Assignment

Weaknesses of Internal Controls, Recommendations and Best Practices

Green Mountain Coffee Roasters, Inc., was founded in 1981 and began as a small cafe in Waitsfield, Vermont, roasting and serving premium coffee on the premises. Green Mountain blends and distributes coffee to a variety of customers, including cafes, delis, and restaurants, and currently has about 6,700 customer accounts reaching states across the nation. As the company has grown, several beverages have been added to their product line, including signature blends, light and heavy roasts, decaffeinated coffee and teas, and herbal teas. Green Mountain Coffee Roasters, Inc., has been publicly traded since 1993.

Green Mountain Coffee has a warehouse and manufacturing plant located in Wilton, Vermont, where it presently employees 250 full-time and part-time workers. The company receives its beans in bulk from a select group of distributors located across the world, with their largest supplier being Columbia Beans Co. Green Mountain Coffee also sells accessories that complement their products, including mugs, thermoses, and coffee containers that they purchase from their supplier, Coffee Lovers, Inc. In addition, Green Mountain purchases paper products such as coffee bags, coffee cups, and stirrers, which they distribute to their customers. Green Mountain's accounting system consists of manual procedures supported by stand-alone PC located in various departments. Because these computers are not networked they cannot share data digitally, and all interdepartmental communication is through hard-copy documents. Green Mountain is a new audit client for your CPA firm and as manager on the assignment you are examining their internal controls. The expenditure cycle is described in the following paragraphs.

Purchases System

Green Mountain Coffee purchases beans and blends from manufactures and then sells them to customer stores. Sara is in charge of inventory management in the warehouse. From her PC, she reviews the inventory ledger to identify inventory needs. When items fall to their preestablished reorder point, she prepares a purchase requisition. She keeps a copy in her department for use later, files one in the open purchase requisition file, and sends a copy to accounts payable. At the end of the day, she uses the purchase requisitions to prepare a four-part purchase order. One copy is filed, two copies are sent to the supplier, and one copy is sent to Fayth in the accounts payable department. When the goods arrive, Sara inspects and counts them and sends the packing slip to accounts payable. Using a PC, Sara updates the inventory subsidiary ledger and, at the end of day, sends an account summary to Vic in the general ledger department.

After checking that the purchase requisition and purchase order exist to support the packing slip, Fayth files the documents in the accounts payable pending file. The supplier's invoice is mailed directly to Fayth, who checks it against the documents in the pending file.

Using a computer system, she updates the accounts payable subsidiary ledger and records the transaction in the purchases journal. She then files the purchase requisition, purchase order, packing slip, and invoice in the open accounts payable file. At the end of the day, she prepares a journal voucher, which is sent to Vic in the general ledger department. Using a separate computer system, Vic updates the control accounts affected by the transactions and files the summary and journal vouchers.

Cash Disbursements System Summary

Fayth reviews the open accounts payable file for items due for payment, waiting until the last date to make a payment and still take advantage of the discount. From her PC, she then updates (closes) the appropriate accounts payable subsidiary record, prints a two-part check, and records the payment in the check register file. At the close of day, Fayth mails the check to the supplier, files a copy, and prepares a journal voucher, which goes to Vic. Vic records the transaction in the affected general ledger accounts and files the journal voucher.

Required:

Prepare an internal audit summary report for each weaknesses or deviations identified.

AUDIT REPORT SUMMARY

Audit Report No. 2016-001

Comments and Concerns: (Condition, Cause & Effect)

Criteria: (Established Procedures/Best Practices)

Recommendations: (Proposed Solution)

Chief Audit Executive Signature

Format: Font Type & Size; Times New Roman, 12
Document Size: 8 x 11.