The paper “ MyPet - Weaknesses in the Internal Controls Described, Computer Assisted Audit Techniques in Inventory Valuation” is a great example of a case study on finance & accounting. From the internal control system described in the MyPet case, the computer selects the supplier of both finished goods and raw materials based on the delivery time and the latest price from the recent invoice. This is a weakness of this system because the quality and reliability of the material or finished goods cannot be authenticated. The goods or the materials may have a fair price and have a short delivery time but it may not be the right material or goods needed by the company in terms of quality.
Consequently, the system can be compromised by unscrupulous workers when poor quality materials or goods are purchased at fair prices. Lead time and prices cannot be the only criteria for selecting finished goods or raw materials to be purchased. Substandard goods can be purchased. There is also a possibility that there can be multiple orders generated when the prices and delivery times of the suppliers match each other.
There is a need for further differentiation and a unique criterion for picking out the best supplier. There is no internal control system, regardless of how comprehensive and detailed it may be, it can on itself guarantee efficient administration and accurate and complete records, or come out as foolproof against fraud. This is challenging when those engaged hold positions of authority or trust. MyPet inventory system has authorization codes or passwords assigned to different people like the store staff, production controller, and the accounting clerk.
It is possible that without an internal monitoring system, the various authorities like in the production and the accounting clerk can share information in order to unscrupulously have the purchase budget inflated for personal gains. Moreover, the accounting clerk is in charge of the Masterfile amendments and he could doctor information in order to steal from the company. This system, therefore, relies largely on the faithfulness and honesty of the people in charge of the authorization codes.
Dejan Jaksic, Implementation of Computer Assisted Audit Techniques in Application Controls Testing, Management of Information System, Vol. 4 (2009), 1, pp.009-012.
Chow David, 2009, Analytical Procedures –A Powerful Tool for Auditors, < http://www.hkiaat.org/images/uploads/articles/Analytical.pdf>