Term paper submitted for partial fulfillment of the requirement for the degree of

Bachelor of Business Administration

Term paper
On
“Internal Audit study on Saad Musa Group’’

Mr. Stive Oscar D’ Rozario

Lecturer
Department of Accounting
Premier University, Chittagong

Prepared by:

Dipta Das
ID No: 1503210108274
Batch: 32nd
Bachelor of Business Administration
Department of Accounting
Faculty of Business Studies
Premier University, Chittagong

Premier University, Chittagong

Submitted Date: 14th April 2020

Letter of Submission

Mr. Stive Oscar D’ Rozario

Lecturer
Department of ACCOUNTING
Premier University, Chittagong

Subject: Submission of Term paper Report.

Dear Sir,
With great pleasure I hereby submit my Term paper on “Internal Audit study on Saad Musa Group”

I am thankful to all those persons who provided important information and gave valuable advice. I
would be greatly obliged if you read the carefully and I will be trying to answer all the questions
that you have about the report.

I have tried my level best to complete this meaningfully and correctly, as much as possible.
However, if you need any assistance in interpreting this please contact me without any kind of
hesitation. Thanking you.

Yours sincerely,

………………………………………

Dipta Das
ID No: 1503210108274
Batch: 32nd
Bachelor of Business Administration
Department of ACCOUNTING
Faculty of Business Studies
Premier University, Chittagong
Acknowledgement

It is needed a great pleasure and honor on my part to have opportunity to submit this after three
months of practical orientation in Saad musa group of industries. Completion of the report would
not have possible without the help of some kind hearted people and I will be ungrateful If I fail to
Appreciate their kindness and Thank to them.
First of all I would like to thank Almighty Allah for all his blessing that make me come this far. At
first I would like to thank my honorable supervisor Mr. Stive Oscar D’ Rozario, Lecturer,
Department of accounting , Premier University, Chittagong for his valuable guidance, cordial
cooperation, encouragement and time to time forbearance assistant. I cannot think of submitting this
without having his crucial support.
I would like to thank and covey my gratitude to Mr. Mohammed Jahangir Alam, (Relationship
Manager), Saad musa group of industries. I am also greatly indebted to Mr. Mohammad Rafiqul
Islam, (S.P.O).

I am deeply thankful and grateful to Mr. Mohammad MainulHoqueAmiree (E.O), Mrs.

RifatAra Begum (E.O), Mr. MahabubulAlamPatwary(E,O), Mr. Tanjir Ahmed Robin (E.O),
Mr. MohiuddinShamim (IT Officer), Mr. NazmulHossain (Officer), who have shared valuable
time and helped me to collect information about Saad musa group of industries. I would like to
express my deep complements & hearty thanks to all other officers and stuffs of Saad musa group
of industries.

Finally, I like to thank all of my teachers & friends who shared their suggestion and views with me.
So I pray the life and good health for all the persons who have helped and co-operated me in my
report.

Thanking all

………………………………………
Dipta Das
ID No: 1503210108274
Batch: 32nd
Bachelor of Business Administration
Department of ACCOUNTING
Faculty of Business Studies
Premier University, Chittagong
Executive Summary

The study has been conducted as a part of partial requirement of BBA degree as per circulation
structure of Department of Business Studies, Premier university, Chittagong. This contains the real
life day to day working experience of different task of Saad musa group of industries Chittagong.
This is mainly based on General management work of Saad musa group of industries. The overall
General recruitment and selection process of Saad musa group of industries .Has analyzed to give a
clean idea about the activities, operational strategies and the performance of Saad musa group of
industries. The main objective of this study to evaluate the Steel Re-rolling Mills Business Practices
of Saad musa group of industries, Chittagong. The objective is to discuss about the General Steel
Re-rolling Mills product and service. In order to prepare the report, data were collected to
observation during the three months Term paper period and from annual of the Saad musa group of
industries.

Based on the objectives of the study, the is broadly categorized in 6 chapters.

In the 1stchapter I have focused on introduction. In the 2ndchapter I have focused on company
profile. In 3rdchapter I have focused on literature review.In 4thchapter I have focused on main
topic, human resource management’s performance of Saad musa group of industries SAAD MUSA
GROUP OF INDUSTRIES, In the 5thchapter focused on findings and analysis, in 6thchapter I have
focused on recommendation and conclusion. As I saw while visiting the industry, the working
environment of Saad musa group of industries SAAD MUSA GROUP OF INDUSTRIES is very
conducive and friendly. The stuffs are specialized in their respective fields. Each of them works on
their own and these are close supervision from the top. Each member is individually responsible for
his work.
 CHAPTER: 1
INTRODUCTION
INTRODUCTION:

SAAD MUSA GROUP is one of the leading manufacturers of fabrics, HomeTextile, Woven and
Knit products in Bangladesh.It is a vertically integrated group of industries for SPINNING,
WEAVING, DYEING, PRINTING &FINISHING.Established in 1982, SAAD MUSA GROUP is
now a composite solution for raw cotton processing to final end products, such as fabrics of
different construction and type, woven and knitwear. It is a 100% export oriented manufacturer,
delivering quality products around the globe specially in USA, CANADA, EUROPE and
AUSTRALIA.

