Gemma Company is a midsize manufacturing company with 120 employees and approximately $45 million in sales. Management has established a set of processes to purchase fixed assets, described in the following paragraphs: When a user department decides to purchase a new fixed asset, the departmental manager prepares an asset request form. When completing the form, the manager must describe the fixed asset, the advantages or efficiencies offered by the asset, and estimates of costs and benefits. The asset request form is forwarded to the director of finance. Personnel in the finance department review estimates of costs and benefits and revise these if necessary. A discounted cash flow analysis is prepared and forwarded to the vice president of operations, who reviews the asset request forms and the discounted cash flow analysis, and then interviews user department managers if he or she feels it is warranted. After this review, she selects assets to purchase until she has exhausted the funds in the capital budget. When an asset purchase has been approved by the VP of operations, a buyer looks up prices and completes a purchase order. The purchase order is mailed to the vendor, and a copy is forwarded to accounts payable. The fixed asset is delivered directly to the user department so that it can be installed and used as quickly as possible. The user department completes a receiving report and forwards a copy to accounts payable. If the invoice, purchase order, and receiving report match, payment is approved and cash disbursements prepares and mails a check. The accounts payable department updates the accounts payable subsidiary ledger and the fixed asset spreadsheet file. In a two (2) page response, identify any internal control strengths and weaknesses in the fixed asset processes at Gemma. Explain why each is a strength or weakness. For each internal control weakness, describe improvement(s) in the processes that a person would recommend to address the weakness.
Gemma Company is a midsize manufacturing company with 120 employees and approximately $45 million in sales. Management has established a set of processes to purchase fixed assets, described in the following paragraphs:
When a user department decides to purchase a new fixed asset, the departmental manager prepares an asset request form. When completing the form, the manager must describe the fixed asset, the advantages or efficiencies offered by the asset, and estimates of costs and benefits. The asset request form is forwarded to the director of finance. Personnel in the finance department review estimates of costs and benefits and revise these if necessary. A discounted cash flow analysis is prepared and forwarded to the vice president of operations, who reviews the asset request forms and the discounted cash flow analysis, and then interviews user department managers if he or she feels it is warranted. After this review, she selects assets to purchase until she has exhausted the funds in the capital budget.
When an asset purchase has been approved by the VP of operations, a buyer looks up prices and completes a purchase order. The purchase order is mailed to the vendor, and a copy is forwarded to accounts payable. The fixed asset is delivered directly to the user department so that it can be installed and used as quickly as possible. The user department completes a receiving report and forwards a copy to accounts payable. If the invoice, purchase order, and receiving report match, payment is approved and cash disbursements prepares and mails a check.
The accounts payable department updates the accounts payable subsidiary ledger and the fixed asset spreadsheet file.
In a two (2) page response, identify any internal control strengths and weaknesses in the fixed asset processes at Gemma. Explain why each is a strength or weakness. For each internal control weakness, describe improvement(s) in the processes that a person would recommend to address the weakness.
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