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Jameson Company's Control Procedures

The Jameson Company produces a variety of chemical products for use by plastics manufactures. The plant operates on two shifts, five days per week, with maintenance work performed on the third shift and on Saturday as required.
An audit conducted by the staff of the new corporate internal audit department has recently been completed, and the comments on inventory control were not favorable. Audit comments were particularly directed to the control of raw material ingredients and maintenance materials.
Raw material ingredients are received at the back of the plant, signed for by one of the employees of the batching department, and stored near the location of the initial batching process. Receiving tallies are given to the supervisor during the day, and he forwards the tallies to the inventory control department at the end of the day. The inventory control department calculated ingredients use using weekly reports of actual production and standard formulas. Physical inventories are taken quarterly. Purchase requisitions are prepared by the inventory control department and rush orders are frequent. In spite of the need for rush orders, the production superintendent regularly gets memos from the controller stating that there must be excessive inventory because the ingredient inventory dollar value is too high.

Maintenance parts and supplies are received and stored in a storeroom. There is a storeroom clerk on each of the operating shifts. Storeroom requisitions are to be filled out for everything taken from the storeroom; however, this practice is not always followed. The storeroom is not locked when the clerk is out because of the need to obtain parts quickly.
The storeroom is also open during the third shift for the maintenance crews to get parts as needed. Purchase requisitions are prepared by the storeroom clerk, and physical inventory is taken on a cycle count basis. Rush orders are frequent.

Required

a) Identify the weaknesses in Jameson Company's Internal control procedures used for (1) ingredients inventory and (2) maintenance material and supplies inventory.

b) Recommend improvements that should be instituted for each of these areas.
ICMA

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Solution Preview

Jameson Company

THE FACTS:
-Chemical products company for use by plastics manufactures
-Operation = two shifts, five days per week, with maintenance work performed on the third shift and on Saturday
-There are raw ingredient storage/inventory issues
-The Inventory Control Department calculates ingredients use using weekly reports of actual production and standard formulas (taken quarterly).
-Storeroom is not locked when the clerk is out and physical inventory is taken on a cycle count basis
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Questions:

a) Identify the weaknesses in Jameson Company's Internal control procedures used for (1) ingredients inventory and (2) maintenance material and supplies inventory
b) Recommend improvements that should be instituted for each of these areas.

Response:
There appears to be many weaknesses in Jameson Company's Internal Control Procedures, which is why Audit comments were directed to the control of raw material ingredients and maintenance materials. ...

Solution Summary

This solution reflects Qs and As for the Jameson Company case, which involves the firms chemical products, their operation, raw ingredients storage, and inventory issues. Internal Control is proven to be a necessary component to the company's success or failure.

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