225 Comet Publishing

a) Steps to confirm the accuracy of the purchases and payables flowcharts and systems notes
currently held on file.

1. Inspect the flowcharts and system notes in order to confirm that they cover all the
expected stages and is complete.

2. Discuss with the client on whether there are any changes in the internal control and
processes involving purchases and payables in order to confirm that the flowcharts and
system notes are accurate.

3. Inspect the system documentations and manuals related to the purchases and payables
processes and compare it with the flowcharts and system notes to confirm that there are no
changes since the last financial year.

4. Review the prior year management letter in order to identify recommendations on internal
controls given to client and determine if the client has implemented any of these
recommendations of any of these recommendations in the current year.

5. Perform walkthrough test by selecting a sample of transaction and follow through the
purchases and payables system in order to ensure that the flowcharts and system notes are
accurate.

b)

Control Deficiency Control recommendation Test of Control

Request books from other stores

It is not currently possible

for store managers to request
books from any of the other nine
stores. Customers who wish to
order books, which are not in
stock at the branch visited, are
told to contact the other stores
directly or visit the company
website.
An inter-store transfer system
should be implemented where
the store managers should be
allowed to request books from
other stores via a inter-store
inventory form.
Inspect the inter-store
inventory form in order to
confirm that store managers
can request from other stores.

The customers are unlikely to

contact the other stores
themselves. As a result, the
customers might be dissatisfied
and this can result in loss of sales.
Purchase order

The purchase order clerk ends
any orders above $1,000 for
authorisation from the
purchasing director.
This means that purchase order
below $1,000 is not authorized.
This can lead to an increase in the
risk of fraud in which the
purchase order clerk may place
order for personal goods.
For purchase order below Inspect a sample of purchase
$1,000, it should still be order for evidence of signature
authorized, perhaps by the by either the purchasing
purchasing manager. The manager or purchasing director.
authorization should be
evidenced by signature on the
purchase order.

Goods Received Notes (GRN) sent

to accounts department

The GRNs are sent to the
accounts
department every two weeks for
processing.
The GRN are not sent to account
department promptly. This may
result in late payment to supplier
because the purchase invoice
would not be matched to the
relevant GRN. This can also result
in liabilities understated.
The GRNs should be sent to
the accounts department on a
daily basis.
When the accounts
department receives the GRN,
it should be matched with the
relevant purchase invoice.
Enquire the warehouse team
and the staff in the accounts
department to confirm that the
GRNs are sent to the accounts
departments on a daily basis.

GRNs sent to Accounts

Department only
The GRNs are sent to the
accounts department only.
There is no evidence that GRNs
are sent to the purchasing
department. This means that the
purchasing department cannot
monitor the status of the order,
which can result in late delivery
of goods to customers and loss of
customers goodwill.
The warehouse team should Inspect the copies of GRNs kept
also send a copy of GRNs to by the purchasing department
the purchasing department. to ensure that the purchasing
department did receive the
When the purchasing GRNs and match the GRNs with
department receives the the relevant purchase order.
GRNs, it should be matched to
the relevant purchase order.
For unmatched purchase
order, it should be followed up
with the supplier. (extra)
Segregation of duties
The purchase invoice is then sent
to the purchase ordering clerk,
Oliver, who processes it for
payment,
The clerk is also responsible to
process purchase order. This
represents a lack of segregation
of duties as it increases the risk of
fraud that the purchase order
clerk purchase private goods.
Authorisation of Bank Payments
The finance director is given the
total amount of the payments
list, which she
authorises and then processes
the bank payments.
There is no evidence that the
finance director is reviewing the
details of the payments. There is
a risk that the supplier might be
paid the wrong amount or
payment might be made to
fictitious supplier.
Supplier statement
Reconciliations
Due to staff shortages in the
accounts department, supplier
statement reconciliations are no
longer performed.
This can result in a higher risk of
errors in the purchases and
payables. Errors would not be
identified on timely basis.
The payment should be
processed by another
personnel in the accounts
department. Upon processing,
the personnel in the account
department should sign on the
payment voucher.
The finance director should
review the whole payment
lists as well as the supporting
documents before authorizing
the payment. This
authorization should be
indicated via signature on
payment voucher.
Supplier statement
reconciliations should be
performed on a monthly basis
for all the suppliers. The
reconciliations should be
reviewed by a responsible
official which is indicated via
signature.
Inspect a sample of payment
voucher to ensure that the
payment is not processed by
the purchase order clerk and it
is processed by the personnel in
the account department.
Inspect a sample of payment
voucher to ensure that the
payment lists as well as the
supporting documents of
thepayments has been
authorized by the finance
director.
Inspect a sample of supplier
statement reconciliations to
ensure that the reconciliations
took place every month and
that it has been reviewed by a
responsible official via
inspecting the signature.