Control deficiencies (overall) Control recommendations

Physical verification of assets Additional resources should be

within the non-current asset devoted to complete the physical
register has not been undertaken verification of all assets within the
for some time. A current register.
programme has started but is
only 15% complete, due to staff Following this full review, on a
shortages. monthly basis for a sample of
assets at the sites should be
If non-current assets are not agreed back to the register to
physically verified on a regular confirm existence.
basis, there is an increased risk of
assets being misappropriated or
misplaced as there is no check
that the assets still exist in their
correct location.
There have been significant staff Senior management should
shortages in IA department. consider recruiting additional
Several members of IA are also employees to join IA department.
new to the company. Also, employees with experience
in the relevant field should be
If IA team has staff shortages or appointed.
lack of experience, this reduces
the effectiveness of monitoring
the effective operation of
controls.
As HR Department has been busy, A review must be undertaken of
payroll department has set up all new joiners set up by payroll
new joiners. to ensure that all new employees
are bona fide.
There is a lack of segregation of
duties between HR department
and payroll department. There is
an increased risk of ghost
employees being set up.
New customers undergo a credit
check, after which a credit limit is
proposed by the sales staff and
approved by the sales director,
these limits are not reviewed
after this.
Credit limits should continue to
be approved by the sales director;
however, on a regular basis the
sales director should review these
limits based on order history and
payment record.

There is a risk that credit limits

may be too high leading to
irrecoverable debts or too low
leading to a loss of sales.
The wage rate has been increased All increases of pay should be
by the HR director and notified to proposed by the HR department
the payroll supervisor by email. and then formally approved by
the board of directors.
As payroll can be a significant
expense, any decision to increase
this should be made by the board
as a whole and not just by the HR
director.
High value inventory is stored in a Access codes for all the sites
secure location across all 9 should be changed. Each site
warehouses and access code is a should have a unique code,
4-digit code, which is common to known to a small number of
all sites. senior warehouse employees.
These codes should be changed
As the code is same across all on a regular basis.
sites, this significantly increases
the risk of fraud. A considerable
number of people will be aware
of the codes and could access
inventory at any 9 sites.
Monthly perpetual inventory The schedule of perpetual
counts are supposed to be inventory counts should be
undertaken at each of the 9 reviewed for omissions. Any lines
warehouses, but some of these which have been missed out,
are outstanding. should be included in the
remaining counts.
In order to rely on inventory
records for decision making and
year-end financial statements, all
lines of inventory must be
counted at least once a year, with
high value or high turnover items
being counted more regularly.

If the counts are outstanding,

some goods may not be counted
and the inventory records may be
incorrect.
Bank reconciliations are only Bank reconciliations should be
reviewed by the financial reviewed by the financial
controller if sum of reconciling controller on a monthly basis,
items is significant. even if the reconciling items are
not significant, and he should
The bank reconciliation could evidence his review by way of
contain significant errors, but a signature on the bank
low overall number of reconciling reconciliation.
items, as there could be
compensating errors which cancel
each other out.

Bank reconciliations are a key

control which reduces the risk of
fraud. If they are not reviewed,
then this reduces its effectiveness
and also results in a lack of
assurance that bank
reconciliations are being carried
out at all or on a timely basis.
Invoices are authorised by finance The policy of making payment
director but payment is only after 75 days should be reviewed.
made 75 days after the receipt of Consideration should be given to
the invoice. earlier payment if the settlement
discounts are sufficient. If not,
There is a risk that the company is invoices should be paid in
losing early settlement discounts. accordance with the supplier’s
Also, this policy can lead to loss of payment terms.
supplier goodwill and they might
refuse to supply goods in the
future.

Internal control Recommendation Test of control

deficiency (for payroll
systems)
There are no Clocking in and out Observe whether a
monitoring/supervision should be supervisor monitors the
procedures relating to monitored by a clocking in and out
the clocking in and supervisor or CCTV process.
clocking out of cameras can be
employees. installed. The If CCTVs have been
CCTV should be installed, inspect its
This may lead to staff monitored by a footage to see if it
asking other colleagues staff with the actually works.
to clock them in even relevant authority.
when they are not
present, leading to an
increased payroll cost
for the organisation.
Payroll calculations Payroll supervisor Inspect the evidence of
performed by the should periodically review by the payroll
system are not calculate the net supervisor.
reviewed. pay and compare
it to the system Review how any
This will lead to generated net pay discrepancies were
undetected and to ensure the investigated and dealt
uncorrected errors in accuracy. The with.
the payroll costs payroll supervisor
calculation. As a result, should evidence
employees might be his review with a
under or over paid, signature and the
leading to either transfers to
unsatisfied employees employees should
or unnecessarily high not be made until
payroll costs for the this task has been
company. performed.
HR Department uses Any increase in the Inquire with the payroll
verbal authorisation to pay should be staff the procedure to
communicate with the approved by the increase the pay of an
payroll department board members in employee.
any increases to the a written form.
pay.