Objective of the Study

The objective of the study can be classified in to three main strata: Primary
objective, secondary objective and tertiary objective

Primary Objective of the is to complete the internship program. Being a

student of B.B.A, a student has to work in any organization for three months
to acquire pragmatic knowledge about the job field and career choice.

Secondary Objective of the study is to have a detail insight on the audit

process in a manufacturing company specially when there is a scope of
embezzlement of fund and mis- accounting.

Tertiary Objectives of the study are:

 To know the audit process in Bangladesh perspective

 To increase adaptability in an organization
 To know about the manufacturing companies work procedures

Methodology

It is a descriptive study which mainly focuses in qualitative data rather than

quantitative data. Some quantitative data were also collected which was for
ensuring the qualitative information. However, the data was collected from
two sources: Primary source and secondary source.

Primary Source:

 Client office staying

 Client’s factory visit
 Interview the employee of the client company
  Discussion with the engagement partner, audit managers and senior students of

Secondary Sources:
 Financial statement of the company
 File and documents of the client company
 Official website of Saad musa group of industries

Limitations of the study

The audit was conducted under much facilities and the company was always
ready to serve as far as possible. Nevertheless, still we face lack of proper
authenticated and authorized data as the client company was not maintaining
back data and the trail of transactions are sometimes not preserved. Some
more limitations were:

 Sometimes instant industry visit was required which was not always possible.
 Sometimes the employees are not ready to co-operate
 The organization was observed for a limited time
which was not enough to understand the business
practice properly.
 12 week duration is not ample time to understand and get the idea
of practical work life.
 CHAPTER: 2
Company Profile
In the year 1982, Mr. Muhammad Mohsin a young, energetic, enthusiastic entrepreneur entered in
today’s competitive corporate environment with his philosophy “LOVE BANGLADESH, BUILD
BANGLADESH” and started analyzing about the Society’s Welfare “how to serve mass people
and the country as well”. He visualized that only by establishing industries one can serve the nation
by creating employment opportunities and promoting exports for earning valuable foreign exchange
for the country. His vision is to build poverty free, population free healthy green Bangladesh
through sustainable development by application of latest technology. His cherished dream is to
become a leading entrepreneur in terms of efficiency, capital adequacy, sound management &
profitability with strong liquidity.

Management
Muhammad Mohsin

Chairman, Managing Director, Proprietor of SAAD MUSA GROUP OF INDUSTRIES

A leader is one who knows the way, goes the way, and shows the way-John C. Maxwell.
Under the dynamic leadership of entrepreneur, founder and Managing Director Alhajj Mr.
Muhammad Mohsin, Saad Musa Group of Industries continues to be a successful business entity
across several sectors in Bangladesh, with his motto- “love Bangladesh, build Bangladesh” and his
handpicked hardworking and workaholic pool of people have transformed his dream into a reality
today.

Managing Director’s Message

In the year 1982, we entered in today’s competitive corporate environment with our
philosophy “Love Bangladesh, Build Bangladesh”and started analyzing about the Society’s
Welfare “HOW TO SERVE MASS PEOPLE AND THE COUNTRY AS WELL”. We
visualized that only by establishing industries one can serve the nation by creating employment
opportunities and promoting exports for earning valuable foreign exchange for the country.
However in 1994 we started our business under Saad Musa Group and since then expanded
business in several diversified sectors. Subsequently, we expanded our business focusing RMG and
Textile sector and have taken initiative to establish an Industrial Park on 100 acre of land located at
Anwara in Chittagong concentrated on spinning mills with 80,000 spindles which would luckily to
create employment of around 50,000 people. At present 26 business units have been formed under
the Group umbrella.
Saad Musa Group adheres strictly to the regulatory guidelines on corporate governance and
corporate sustainability. We have focused on specific key areas namely diversification of business
and enhancement of market place, promotion of work place, support to the community and
protection of environment. Human Resources of any organization are important asset and a key of
success. Saad Musa Group is working with a vision of transforming Human Resources into
Human Capital through appropriate knowledge, skills, abilities and personal attribution. A healthy
environment has been created where employees enjoy working with pride. Believing that, Human
Resources are main elements behind success and future sustainability of any organization, Saad
Musa Group is developing and motivating the workforce with contemporary HR policies and
attractive benefits. Saad Musa groupis not offering a job only but also creates opportunities for
learning, challenging and rewarding career. The total amount of regular employees of Saad Musa
Group is stood at 1,000.
I like to conclude with sincere thanks and gratitude to the Chairman of our Group, the Board of
Directors, all the investors, local and foreign buyers and all the suppliers for their support, guidance
and cooperation. I appreciate the winning seed of my official team, their dedication and
commitment towards their responsibilities.

