Problem
Background
Many of NE Textiles' old Draper looms have recently been replaced with more modern and efficient weaving machines. Instead of being junked or scrapped, these surplus looms are sent by the plants to the Supply Support Division where they are stripped of all useable parts. These parts are reconditioned, stored, and placed on perpetual inventory records as used supply items.
Manufacturing facilities within NE route all of their purchase orders for Draper loom parts through the Supply Support Division. This includes orders made out to Draper Company and all other vendors from whom Draper parts can be purchased. Supply Support reviews its inventory records (and will hold the order for no more than one day) to determine the availability of used parts generated from the loom stripping program. If parts are available within Tarheel, the purchase order to the vendor is altered and the Supply Support Division ships the available parts automatically to the ordering plant. The altered purchase order is then sent to the vendor.
This program has resulted in substantial savings to Tarheel. Also, many of these older parts are in short supply and are, therefore, difficult to obtain within a reasonable delivery time.
Sale of Reconditioned Loom Parts
Disposal of Residues and Scrap Metal
The Loom Teardown Supervisor usually receives customer orders verbally. Johnstone & Company is the primary customer to whom NE sells loom residues and scrap metal. A company representative will often come to Tarheel, select loom residues and scrap parts he wants to purchase from those available, and supervise the loading of his truck.
The Loom Teardown Supervisor calls the Administrative Area and requests a shipping document be prepared since Company policy prohibits any vehicle from leaving the premises without a Notice of Shipment. The Supervisor gives the office all the information necessary to prepare the document.
The truck leaves the premises from the loom field through the main gate.
What are the most significant internal controls weaknesses and the recommendations?