This could lead to the

payroll department or
HR department giving
extra pay to their
friends. Here, the
chances of fraud
increase.
The factory supervisor The night shift Inquire from one of the
is trusted with workers may be night shift workers the
substantial cash sums
in advance of the paid via bank method of receiving
distribution of the transfer. their payment.
wages to the night
shift.

There is an increased
risk of theft of cash.
The factory supervisor The wages of Inquire about the wage
keeps absent absent employees collection process from
employees’ wages over should be a worker who was
the weekend before returned to payroll absent on a weekend.
handing back to department and
payroll. they should be
told to collect
Here, there is an their wages from
increased risk of theft the payroll when
and fraud. they come to work
next.
Staff holidays in the HR The HR Investigate whether any
department lead to Department delays occurred in
payroll information should allocate communicating
about new joiners not duties among the information about new
being communicated staff in such a joiners and if so, how it
on a timely basis. manner that there was dealt with.
is no
This means that new communication
joiners will not be paid gap between HR
timely and payroll and payroll.
costs will be misstated.
The clerks update the Clerks should not Review the log of
standing data to reflect be allowed to changes made to the
the increase in wages make standing standing data for
in each year. data changes. evidence that they were
Changes should be made by a senior
The apparent lack of made by a senior member of the payroll
authorisation to member of the department and that
changes in standing payroll they have been
data increases the risk department. reviewed by another
of errors, leading to responsible official.
misstatement of wages These changes
and incorrect payment should be
of wages. reviewed by
another
This also increases the responsible official
risk of fraud, as the to identify any
clerks have the ability errors or
to make unauthorised inconsistencies.
changes to standing
data.
Finance director The finance Inspect payment lists for
reviews the total list of director should evidence that the
transfers and agree a sample of finance director has
compares this to the employees on the agreed a sample of
total payable per the payroll records to payees to the payroll
payroll records. the payment list, records, and vice versa.
and vice versa, to
There is an increased the payment list,
risk of fictitious and made only to
employees being paid. bona fide
As a result, fraudulent employees. These
payments may be checks should be
made. evidenced by
finance director’s
signature.
Only payment of All overtime hours Review a sample of
overtime in excess of worked must be weekly overtime sheets
30% of the standard authorised by the for evidence of
relevant signature by the head of
hours are authorised department head. the department
by department heads. The authorisation concerned.
should be
This increases the risk evidenced by
of employees claiming signatures.
for overtime not
worked, leading to
additional payroll
costs.
The payroll clerks do Payroll clerks must Review a sample of
not always check the agree holidays holidays taken in lieu of
overtime report before taken in lieu to the overtime to verify
employees take time overtime report, whether the payroll
off in lieu of overtime and record that clerk has agreed the
worked. this has been time taken in lieu to the
done. Where overtime report.
This increases the risk inconsistencies
of employees taking arise, the payroll
unauthorised leave, clerk should notify
leading to wages being the relevant
paid for days which department head.
have not been worked.
The overtime worked Departments For a sample of
report is emailed by should be required overtime worked
the payroll department to respond to the reports, inspect the
to department heads, payroll responses received from
who report only by department each department head.
exception if errors are regarding each
identified. overtime worked
report, regardless
The authorisation of of whether it is
overtime sheets by an correct.
alternative responsible
official while the
department heads are No payment
on leave does not should be made
always occur. until the report
The fact that the has been
department heads only authorised by the
report by exception relevant official.
can cause the payroll
department to
mistakenly assume
that the overtime
report is correct when
it is not- leading to the
payment of incorrect
overtime.
The lack of holiday
cover for the
authorisation of
overtime can lead to
overtime pay being
delayed, resulting in
the loss of employee
goodwill.
Employees are entitled Employees should Observe whether a
to a 30-minute paid be allocated set supervisor is present
break and do not need break times and and is ensuring that only
to clock out to access there should be a the allowed break is
the dining area. supervisor present taken by the employees.
to ensure that
Employees could be employees only
taking excessive breaks take the breaks
resulting in a decrease they are entitled
in productivity and to.
increased payroll costs.
Although there is a All appointment of Inquire with the staff
human resources staff, whether the procedure to
department, temporary or appoint temporary staff.
appointments of permanent, should
temporary staff are only be made by
made by factory the human
production resources
supervisors. department.