Top Management :

Dire – Bangladesh Textile Mills

ctor Association.
EC
Fou – South Bangla Agricultural
nde & Commerce Bank Ltd.
r
Dire
ctor
Fou – Meridian Finance &
nde investment Ltd.
r
Dire
ctor
Fou – National English School.
nde
r
Dire
ctor
Life – Chittagong Diabetic
Me Hospital.
mbe
r
Me – Export Promotion
mbe Bureau, Bangladesh.
r
Me – Bangladesh Garments
mbe Manufacturer & Exporters
r Association.
Me – Chittagong Chamber of
mbe Commerce & Industry.
r
Fou – South East University.
nde
r
Dire
ctor
Fou – South East Foundation
nde
r
Dire
ctor
Fou – Chittagong Metropolitan
nde Hospital Ltd.
r
Dire
ctor
Fou – Chittagong Multi Project
nde Ltd.
r
Dire
ctor
Fou – Chittagong Ideal School
nde & College.
r
Dire
ctor
Fou – South Point School &
nde College.
r
Dire
ctor
Fou – South Point Foundation
nde
r
Dire
ctor
Life – Chittagong MAA O
Me Shishu Hospital.
mbe
r
Me – Shah Mohsen Awlia (RH)
mbe Degree College.
r
GB
Me – Cantonment English
mbe School & College,
r Chittagong.
GB
Me – Anwara Degree College.
mbe
r
GB
Life – Chittagong Club Limited
Me
mbe
r
Life – Bhatiary Golf & Country
Me Club.
mbe
r
Life – Chittagong Eye Infirmary
Me and Training Complex.
mbe
r
Fou – Chittagong City School &
nde College.
r
Dire
ctor
Fou – Education and Social
nde Development Trust
r
Dire
ctor
Fou – Imperial Hospital Ltd,
nde Chittagong.
r
Dire
ctor
Fou – South Asia Foundation.
nde
r
Dire
ctor
Fou – Hilltop Park.
nde
r
Dire
ctor
Fou – Shah Mohsen Awlia (RH)
nde Science & Technology
r Complex.
Dire
ctor
Fou – Proactive Medical
nde College & Hospital
 r
Dire
ctor
Fou – Inani Welfare Association
nde
r
Dire
ctor
Fou – Asian Hospital (Pvt.) Ltd.
nde
r
Dire
ctor
Dire – Chittagong Metropolitan
ctor Chamber & Commerce.
Life – Chittagong Boat Club.
Me
mbe
r
Fou –
nde ShitalchayaBohumukhiSam
r abaiSamity Ltd.
Dire
ctor
Future planning of Saad Musa Group in respect to the welfare of the society (CSR):
 Planning to construct multi stored mosque.
 Orphanage with the capacity of 500 orphan initially.
 Free Tutorial School & College.
 Medical College and Hospital in Native Village
 Saad Musa Education Village ( Play Group To Master’s Degree)
 Saad Musa Foundation.

Environmental contribution of Saad Musa Group

All of our industrial Units under the umbrella of Saad Musa Group are free from all kinds of
pollution We have the arrangement to free our environment from pollution around our all industrial
Units like air pollution, water pollution & sound pollution. We have erected a physicochemical ETP
at our Kulgaon industrial area and another biological ETP at our Saad Musa Industrial Park,
Anwara for meticulous treatment of the industrial effluent to two components like fresh water and
sludge.
Ultimately this fresh water can be used as drinking water and irrigation purpose and the another
component sludge can be used as fertilizer in the firm land. We also have the plantation,
horticulture, fishing pond within our project which maintain a friendly atmosphere of the
environment.
[ETP Effluent Treatment Plant
[Cost of the 02 (two) ETP is BDT 40.00 Crore approximately.

