You are a member of the audit team for Emilda Part (Pty) Ltd, which sells second-hand motor spares and accessories. The company purchases its inventory from scrap yards and manufacturers of car spares and accessories, who sell their production overruns and slightly damaged inventory items to Emilda Part (Pty) Ltd. You have been assigned to the year-end audit of the acquisitions and payments cycle and have gathered the following information:

1. A major business risk for Emilda Part (Pty) Ltd is the potential purchase of parts and accessories that have been stolen from manufacturers or come from stolen or hijacked vehicles. To mitigate this, the company thoroughly investigates its suppliers before doing business with them. The company's accounting systems are fully computerized, operating on a local area network (LAN) that links all departments. Once a supplier is approved, they are entered into the "approved supplier masterfile." The financial controller, Bernard Bunz, emphasizes the importance of dealing only with approved suppliers and maintaining detailed supporting documentation for all purchases due to widespread dishonesty and criminal activity in the trade.

2. Inventory is only purchased with an official printed order. Order forms are computer-generated and cannot be created for a supplier not on the approved supplier masterfile. Orders are initiated based on a signed requisition sent to the buying department by the warehouse manager. Suppliers, both scrap yards and manufacturers, regularly contact the warehouse manager to notify him of the availability of second-hand parts, overruns, or damaged items. If the warehouse manager considers an item should be ordered, he negotiates the price and enters it with other details on the requisition. Controls over the ordering function, both manual and computerized, are sound.

3. All deliveries from suppliers are routed to a secure Deliveries Bay for unloading and receiving. The three receiving clerks use a single terminal in the bay linked to the LAN. As goods delivered are mostly second-hand or slightly damaged, receiving clerks do not perform quality checks on deliveries. All deliveries are sent with a computer-generated copy of the goods received note to the "Quality Check and Reconditioning" section where items are cleaned, repaired, tested, and repackaged. From this section, they move into the warehouse for storage. Items damaged beyond repair are returned to the supplier.

4. Hard copies of all documentation are sent to or printed out in the accounting department, where they are matched and filed temporarily to await the supplier's invoice. Necessary checks are performed before writing up the purchase journal. Supporting documentation is filed alphabetically by supplier. At an interim audit earlier in the year, a sample of purchase transactions was extracted for detailed testing. Although these tests were satisfactory, a small sample of purchase transactions from the purchase journal for April (financial year-end 30 April) was extracted for detailed procedures. One of the transactions selected was:

- Creditor: Ximex (Pty) Ltd
- Amount: R97,620.20

**REQUIRED:**

1. Explain why there is increased risk of unauthorized access to data and programs in a networked environment (e.g., Emilda Part (Pty) Ltd's local area network). (5 marks)

2. State the controls which should be in place at Emilda Part (Pty) Ltd to ensure that additions to the "approved supplier masterfile" are valid, accurate, and complete. (15 marks) (Do not concern yourself with controls or procedures to approve suppliers)

3. Discuss the manual and programmed (automated) application controls you would expect to be in place for receiving deliveries from suppliers. (10 marks)