The supervisor could

appoint unsuitable
employees and may
not carry out all the
required procedures
for new joiners. This
could result in these
temporary employees
not receiving the
correct pay and
relevant statutory
deductions.
Overtime reports All overtime Review whether the
which detail the should be responsible official has
amount of overtime authorised by a signed the overtime
worked are sent out responsible official reports.
quarterly by the prior to the
payroll department to payment being
production supervisors processed by the
for review. payroll
department. This
These reports are authorisation
reviewed after the should be
payments have been evidenced in
made which could writing.
result in unauthorised
overtime or amounts
being paid incorrectly
and payroll cost
increasing.
Production supervisors The bonus should Inspect the written
determine the amount be determined by bonus records to ensure
of the discretionary a more senior that a responsible
bonus to be paid to individual, such as official is authorising the
employees. the production bonuses.
director, and this
Production supervisors should be
are not senior enough communicated in
to determine this as writing to the
they could pay extra payroll
bonuses to friends or department.
family members.
Holiday request forms Employees should Inquire of an employee
are required to be be informed that the method for applying
completed and they will not be for a holiday request
authorised by relevant able to take and confirm that
line managers; holiday without authorisation from line
however, this does not completion of a manager is required.
always occur. holiday request
form, with
This could result in authorisation from
employees taking the line manager.
unauthorised leave,
resulting in production
difficulties if an
insufficient number of
employees are
present. Additionally, it
could lead to
overpayment of wages.
The senior payroll Authorisation of Inquire of the staff as to
manager reviews the the bank transfer who authorises the
bank transfer listing listing should be bank transfer listing
prior to authorising the undertaken by an prior to payments and
payments and also individual outside inspect the signature on
amends the payroll the payroll the list.
records for any department, such
changes required. as the finance
director.
There is a lack of
segregation of duties
as it is the payroll team
which processes the
amounts and the
senior payroll manager
who authorises the
payments. The senior
manager could
fraudulently increase
the amounts to be paid
to certain employees,
process this payment
as well as amend the
records.
The bonus is input by a Once the clerk has Inquire from the staff
clerk into the payroll input the bonus who inputs the bonus
system. amounts, all into the payroll and also
entries should be inquire whether another
If this process is not double checked team member cross-
reviewed, it could lead against the written checks it.
to errors or fraud confirmation from
the production
resulting in incorrect director by
bonus payments. another member
of the team to
identify any
amounts entered
incorrectly.
The payroll manager The payroll Inquire with the staff as
reviews the bank manager should to who can amend the
transfer listing prior to not be able to payroll records.
authorising the process changes to
payments and also the payroll system
amends the payroll as well as
records for any authorise
changes required. payments. The
authorisation of
There is a lack of the bank transfer
segregation of duties listing should be
as it is the payroll team undertaken by an
which processes the individual outside
amounts and payroll the payroll
manager who department, such
authorises payments. as the finance
The manager could director.
fraudulently increase
the amounts to be paid
to certain employees
and process this
payment as well as
amend the records.
A payroll clerk Payroll clerks Observe how payroll
distributes cash pay should be clerks distribute the
packets to employees informed that all cash pay packets and
without requesting cash wages can whether or not they ask
proof of identity. only be paid upon for photographic
 sight of identity proof prior to
Even if most photographic handing the pay packet.
employees are known identification and
to the clerk, there is a employee’s clock
risk that without card.
identity checks, wages
could be paid to
incorrect employees.