Future expansion plan

A long cherished dream comes true as the company recently established the Saad Musa Industrial
Park, a state of the art technology added to the group at Anwara on the south bank of the Karnafuli
River, Chittagong on an area of 100 acres land in the locality encircled by villages of the sponsor’s
native Upazila. The company will set up 24 factories of different products. New addition to the
industrial zone will be Highly Technical Pharmaceuticals, Jute Yarn Industries, Knit Composite
Textiles, Towel Industries, and Denim Project, Food Processing Industry, Soap Industry, Dalda&
Vegetable Oil, Soybean Oil, Mustard Oil industry and most modern garments and household
industry. All projects are in a single Industrial park of 100 Acres of land and potential investment
will be more than US$ 815 Million where it will create the scope of employment of about 50,000
manpower and we will be able to earn more than Tk. 01 billion annually at Anwara, Chittagong.
BRIEF HISTORY OF SAAD MUSA GROUP
The Industrial Journey of Saad Musa Group is as follows:-
Chittagong Fiber Boards Ltd
Saad Musa Group started its first industrial set up in the year 1986 named Chittagong Fiber Boards
Ltd to produce & Re-enforced Leather Fibre sheet &Slivercan to meet the local demand of Jute &
Textile Mills which has tremendously reduced the volume of import.
SAAD MUSA FABRICS LTD. (WEAVING DIVISION)
Saad Musa Group started practical operation of weaving unit in 1994 by installing 97 Nos. of Air
Jet Looms with the initial investment of US $ 4 Million Formed as SAAD MUSA WEAVING
UNIT and started its commercial production from 1995. The production capacity of this unit 50,000
Mtrs Per day and from the same time it has started its own export through catering to the export
oriented garments unit in Bangladesh.
SAAD MUSA FABRICS LTD. (DYEING, PRINTING, FINISHING & STITCHING
DIVISION)
Due to extreme demand for the finished fabrics and Made Ups, Saad Musa Fabrics had set up its
own 4.2 Mtr working Width Dyeing, Printing & Finishing unit from 2001 with the new investment
of US$ 12 Million and started exporting of House Hold Textile Made ups from 2002. Production
capacity of the unit is 80,000 Metre per day.
SAAD MUSA FABRICS LTD. (GARMENTS DIVISION)
Saad Musa Fabrics Ltd started producing of different types of garments from December 2001 and
exporting its final products to the EEC countries and to USA. It has been observed in several cases
that demand of this trade is being increasing day by day and the group is expanding its production
facilities on continuous basis. Production capacity of the unit is 40,000 dozen per month.
SAAD MUSA HOMETEX & CLOTHING LTD. (KNIT DIVISION)
Due to extreme demand of Knit products Saad Musa Group started producing of different types of
Knit products (Ladies Panty, Boxer, T-Shirt) from 2008 and exporting its final products to Canada
UK Europe and USA. It has been observed in several cases that demand of this trade is being
increasing day by day and the group is expanding its production facilities on continuous basis.
Production capacity of the unit is 72,000 dozen per month.
M. A RAHMAN DYEING INDUSTRY LTD. (DYEING & PRINTING )
Due to extreme demand of House Hold Textiles and to satisfy existing customers, and to have more
margin and turn over of this unit, the group has installed new processing machineries for having
balanced production of 1,00,000 mtrs per day with the new investment of US$ 25 Million.
SAIMA SAMIRA TEXTILE MILLS LTD. (WEAVING UNIT)
Due to extreme demand of RMG & House Hold Textiles and to satisfy existing customers SAAD
MUSA GROUP have already set up 224 Zax Tsudakoma Air Jet looms of 154” working width to
fulfill the demand of grey fabrics requirement. The production capacity of this unit is 1,00,000 Mtrs
Per day with the new investment of US$ 40 Million
SULTAN HABIBA FABRICS MILLS LTD. (EXPANSION OF WEAVING UNIT)
Due to extreme demand of this trade is being increasing day by day (RMG & House Hold Textiles
demand) and to satisfy existing valuable customers the group is expanding a new Fabrics
manufacturing industry (Which is under construction now.)
Installation of Spinning Unit
In terms of international buyers demand the criteria and quality of the finished products which are
required by the customer’s are going to be impossible to achieve by a Home Textiles
Manufacturing Unit unless they have their own spinning mill. Considering this issue as well as to
have full back ward integration of the textile unit, Saad Musa group also setup three own spinning
mills and consisting of 80,000 spindles in a single area is enormous and not available in Bangladesh
under individual entrepreneurship with the capacity of producing 40-ton yarn per day with the
initial investment of US$ 75 Million.
MAHMUD SAJID COTTON MILLS LTD.
Mahmud Sajid Cotton Mills Ltd. is consisting of 44,000 Spindles Spinning project. Factory area is
2,00,000 Sft. Plant & Machinery Imported from Latvia and Germany made. Production capacity of
the unit is 17.50-ton yarn per day.
ROKEYA SPINNING MILLS LTD.
Rokeya Spinning Mills Ltd. is consisting of 41,200 Spindles Spinning project. Factory area is
2,00,000 Sft. Plant & Machinery Imported from Check -Republic and Germany made. Production
capacity of the unit is 15- ton yarn per day.
EMDAD ETIMA SPINNING MILLS LTD.
EmdadEtima Spinning Mills Ltd. is consisting of 14,800 Spindles Spinning project. Factory area is
1,40,000 Sft. Plant & Machinery Imported from Germany. Production capacity of the unit is 7.50-
ton yarn per day.
DIVERSIFATION OF THE GROUP AS WELL AS EXPANSION OF THE UNITS.
INTRODUCTION DALDA & VEGETABLE OIL
Panja was one of the re-known brand for manufacturing Dalda& Vegetable oil in Bangladesh
Market since 1960’s and dominated local market for more than few decade which has been
produced from Hasni Vanaspati Manufacturing Company Ltd.(Dalda& Vegetable oils), Al Mustafa
Industries Ltd.(Soybain Oils) &Ahamadi Oil Mills Ltd.(Mustard Oils.). These three mills have been
taken over by SAAD MUSA GROUP in 2004 and renovation work is going on for new
infrastructure & latest technology side so that the mills can compete & lead the market very soon.
SAAD MUSA HOUSING COMPLEX
Successful businessmen always think about the diversification of the nature of the business and
Housing estates as well as multi stored Commercial Complex is a new venture to this group with
the new and enormous investment of US$ 110 Million. These will be the biggest attractive Housing
Complex as well as Commercial buildings in Chittagong where more than 860 numbers of
Luxurious apartments will be available including 50,000 sft multi 27 storied building for Super
Store and commercial offices in the area of 06 acres at West SolsaharMouza in the city. Apart from
these facilities the project also available 12 storied Mosque, School & College, Clinic, Gemnyciam
and open field for playing.
SHADE DEVELOPERS LTD.
Saad Musa Group has another Housing & Developing project at NasirabadMouza under the
supervision of Shade Developers Ltd. This will be the biggest attractive Housing & Developing
project as well as Commercial buildings in Chittagong where more than 1760 numbers of
Luxurious apartments will be available including Multi storied Building for Super Store and
commercial offices in the area of 10 acres which are investing US$ 240 Million. Apart from these
facilities the project also available 6 storied Administrative Building, School & College, Mosque,
Clinic, Gemnyciam and open field for playing. Every modern & compact facilities are available for
better citizen life.
SAAD MUSA CITY CENTRE:
Now a days Hyper store business is one of the Important & profitable business in Bangladesh. For
this purpose SAAD MUSA GROUP set up a Hyper Market at Kuril in Dhaka which was
inaugurated by USA EBBAssador Mr. Dhon W. Magina&Barister Mr. RafiqulHoque jointly. It is
totally a new concept in Bangladesh where are available all kinds of grocery, cosmetics, Household
products, Readymade garments, Electronics, Lighting, Game & theme park, Food Zone, Re-
conditional Vehicle Show room and other attractive Products. The Market area is 62,476 Sft and the
market building is three storied building.
SAAD MUSA JUTE MILL :
It is a new venture of the group by purchasing enormous land of 9.74 acres and huge investment for
the growth of Jute products. Since the polyethylene products is banned in Bangladesh alongwith
some other developed countries of the world and this country is having very big potential for the
jute products which will play the role of alternative products to the polyethylene as well as other
fancy products, such as Jute Yarn, Twine, Hessian, Sacks, Carpet Backing and Erosion Net,
Carpets, throws, rugs etc.
SAAD MUSA FISHING PROJECT:
It is a new venture of the group which includes high tech shrimp & other fish producing unit.
Planning to serve local export oriented fishing industries and finally this group will have its own
frozen and processing unit for exporting frozen fishes and products. Land area is about 45 acres at
Anwara, Chittagong.
SAAD MUSA POWER PLANT:
It will be alarge project going to be added to the group in near future. The ultimate target is to
generate its own power for the requirement of the group of its own consumption as well as
commercial supplying to others.
SAAD MUSA INDUSTRIAL PARK
A long cherished dream comes true as the company recently established the Saad Musa Industrial
Park – a state of the art technology added to the group –at Anwara on the South bank of the
Karnafuly River, Chittagong on an area of 100 acres land in the locality encircled by villages of the
sponsors native upazila. The company will set up 24 Nos. Factories of different products.
New addition to the industrial zone will be Highly Technical Pharmaceuticals, Jute Yarn Industries,
Knit Composite Textiles, Towel Industries, and Denim Project, food processing Industry, Soap
Industry, Dalda& Vegetable Oils, Soyabin Oils, Mustard Oils industry and most modern garments
and household industry. All projects are in a single Industrial park of 100 Acres of land and
potential investment will be more than US$ 415 Million where it will create the scope of
employment of about 50,000 manpower and we will be able to earn more than Tk. 01 billion
annually at Anwara, Chittagong.
 CHAPTER: 3

