Kenya Cans Ltd. Manufactures cans which are stamped from sheets of metal moulded and supplied to Selmont Ltd for packing fruits. After stamping the sheets of metal, scrap metal is produced as residue. During the year 2004, revenue from scrap metal amounted to Sh.500,000. The company has established the following system to monitor the sale of scrap metal; i) Scrap metal is placed by employees in a large bin outside the workshop ii) At the of the week a local scrap dealer collects the scrap metal leaving the bin empty iii) The scrap dealer takes the scrap metal to the gatekeeper who measures and records the weight in a register before it exits the factory. iv) The scrap dealer sends a cheques the following week with a statement showing the weight collected, price and cheques amount. The company‘s cashier on receiving the cheques, compares it with the statement to ensure that they both agree with the gatekeeper‘s registers.Required; i) Explain the weaknesses of the above system. Suggest recommendations to improve on the above system

Kenya Cans Ltd.

i) Weaknesses in the system
– Lack of supervision.
There is no authorized employee to monitor and supervise the employees as they place scrap metal in large bins outside the workshop. The scrap metal is therefore prone to theft by staff

– Lack of authorisation controls
There is no staff to authorize the local scrap dealer when collecting the scrap metal from the bin.

– Incomplete recording system
There is no staff recording the scrap metal on being collected by local scrap dealer. Company is prone to losing income from scrap metal

– Collusion between gate keeper and scrap metal dealer
There is not staff to monitor the gatekeeper while weighing the scrap before it leaves the factory. The dealer is likely to collude with the dealer to conceal some income and defraud the company.

– Lack of accounting documentation
There is no recording system over scrap metals collected by dealer. The dealer is likely to deflate the cheques sent thereby defrauding the company of the income from sales.

– Collusion between scrap metal dealer and company cashier
There is no approval, authorisation and monitoring controls over the amounts received from dealer. Cashier is likely to collude with dealer to defraud company income.

ii) Recommendations
– An efficient recording system to ensure proper documentation and scrap metal sales
– An upto date report on scrap metals sales on a monthly or weekly basis
– A specific qualified competent accountant positioned at the gate to monitor processing of the weighing and recording of scrap metal safes
– An upto date technology to be implemented for recording and weighing scrap metal
– A proper supervisory control system to ensure that gatekeeper, scrap metal dealer and cashier are supervised.
– Segregation of duties. There should be different staff for weighing scrap metal, recording and receiving cheques
– Confirming amount and recording in cheques

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