Internal control Recommendation Test of control

deficiency (for
purchase and
payment system)
The purchasing The purchasing Discuss with the store
manager manager should managers to confirm
determines store consult the store whether they have been
inventory levels managers and a joint consulted on inventory
without consulting decision should be order levels.
store manager or made on the initial
sales manager. inventory levels to
be ordered.
Certain goods may
be over-ordered
leading to them
being sold at lower
prices. This may
lead to the
inventory being
overvalued (if held
at cost). Also,
some inventory
may not be
ordered in enough
quantity to meet
the demand,
leading to loss of
sales and
customer
goodwill.
Store managers When inventory falls Use test data to process
are responsible for below a sufficient sales so that the
reordering predetermined level, inventory levels of a
through the the purchasing sample of items fall below
purchases manager should be the reorder level.
manager and it prompted to raise a Determine whether an
can take four purchase order. The automatic reorder request
weeks for goods to system may is emailed to the
be received. generate an purchasing manager.
automatic reorder
The store manager request which is
may be late in emailed to the
ordering and the purchasing manager.
inventory may run
out for a period up
to four weeks,
resulting in loss of
revenue and
customer
goodwill.
Stores cannot An internal ordering Process a sample of orders
transfer goods system should be set between different stories
between each up which allows for in order to determine
other to meet the transfer of goods whether the internal
demand. between stores. ordering system operates
Customers are Additionally, stores as documented.
directed to try with extremely low
other stores/the inventories should
be able to order it
website when an from stores with
item is sold out. excess inventories to
meet demand while
The system is goods are
inconvenient to reordered.
the customer and
hence there might
be a loss of
revenue and the
perceived lack of
customer service
may damage the
store’s reputation.
Goods received A copy of order Inspect a sample of GRNs
are not checked should be checked to confirm that they have
against purchase against GRNs. If all been checked back to the
orders. details are correct, original order.
the order should be
Goods which were marked completed
not ordered may and sent to the head
be received, office.
leading to
unnecessary The purchasing clerk
purchases. Some should review
goods ordered whether there are
may not be any incomplete
received leading to items and
insufficient investigate why
inventory levels these have not been
and loss of completed.
revenue.
Purchase orders A country-by- Inspect the documentation
reviewed and country review of relating to the review of
authorised by the orders should be orders to determine
purchasing carried out by the whether they have been
director are purchasing director. reviewed in sufficient
aggregated by Where appropriate, detail.
region. discussions should
take place between
The lack of detail the purchasing
does not allow the director and local
purchasing purchasing
director to make managers before
an informed authorisation of
assessment of the orders.
buying policies
and they may be
unsuitable for
specific markets
within regions.
Quality of goods is Goods should be Observe a sample of goods
not checked by checked on arrival being received in order to
sales assistants, for quantity and determine whether goods
only quantity is quality prior to are checked for both
checked. acceptance. quality and quantity.

Poor quality goods

may be accepted
and may not be
saleable (also
inventory may be
temporarily
overvalued).
Purchase invoices A purchasing system Process a sample of orders
and GRNs are should be adopted using test data. Trace the
manually which allows for orders through the
matched, which is logging of GRNs purchase system to verify
time consuming. against original that all appropriate checks
 invoices, and then and authorisations are
The manual electronic/automatic requested by the system.
processing of high matching of invoices
volume of against GRNs.
documents is
prone to human A regular review by
error. Invalid the clerk should be
invoices may be done to find
processed as a unmatched items.
result.
A purchase invoice A list of invoices not Review the list of invoices
is not put on the posted should be not posted to ensure they
system until it is prepared on a are being prepared on a
ready for monthly basis and monthly basis, and that
authorisation by passed to the they are authorised by the
the purchasing purchasing director purchasing director.
director. for authorisation
and an accrual made
The purchase to ensure
ledger will not completeness of
have all invoices payables.
posted,
understating
liabilities. Also,
payables may be
paid late.
When raising An approved Attempt to create an order
purchase orders, supplier list should from a supplier not listed
the clerks choose be compiled, this in the approved list and
whichever supplier should take into confirm that the system
can despatch the account the price of rejects it.
goods the fastest. goods, their quality
and also the speed
of delivery. All
This could result in orders should only
ordering goods at be placed with
much higher price suppliers on the list.
or a lower quality
than they would
like, as the only
factor considered
was speed of
delivery.
Purchase orders All purchase orders Review whether sequence
are not should be checks are performed and
sequentially sequentially how any unfulfilled orders
numbered. numbered and on a have been investigated.
regular basis a
The ordering sequence check of
teams will be unfulfilled orders
unable to monitor should be
if all orders are performed.
being fulfilled in a
timely manner;
this could result in
stock outs.
Purchase orders All purchase orders Review the signatures of
below $5,000 are should be authorised signatories
not authorised authorised by a according to the amount
and are processed responsible official. of purchase as per the list.
solely by an order
clerk. Authorised
signatories should
This can lead to be established with
unnecessary varying levels of
purchases. In purchase
addition, clerk authorisation.
may place orders
for personal goods
up to the value of
$5,000.
Purchase invoices The purchase ledger Observe the purchase
are input daily by clerk should input ledger clerk while he is
the purchase the invoices in inputting the data to
ledger clerk and batches and apply confirm whether he
due to his application controls applies application
experience, he such as control controls or not.
does not utilise totals, to ensure
any application completeness and
controls. accuracy over the
input of purchase
Without invoices.
application
controls, there is a
risk that the
invoices could be
input into the
system with
inaccuracies or
they may be
missed out
entirely. This could
lead to suppliers
being paid
incorrectly,
leading to a loss of
supplier goodwill.
The purchase day The purchase ledger Review the update of
book should automatically general ledger and confirm
automatically update the general that an official oversees
updates with the ledger. A responsible the correct posting by
purchase ledger official should then evidencing the
but this ledger is confirm through reconciliations with his
manually posted purchase ledger signature.
to the general control account
ledger. reconciliations.