Literature review
Internal Audit
Internal audit is an activity designed to add value and improve an organization’s operations. It is
an appraisal or monitoring activity established within an entity as a service to the entity.

Its functions include, amongst other things examining, evaluating and reporting to the
management and the directors on the adequacy and effectiveness of components of the
accounting and internal control systems.

In principle, all companies will want good management and internal audit is a recognized way of
ensuring good corporate governance.

Internal audit activity usually involves:

 Monitoring internal controls

 Examining financial and operating information

 Reviewing the economy, effectiveness and efficiency of operations

 Review of compliance with laws, regulations and other external requirements

 Special investigations such as, suspected fraud

Risk

The internal audit department has a two-fold role in relation to risk management. They are:

1. Monitoring the company’s overall risk management policy to ensure it operates

effectively

2. Monitoring the strategies implemented to ensure that they continue to operate effectively
Internal Controls

Internal audit is unlikely to assist in the development of systems because its key role will be in
monitoring the overall process and in providing assurance that the systems which the
departments have designed meet objectives and operate effectively.

The works that internal auditors carry out on controls can be termed as operational audits. The
prime objective of this concept is to monitor the management’s performance.

Other Functions

Internal audit may also carry out other functions for the directors in a company. The key issue to
remember with regard to internal audit is the necessity for the department to retain objectivity in
order to carry out its important monitoring role in respect of risk and controls. Therefore, internal
auditors will not become involved in the operational activities of the company.

The scope of my job as an internal auditor in the Saad musa group of industries was:

1. Purchases System

2. Employee Costs

3. Physical Cash Counting

As part of the internal audit team, the scope and details of them are discussed in the later chapters.
Purchases System

The purchases system is an important system in a business. It is important for companies to

ensure that they have an uninterrupted supply of the goods and services they need order to run
their business to function. Key issues are therefore choosing the right suppliers and negotiating
good items, credit terms and then managing payments so as to create the correct balance between
keeping suppliers happy and making the most of the credit available.

In a standard purchase system, we will see the following process:

1. Ordering

2. Goods inward and recording of invoices

3. Payments
Ordering

Key risks are that purchases might be trade for personal use or not made on the most
advantageous terms. Authorization is therefore an important internal control.

