Case 5-2: Lexsteel Corporation

What should the restrainer of Lexsteel do in order to address the potential problems within the corporation? The controller became aware of the potential problems with the accounts collectable system because of the discussion made with the out-of-door auditors. Each branch manager is given the authority to order materials and loose apprehension acquire orders directly to the vendors. Physical counts of raw materials are non performed since there is a cost-effective computerized pure(a) inventory system. COMPUTER RESOURCESThe phalanx computer mainframe at corporate furnish is linked to the computers at each branch locations. Data transmission occurs between leased foretell lines between host computer and branch powers wherein it is maintained in an structured database. The parcel also allows flexibility for managing user access and editing data input meaning there is no control over the software for it allows data editing without the square-toed authorization given. PU RCHASING PROCEDURES The end product orders and earmark bills of materials unavoidable are generated by the host computer at corporate headquarters.While the purchase orders for raw materials are generated by the purchasing work and is mailed to the vendors which contain an instruction to the vendor that the materials should be directly delivered to the manufacturing plant. there is a control between the generation of production orders needed and the purchase orders issued to the vendor but it is not an exception in the occurrence of fraud. At receipt, the manufacturing plant examines and verifies the count against the packing slip and propagates the receiving data to the accounts payable at corporate headquarters.Even though there is a proper separatism between custody and recording, still fraud may occur because of secret approval. Also, each branch manager is given the authority to order materials and issue emergency purchase orders directly to the vendors. Fraud may also o ccur if secret approval will be made by the branch manager and the vendor, with that proper control is a must. Since the company employs a cost effective computerized perpetual inventory system, physical counts of raw materials are not performed.With that, the generation of production orders and purchase orders may be deceived because the count of raw materials that are needed are not matched with the proper physical count on its culmination inventory. ACCOUNTS PAYABLE PROCEDURES Vendor invoices are mailed directly to the corporate headquarters and entered by the accounts payable personnel when received. This often occurs before the branch offices transmit the receiving data so the recorded vendor invoices are not by rights matched with the receiving report. Uncertainties of amount may exist.The checks and the payment listings are made by the accounts payable function and are transmitted to the treasurers office for hint and mailing to the payee. After governing body, payment l istings are returned to the accounts payable section for filing. In here, there is no proper control in the preparation and validation of checks and payment listings for the verification of it is not done which may result into collusion and creation of dummy payee made by the treasurers office and the accounts payable function.