flowchart for the inventory management process of SuperHero Ltd.
(b) Develop a level 0 DFD and a context diagram for the inventory management process of SuperHero Ltd.
Perform the following tasks:
(c) Identify five control weaknesses in the inventory management process of SuperHero Ltd.
(d) Using COSO’s Internal Control Integrated Framework, suggest an appropriate control activity for each of the control weaknesses that you have identified in (a).