Risks and Control Objectives

Here, controls put into place will be designed to mitigate risks. Hence the objective of the
controls will be to prevent these risks from occurring. Here are the control objectives which
might arise from the risks stated above:

 All orders for goods and services are properly authorized and duly processed. All orders
are required by the company

 Orders are only made with authorized suppliers

 Orders are made at competitive prices

 Controls

Once the company has identified the risks which exists in purchase system, it will try and create
controls which mitigate those risks. Most used controls mechanisms are stated below:

 Segregation of duties, requisition and ordering

 Central policy for choice of suppliers

 Evidence required of requirements for purchase before purchase authorization

 Order forms prepared only when a pre-numbered purchase requisition has been received

 Authorization of order forms

 Pre-numbered order forms

 Safeguarding of blank order forms

 Review for outstanding orders

 Monitoring of suppliers terms and conditions

Tests of Controls

The tests that the assurance providers carry out over such controls will obviously also depend on
the exact nature of the control and the business. However, some general ideas are:

 Review list of suppliers and check a sample to orders made

 Check sequence of pre-numbered order forms

 Check orders are supported by a purchase requisition

 Review security arrangements over blank orders

Goods Inward and Recording of Invoices

Risks and Control Objectives

When considering goods inward and recording of invoices, a company might recognize all or
some of the following risks:

 Goods may be misappropriated for private use

 Goods may be accepted that have not been ordered

 Invoices may not be recorded resulting in non-payment

 Company may not take advantage of the full period of credit extended

 Company may not record credit notes resulting in paying invoices unnecessarily

Above stated risks lead to following control objectives:

 All goods and services are only accepted if they have been ordered with authorization

 All goods are ordered for the use of business purpose

 All goods and services are accurately recorded

 Liabilities are recognized for all goods and services that have been received

 All credits to which the company is entitled are claimed and received

 Receipt of goods and services is necessary for a liability to be recorded

 All credit notes that are received are recorded in the nominal and payable ledgers

 All entries in the payable ledgers are made to the correct payables ledger accounts
 Controls

The following are types of controls which could be put in place to fulfill the above objectives:

 Examination of goods inwards

 Recording arrival and acceptance of goods

 Comparison of goods received notes with purchase orders

 Referencing of supplier invoices, numerical sequence and supplier reference

 Checking of suppliers invoices

 Recording return of goods

 Procedures for obtaining credit notes from suppliers

 Segregation of duties, accounting and checking functions

 Prompt recording of purchases and purchases returns in day books and ledgers

 Regular maintenance of payables ledger

 Comparison of monthly statements of account balances from suppliers with payables

ledger balances

 Review of classification of expenditure

 Reconciliation of payables ledger control account to total of payables ledger balances

Tests of Controls

 The following tests of controls are used in companies:

 Check invoices for goods

 Check invoices of all types

  Checking of credit notes

 Check for returns that credit notes are duly received from the suppliers

 Test of numerical sequence and enquire into missing numbers

 Obtain explanations for items which have been outstanding for a long time

 Check additions

 Check posting to nominal ledger accounts and control account

 Check posting of entries to payable ledger

 Confirm control account reconciliation has been regularly carried out during the year

 Examine control account for unusual entries

Payment

Risk and Control Objectives

The following risk arises at this stage of proceedings:

 False invoices are paid in error

 Invoices are paid to soon

 Payment is not correctly recorded

 Credits are not correctly recorded

 Payments are not recorded in the right period

The key risk is that money might be paid out by the business inappropriately. The following
objectives arise out of the risks:

 All expenditure is for goods that are received and authorized

  All expenditure made is recorded correctly in the nominal and payable ledgers

 Payments are not made twice for the same liability

Controls

The arrangements for controlling payments will depend to a great extent on the nature of
business transacted, the volume and size of the company.

Cheque and cash payments generally: The cashier should generally not be concerned with
keeping or writing up books of account other than those recording payments, nor should he have
access to or be responsible for the custody of. On the other hand, the person responsible for
preparing cheques should not himself be a cheque signatory. Cheque signatories in turn should
not be responsible for recording payments.

Cheque and bank transfer payments:

 Cheque and bank transfer requisitions

 Authority to sign cheques is well defined

 Prompt dispatch of signed cheques

 Obtaining of paid cheques from banks

 Payments recorded promptly in cash book, nominal and payable ledgers

Cash payments:
 Authorization of expenditure

 Cancellation of vouchers to ensure they cannot be paid twice

 Limits on cash payments

  Rules on cash advances and cashing

Tests of Controls

For authorization of payments, the control tests are:

 Compare with paid cheques to ensure payee agrees

 Check that cheques are signed by the person authorized to do so within their authority
limits

 Check to suppliers statements

 Check the other documentary evidence available such as agreements, vouchers, books etc.

For authorization of recording the control tests are as follows:

 Check the sequence of cheque numbers and enquire into missing numbers

 Trace transfer to other bank accounts, petty cash books or other records

 Check additions, including extensions and balances forward at the beginning and end of
months within the period

 Check posting to nominal and payable ledgers

Employee Costs

Payroll can be an area that is subject to frauds, for example, fictitious employees may be inserted
into the payroll. It is important to understand the key aspects of a payroll system and are able to
identify weaknesses in a given system.
Calculating Wages and Salaries

Risks and Control Objectives

When calculating wages and salaries, a company experiences the following risks:

 Company may pay employees too much money

 Company may employees who have not been at work

 Company may pay employees who have left

Hence the objectives of the controls will be to prevent these risks from occurring. The control
objectives which might arise from the above stated risks are:

 Employees are only paid for work that they have done

 Gross pay has been calculated correctly and authorized

 Net pay has been calculated correctly

Controls

The following controls may be put into place to mitigate the risks:

 Staffing and segregation of duties

 Maintenance of personal records

 Recording of changes in personnel and pay rates

 Review of hours worked

 Recording of advances and pay

 Holiday pay engagements

  Answering queries

 Review of wages against budget

Tests of Controls

 Check that wages and salary summary is approved for payment

 Confirm that procedures are operating for authorizing changes in rates of pay, overtime
and holiday pay