This increases the

risk of errors
occurring and
hence payables
balance could be
misstated in the
financial
statements.
Bank Bank account Inspect whether the
reconciliation is reconciliations reconciliations have been
performed once in should be performed and reviewed
two months. performed on a by a responsible official by
monthly basis and a looking for their signature.
There is a risk that responsible official
errors will not be should review it and
identified on a evidence their
timely basis. Also, review.
the employees can
commit fraud
knowing that
these accounts are
not regularly
reviewed.
GRNs are only sent GRNs should be Review the file of copy
to the accounts created in three GRNs held by the purchase
department. parts and a copy department, and review
should be sent to for evidence that these are
Failing to send a purchase matched to orders and
copy to the department, who flagged as complete.
ordering should agree this to
department could the order and
result in significant change the order
unfulfilled orders status to complete.
leading to loss of
sales and stock-
outs.
GRNs are sent to Copy of sequentially Inquire of accounts clerk
the accounts numbered GRNs as to the frequency of
department every should be sent daily when GRNs are received
two weeks. to the accounts to assess if they are being
department who sent promptly.
This could result in should also
delays in suppliers undertake a
being paid as the sequence check to
purchase invoices ensure none are
could not be missing for
agreed to a GRN processing.
and also recorded
liabilities being
understated.

Additionally, any
prompt payment
discounts offered
by suppliers may
be missed due to
delayed payments.
There is a policy of Cash flow Review the trade payables
delaying payments forecasting should payment period to make
to suppliers for as be undertaken to sure that the suppliers are
long as possible. maximise bank paid within a reasonable
balances. Suppliers period.
should be paid in a
There is a risk that systematic manner
company is such that supplier
missing out on goodwill is not lost.
early settlement
discounts. This can
also lead to loss of
supplier goodwill
as well as the risk
that suppliers will
refuse to supply
goods to the
company.
The finance Finance director Inspect whether the
director authorises should review the finance director has
the bank payment whole list prior to reviewed the list prior to
transfer list for authorising. signing by inquiring the
suppliers; staff whether the finance
however, he only He should agree the director asked for
reviews the total amounts being paid supporting
amount of to the supporting documentation.
payments to be documentation, as
made. well as reviewing the
supplier names to
Without looking at identify any
the details and the duplicate or
supporting unfamiliar names.
documents, there This review should
is a risk that be evidenced by his
suppliers could be signature.
paid an incorrect
amount or that
sums are paid to
fictitious suppliers.
Deficiencies in Control Tests of control
warehouse and recommendations
inventory count
The count will be Members of Attend the year-end
undertaken by teams alternative count and enquire of
of warehouse staff. departments should the counting teams
undertake the which department
There is lack of counting rather than they normally work
segregation of duties the warehouse staff. in.
as those who have
day-to-day
responsibility for
inventory are
themselves checking
it. There is an
increased risk of fraud
and error.
The inventory sheets Count sheets should Inspect a sample of
contain quantities as be sequentially counting sheets being
per the inventory numbered and used by the counting
records. contain product codes teams to verify that
and descriptions but only inventory
There is a risk that the not quantities. product codes and
counting teams may description are pre-
simply agree with the printed on them.
pre-printed quantities
rather than counting
the inventory
correctly, resulting in
significant errors in
inventory.
There are 15 teams of One member should Observe the counting
counters, each team count and the second teams to assess if
member should also they are counting
having 2 members of undertake a count together or if one
staff. and then record the counts and the other
inventory on the then double checks
There is no clear inventory sheets the quantities
division of correctly. counted.
responsibilities within
the team. Both Additionally, the
members should member of staff
count together rather supervising the count
than checking each could undertake
other’s count. sample checks of
inventory counted by
each team.
Inventory owned by All inventories Enquire of the count
third parties is also belonging to third supervisor where the
being counted by the parties should be kept third party inventory
teams, with in one place and is to be stored,
adjustments being clearly marked that confirm through
made by finance team this has to be inspection of the
to split these goods excluded from the counting sheets that
out later. count. these areas are not
included in any pre-
There is a risk that printed forms.
these goods may not
be correctly removed
from the inventory
count sheets,
resulting in inventory
being overstated.
High value inventory Only senior members Attempt to access the
which is normally of the team should be area where high value
stored in a secure allocated to count inventory is stored;
location will be these goods and they this should not be
accessible to all team should only be given
members as they will the access code to possible without the
be given the code. enter the area. access code.

