ACCA · Question 17 · Internal Control

SECTION B - CONSTRUCTED RESPONSE

MediChain Pharmaceuticals is a cross-border medical supplier. You are evaluating the internal controls for the year ended 31 May 20X6.

During your review of the procurement and payroll systems, you note the following:

1. Purchase orders for medical supplies are raised by warehouse clerks when inventory looks low. They do not require authorization before being sent to suppliers.
2. New suppliers are added to the purchase ledger master file by the accounts payable clerk without any secondary review.
3. Goods received notes (GRNs) are filed sequentially in the warehouse, but copies are not sent to the finance department.
4. Factory employees clock in and out using paper timesheets, which are often filled out at the end of the week from memory.
5. The payroll manager processes the payroll, authorizes the bank transfer, and adds new employees to the payroll system.

Requirements:
(a) Identify and explain FIVE deficiencies in MediChain's procurement and payroll systems, and provide a recommendation to address each deficiency. (15 marks)
(b) Describe FIVE tests of control the auditor should perform to assess the operating effectiveness of the payroll system. (5 marks)