 Obtain evidence that staff only start being paid when they join the company and are
removed from the payroll when they leave

 Check that engagement of wages and salaries are being checked

Recording of Wages and Salaries and Deductions

Risks and Control Objectives

 When considering recording wages and salaries, the company might recognize the
following risks:

 The various elements of pay might not be recorded correctly in the payroll

 Amounts paid to employees might not be reflected in the cash books

 Pay might not be recorded correctly in the nominal ledger

In addition, the company has a duty to pay over to NBR the correct amounts in respect of tax
deducted at source. If these are calculated wrongly, the company might face a large tax bill in the
future of arrears and penalties. The company also has a duty to pay other deductions on behalf of
the employees. Again, errors might mean future liabilities.
These lead to following control objectives:

 Gross and net pay and deductions are accurately recorded on the payroll

 Wages and salaries paid are recorded correctly in the bank and cash records

 Wages and salaries are correctly recorded in the nominal ledger

 All deductions have been calculated correctly and are authorized

 The correct amounts are paid to NBR

Controls

Responsibility for the preparation of payroll should be delegated to a suitable person and
adequate staff appointed to assist him. The extent to which the staff responsible for preparing
wages and salaries may perform other duties should be clearly defined. In addition, there should
be:

 Bases for compilation of payroll for example, clock cards, overtime records, agreed hours

 Arrangements for the preparation, checking and approval of payroll

 Procedures for dealing with non-routine matters

 Maintenance of separate employees’ previous records

 One for one checking of payroll details back to independently maintained personal records

 Reconciliation of total pay and deduction between one pay day and the next

 Comparison of actual pay totals with budget estimates or standard costs and the
investigation of differences between them

 Agreement of gross earnings and total tax deducted with taxation returns
 Tests of Controls

A key control assurance providers will be concerned with will be the reconciliation of wages and
salaries. For wages, there should have been reconciliations with:

 The previous week’s payroll

 Clock card/time sheets/job cards

 Costing analysis, production budgets

In addition, assurance providers should confirm that important calculations have been checked by
the clients and re-perform those calculations.

Auditors should check the calculations of taxation and non-statutory deductions. For withholding
taxes they should carry out the following tests:

 Scrutinize the control accounts maintained to see appropriate deductions have been made

 Check that the payments to Govt. Treasury are correct

Payment of Wages and Salaries

Risks and Control Objectives

The key risks here are that people who are not employees are paid and those that are employees
are not paid. Therefore, the overriding control objective is that the correct employees are paid.

Controls

Payment of Cash Wages:

 Segregation of duties

 Authorization of wage cheque cashed

 Custody of cash
  Verification of identity

 Recording of distributions

Payment of Salaries:
 Preparation and authorization of cheques and bank transfer lists

 Comparison of cheques and bank transfer list with payroll

 Maintenance and reconciliation of wages and salaries control account

Tests of Controls

If wages are paid in cash then controls tests are:

 Arrange to attend the pay-out of wages to confirm that the official procedures are being
followed

 Check entries in the unclaimed wages book with the entries on the payroll

 Check that unclaimed wages are banked regularly

 Check pattern of unclaimed wages

 For salaries, check that comparisons are being made between each month’s payroll net
pay summary and examine paid cheques or a certifies copy of the bank list for employees
paid by cheque or bank transfer

Physical Cash Counting

Planning is an essential element of cash counts, for it is an important principle that all cash
balances are counted at the same time as far as possible. Cash in this context may include
unbanked cheques received, IOU’s and credit card slips, in addition to notes and coins. Often
such cash balances are unlikely to be material, but in certain businesses they may be.
As part of the planning procedures, the assurance providers will need to determine the locations
where cash is held and which of these locations warrant a count.

Planning decisions will need to be recorded on the current audit file including:

 The precise time of the count and location

 The names of the audit staff conducting the counts

 The names of the client staff intending to be present at each location

The following matters apply to the count itself.

 All cash or petty cash books should be written up to date in ink at the time of the count.
Alternative process of keeping records are also acceptable, depending on the system

 All balances must be counted at the same time

 At no time should the assurance providers be left alone with the cash and negotiable
securities

 All cash counted must be recorded on working papers subsequently filed on the current
audit file. Reconciliation should be prepared where applicable.
 CHAPTER: 4
Internal Audit Process of Saad Musa
Group of Industries
Internal Audit

Internal audit refers to "First-party Audit", arranged by company itself. Audit Internal audit is an independent
audit system perform by 1st party, a dedicated internal Auditor does an audit to check, verify and report to his
company. Internal audit is an opportunity for an organization to remove its weakness, problems before 3rd
party or customer Audit.

ISO requirements are having an internal Auditor who is will have full authority to perform audits periodically.

