Reference no: EM133016381

Question - Virtual Inc. manufactures smartphones and tablets. Its main customers are retailers who then sell to the general public. The company's manufacturing is spread across five sites and goods are stored in its nine warehouses located across the country. You are an audit supervisor of Boise & Co and in preparation for the forthcoming audit for the year ending 30 June 2021, you are reviewing the following notes your audit manager has provided you with in relation o the company's internal controls.

During the year, Virtual Inc. conducted an extensive reorganization of its manufacturing process to improve efficiency. Due to the significant number of employee changes required, the HR department has been very busy, and to ease their workload during this period, the payroll department has assisted by setting up any new employees who have joined the company. In January 2021, the wage rate paid to employees was increased by the HR director and he notified payroll by emailing the payroll supervisor.

A new sales ledger system was introduced in May 2020 and will continue to be run in parallel with the old system until internal Audit (IA) has completed its checks between the two systems. New customers obtained by the sales team are required to undergo a full credit check; on the basis of this, credit limits remain static in the sales system.

Monthly perpetual inventory counts are undertaken at each of the nine warehouses, as a full year-end inventory count is too disruptive for the company. High-value items are stored in a secure area in each warehouse. Access is via a four-digit code, which for convenience is the same across all sites. Due to the company's reorganization program, some of the monthly inventory counts were not performed.

Bank reconciliations are undertaken monthly by an accounts clerk and details of all reconciling items are included. Where the sum of the reconciling items is significant, the reconciliation is sent to the financial controller for review.

In order to maximize cash balances, the finance director approves all purchase invoices for payment 75 days after receipt of the invoice.

Required - Identify and explain Five deficiencies in Virtual Inc.'s internal controls and provide a recommendation to address each of these deficiencies.