There is an increased Once the goods have

risk of theft as any been counted, the
counting team access code should be
member could changed.
subsequently access
these goods.
Each bay of the Once all inventories Observe the counting
warehouse is counted have been counted team undertake
once only. once, each area second counts of all
should be recounted areas; confirm that
If inventory is only by a different team. different teams
checked once, then Any differences on undertake this
counting errors may the first count should process.
arise resulting in be promptly notified
misstated inventory. to the count
supervisor and if
necessary, a third
count may be
undertaken.

If a full second count

would be too time
consuming for the
company, then
sample checks on the
inventory counted
should be undertaken
by a different
counting team.
Once areas are All bays should be Physically confirm
counted, the teams flagged as completed that the completed
are not marking the once inventory has bays have been
bays as completed. been counted. flagged to indicate
that the goods have
There is a risk that At the end of the been counted.
some areas may be count, the count
counted twice or not supervisor should
counted at all. confirm that all bays
have been flagged.
The inventory sheets After the count has Review the sequence
are sequentially finished, each team of the inventory
numbered and at the should return all their sheets for any gaps in
end of the count they sequentially the sequence and
are given to the count numbered sheets and obtain an explanation
supervisor who the supervisor should from the count
confirm with each check the sequence of supervisor.
team that they have all sheets at the end
returned all sheets. of the count.

Since no sequence
check has been
performed of the
sheets, inventory
records could be
understated if sheets
are missing.

Strength in internal control Recommendation for

The purchasing department
researches the lowest price from
suppliers before raising a
purchase order.
improvement
In order to also ensure that goods
are of required quantity, an
approved list of suppliers could
be made, with purchases only
being permitted from those
suppliers on the list.
This helps with economy of the
process, attaining resources at
the lowest cost.
Overtime rates have been Increased hours will affect overall
increased and this has efficiency given that same staff is
incentivised the staff to fill carrying out extended shifts.
staffing gaps. Ideally, more permanent staff
should be recruited to carry out
As a result, company has saved overtime.
money by decreasing the level of
expensive temporary staff.

Additionally, permanent staff may

be more effective as they are
familiar with the company’s
systems and the way work is
done.
Card clocking is in place to ensure System may allow payable
employees are only paid for hours overtime to accumulate simply
worked. because an employee clocks out
late. The system should be set to
It also provides a means for automatically clock out after the
recording hours worked which is normal number of shift hours.
valuable management Staff can clock back in case they
information. work overtime in an authorised
shift.
A capital expenditure committee An authorisation policy can be
of senior managers has been set drawn up setting out the different
up to authorise significant capital levels of authorisation needed
expenditure items. depending upon the amount of
expenditure for capital items.
This will help prevent cash
outflows for unnecessary assets,
or assets not budgeted for.
There is an internal audit The remit of internal audit could
department. be extended to advising on
implementation.
It will advise on value for money
and monitor the internal control
environment.
Orders are authorised by a Orders below a certain monetary
purchasing director. level should be authorised by the
lower level of management.
This will help to ensure that only Orders over the specified
necessary expenditure is incurred. monetary value should be
authorised by purchase director.
New equipment purchased has The company should look at
improved the effectiveness and providing targeted training for
efficiency of operations. existing staff and look to recruit
staff that have the appropriate
skills.
Pay packets are prepared by two Observe the preparation of pay
members of staff with one packets ensuring that two
preparing and one checking the members of staff are involved
pay packets as this is evidenced and that pay packets are checked
by each staff member signing the for accuracy.
weekly listing.