Types of internal audit in garments in Garments industry:

1. Internal QMS Audit for Technical and Quality

2. Internal Audit of Compliance

3. Internal audit of Finance

4. Internal audit of ISO

1. QMS (Technical and Quality)  Audit Checklist of the Apparel industry

Fabric Inspection, Inventory, GSM, Shade Band, Fabric Relax & Fabric Width Check.
1. Has the Fabric Inspection Procedure and responsible persons Job description posted in place ?2. Does fabric
inspection do within 72 hours after inventory?
3.  Is the 4 Point system maintaining with documentation?
4.  Are Fabric invoice, Detailed Packing List, Approved Fabric swatch in place?
5.  Does Fabric inspection report have necessary information such as Date, Inspector Name, Findings,
Accepted Criteria, etc?
6. Is the sample of various types of defects displayed in the Fabric Inspection Area?
7. Does Factory have the Practice to keep the goods according to the Process such as Quarantine Zone, Yellow
Zone or Waiting for Inspection, Green Zone or Pass Goods?
8.  Does Factory have the Practice to keep the Goods with proper identification and there is separation shade
wise and supplier wise it any item has taken from the different supplier?
9.  Have Fabrics kept shade wise as per Shade Band and bin card match with a list?
10. Does Factory have the practice to collect and maintain the GSM record?
11. Has the Fabric width of each roll been checked and written at the end of fabric?
12. Has Factory had the practice to keep the Fabric in the store widthwise?
13. Does Factory have the Fabric Relax, Cutting & Spreading  Record with documentation?
14. Is there an inventory control system with incoming/outgoing materials monitored and documented
(location, quantity, etc.)?

Trims Inspection, Brand Label & Inventory

1.     Has the trims & accessories Inspection Procedure and responsible persons Job description posted in
place?
2.      Do trims inspection do within 72 hours after inventory?
3.      Is Inspection following the AQL 2.5 standard?
4.      Does Factory have Approved BOM, Packing List, Approved Trim Card in place?
5.      Do trims & accessories inspection reports have necessary information such as Date, Inspector Name,
Findings, Accepted Criteria, etc.?
6.      Does Factory have the Practice to keep the goods according to the Process such as Quarantine Zone,
Yellow Zone or Waiting for Inspection, Green Zone or Pass Goods?
7.      Does Factory have the Practice to keep the Goods with proper identification and there is separation buyer
wise it any item have taken from the different suppliers?
8.      Does the Factory have the secured box with identification to keep the Private Brand or another label?
9.      Does Factory have the proper records for Issues and stock etc. based on the requisition?
Shrinkage Test
1.     Does the Record of the actual shrinkage of the swatches representing the roll numbers?
2.     Does the Shrinkage report has signed by QAM, Pattern Master, Store Manager?

In house Nickel Test & Pull Test

1.      Are the Inspection report of nickel test is in place with marking whether it passed or failed ?2.      Has
Cotton Swab (buds) been attached to the report?
3.      Does Factory use to do a Pull test with proper documentation?
Broken Needle
1.      Does documented Broken Needle Procedure, Record of Stock and disposal maintaining as per the
Customer requirements and Factory SOP?
2.      Is there a broken needle control process in place with records available on the production floor?
3.      Does the Broken Needle process include mechanic interaction?
4.      Is there a needle log maintained by the machine/operator?
Non-Conforming Materials / Products
1.      Does Factory personal have the knowledge about Control of Non-confirming Material or
Products?
2.      Has Factory Management given the authorization to the employee to identify Non-confirming
Materials/Products in all stages?
3.      Does Factory arrange Non conforming materials box in each place to keep and collect the Non-
confirming Materials/Products?
4.      Does Factory have the Proper documentation for the Non-confirming Materials/Products such as
Quantity, Type of NCM, Source, Reasons of NCM, Disposition, CAPA if required?
5.      Do NCM Materials/Products have kill garments tag?
6.      Does Factory have the MRB to review the NCM before disposition?
7.      Does the Disposal procedure of NCM  have present in the Central Non-confirming
Materials/Products?
 CHAPTER: 4
Concluding Aspect

Conclusion
In order to keep pace with the ever changing dynamic business world, companies need to make
sure that they are operating with hundred percent integrity and flawless business system. As a
result, each and every organization need to ensure that they have a very strong and tight internal
control system. If it is not ensured, threat of fraudulent activity, unnecessary expenses and other
possible economic and ethical practice within the organization can harm the bottom line of the
business. That is why, internal auditors play a vital role to ensure that this internal control system
exists as it should be. Internal audit process is at present, has become a vital part of business.
 Appendix

Checklist of Procurement

1. Voucher number & date.

2. Approved by management.
3. Accuracy of values posted
4. Requisition (Date, item, approval, pre-printed requisition number and
department).

5. IOU (Advanced received and Adjustment).

6. Invoice by vendor/supplier (Date, vendor logo, IAD approval, approval, and

seal for cash payment).

7. Material received report (Date, location, item details, quantity, and

acknowledgement of store & user custodian).

8. Relevant conveyance bills (Date, conveyance forms, approval, entry in

conveyance register, amount of claim).

9. VDS/TDS deductible & amount actually deducted & deposited.

 Expenses Checklist

1. Voucher number and date.

2. Approved by management.

3. Accuracy of values posted.

4. Requisition (date, items, approval, and department)

5. Invoice by vendor/supplier (Date, Vendor log, IAD approval, Management approval,

and value of invoice, ’’PAID’’ seal for cash payment.

6. Material Received report (Date, location, item details, quantity, acknowledgement of

store user custodian)

7. Relevant conveyance bills (Date, Conveyance forms, approval, entry in conveyance

register, amount of claim)
8. VDS/TDS deductible & amount actually deducted & deposite

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