This ensures there is segregation

of duties which prevents fraud
and errors not being identified.
The company has separate HR Discuss with the members of
department which is responsible payroll the process for setting up
for setting up new employees. new joiners and for confirmation
that the process is initiated by HR.
The segregation of duties
between HR and payroll reduces
the risk of fictitious employees
being set up and paid.
Pre-printed forms are completed Select a sample of edit reports for
by HR for all new employees and changes to payroll during the
includes assignment of a unique year; agree a sample of new
employee number. Payroll is employees added to payroll to
unable to set up new joiners the joiners forms.
without information from these
forms.

This minimises the risk of

incorrect wage and tax payments.
In addition, as payroll is unable to
set up new joiners without forms
and employee number, it reduces
the risk of fictitious employees
being set up by payroll.
Quarterly production bonus is Obtain listings of quarterly bonus
input by a clerk into the payroll and review for evidence of
system, each entry is checked by signature by the senior clerk who
a senior clerk for input errors checks for input errors.
prior to processing, and they
evidence their review via
signature.

This reduces the risk of input

errors resulting in
over/underpayment of the bonus
to employees.
Production employees are issued
clock cards and are required to
swipe their cards at the beginning
and end of their shift, this process
Confirm the security team is
supervising the process and
following up discrepancies
through discussions with the
security staff.
is supervised by security staff 24
hours a day.

This ensures that genuine

employees are only paid for the
work actually done, and reduces
the risk of employees being paid
but not completing their shift.
The clock card information Input dummy clock card
identifies the employee number information and verify that this
and links into the hours worked has been updated into the payroll
report produced by the payroll system.
system.

As the hours worked are

automatically transferred into the
payroll system, this reduces the
risk of input errors in entering
hours to be paid in calculating
payroll, ensuring that employees
are paid the correct amount.
On a quarterly basis, exception Select a sample of quarterly
reports of changes to payroll exception reports and review for
standing data are produced and evidence of review and follow up
reviewed by the payroll director. of any unexpected changes by the
payroll director.
This ensures that any
unauthorised amendments to
standing data are identified and
resolved on a timely basis.
For production employees paid in Review a sample of invoices from
cash, cash is received weekly the security company for delivery
from the bank by a security of cash.
company.
It is likely that the sum of money
required would be considerable.
It is important that cash is
adequately safeguarded to
reduce the risk of
misappropriation.
Test of control for sales system
Enter an order for a fictitious
customer account number and
ensure the system rejects it.
Inspect a sample of processed
credit applications from the credit
agency and ensure the same
credit limit appears in the sales
system.
For a sample of invoices, agree
that current prices have been
used by comparing them with
prices shown on the current price
list.
For a sample of invoices showing
discounts, agree the discount
terms back to the customer
master file information.
For a sample of orders ensure
that an order acceptance email or
letter was generated.
Visit a warehouse and observe
whether all goods are double
Test objective
To ensure that orders are only
accepted and processed for valid
customers.
To ensure that goods are only
supplied to customers with
acceptable credit ratings.
To ensure that goods are only
sold at authorised prices.
To ensure that sales discounts are
only provided to those customers
the sales director has authorised.
To ensure that all orders are
recorded completely and
accurately.
To ensure that goods are
dispatched correctly to customers
and are of an adequate quality.
checked against the GDN and
dispatch list before going out.
With the client’s permission, To ensure that goods are not
attempt to enter a sales order supplied to poor credit risks.
which will take a customer over
agreed credit limit and ensure
order is rejected.
Attempt to process an order with To ensure that sales discounts are
a sales discount for a customer only provided to valid customers.
not normally entitled to discounts
to assess the application controls.
Observe the sales order clerk To ensure that all orders are
processing orders and look for recorded completely and
proof that the order acceptance is accurately.
automatically generated.
Inspect a sample of GDNs and To ensure that all goods
agree that a valid sales invoice dispatched are correctly invoiced.
has been correctly raised.
Review the latest report from the To ensure completeness of
computer sequence check of sales income for goods dispatched.
invoices for omissions and
establish the action taken in
respect of any omissions found.