Informal Auditors’ Report

To the Owners of PC Plus, Inc.:

This is not an official or formal audit in any way. I have audited the accompanying financial
statements of PC Plus, Inc., which comprise of the balance sheet, the income statement, and
the related analytical review ratios. I have completed the ratios for the 2019 fiscal year. This
report is for the owners of PC Plus, Inc.; this covers the strengths and weaknesses of the human
resources, accounts receivable, and accounts payable departments. It also includes the ratios
for 2019 and how they compare to the prior year and the industry average.

Human Resources
Payroll is being outsourced, which is a positive for a small company. Filling out an application
should be mandatory for everyone who whishes to apply for any position in the company, and
the references for potential candidates need to be checked. Employees should start a couple
days after they are hired, unless they request otherwise; they may have obligations they need
to attend to before they start at this company, and the start date may make them reconsider
working for the company. The employees should not get to keep their timecards, because they
could add hours that they didn’t actually work; the only time they should have their cards is to
clock in and out, after that they should out them in a disclosed location that is able to be
checked by management and/or the owners.

Accounts Receivable and Payable

There is no segregation of duties in the accounts receivable department. There should be more
than one accounts receivable clerk, and the current clerk should not be doing all of the jobs
that she is doing. There needs to be at least one more employee hired in this department; one
employee should not be allowed to send the mail out but then also receive and open the
customer payments. The company should start using a system with prenumbered invoices that
also log the invoices when they are used. The employee dealing with customer payments
should not be the one to take the deposit to the bank; if the company cannot afford to hire
another employee, then this is the responsibility of the owners. An aging of accounts receivable
needs to be prepared at the same time as the past due statements.

There is no segregation of duties in the purchasing and accounts payable department. The clerk
should not be solely in charge of purchasing. Another person should be involved in this process;
another employee would cut the risk of theft down. Having another employee who didn’t know
the quantity or price would allow the company to have a record of how much is coming in, and
when it was ordered. The clerk should not have the key to a check signing machine; since this is
a small company, an owner should be signing checks as needed. This would give the owners a
better idea of how often and what the company is spending money on. The clerk should not be
signing, mailing, and filing the checks. There either needs to be another employee in this
department, or the owners need to take over some key responsibilities in this department. The
clerk needs to continue to reconcile the monthly bank statement to the checking account, but I
recommend that another employee or owner check the reconciliation or take over.
Ratios
The days sales in accounts receivable is 30.8, which is better than the industry average of 37,
but worse than last year’s 29.4. PC Plus Inc.’s return on assets is much lower this year than last
year at 14.9%, but it is still much higher than the industry average of 9%. This is something the
company should continue to improve on. The gross profit margin this year is 32.9%, which is
less than last year by 3.1%, but it is higher than the industry average by 8.9%. PC Plus Inc. needs
to improve their gross profit margin at a higher rate. Getting rid of unnecessary expenses, as
well as putting internal controls in place should be able to help this percentage get much closer
to the industry average. While the gross profit margin has improved, the profit margin has not.
The profit margin this year is higher than last years and the industry average. Working on the
gross profit margin should help with the profit margin. I would recommend for PC Plus, Inc. to
get the profit margin down at least .5% in the next year.

Opinion
PC Plus, Inc. desperately needs to work on their internal control. The company also needs to
keep the analytical review ratios up-to-date and compare them to past years and industry
average. If the company cannot afford any additional employees, then it is the responsibility of
the owners to step up and help in the departments listed above.

This audit was in no way official or formal. If the owners of PC Plus Inc. have any further
concerns than what were addressed in this report, I recommend they hire an auditor to
perform a high-quality, official audit. If there are any questions relating to this informal audit,
please feel free to call or email me.

Raine Smith
State College, Pennsylvania
February 28, 2019
 PC Plus, Inc.
Analytical Review Ratios
For the Year Ended December 31, 2019

Ended Ended
Ratio 12/31/2019 12/31/2018 Industry
Current Ratio 2.0 1.8 1.3
Days Sales in Accounts Receivable 30.8 29.4 37
Inventory Turnover 10.2 10 10
Days Inventory on Hand 35.9 36 36
Debt to Equity 1.1 1.5 2.9
Return on Assets 14.9% 19.2% 9.0%
Return on Equity 31.3% 35.9% 29.0%
Gross Profit Margin 32.9% 36.0% 24.0%
Profit Margin 3.0% 2.9% 2.3%
Operating Expense/ Sales 28.4% 29.5% 23.9%
 PC Plus, Inc.
Balance Sheet
December 31, 2019

Assets
Current Assets
Cash $ 27,089
Accounts Receivables 86,385
Receivables from Officers 5,674
Inventory 67,494
Prepaid Expenses 4,406
Total Current Assets 191,048

Plant Assets
Office Equipment 28,088
Leasehold Improvements 1,764
29,852
Less: Accumulated Depreciation (12,597)
Total Plant Assets 17,255
Total Assets $ 208,303

Liabilities & Shareholders' Equity

Current Liabilities
Line of Credit $ 30,934
Accounts Payable 50,736
Current Maturities of Loans Payable 2,018
Accrued Expenses 11,533
Total Current Liabilities 95,221

Loans Payable, less Current Portion 13,546

Shareholders' Equity
Common Stock, $1 Par Value; 10,000 Shares Authorized 5,000
5000 Shares Issued and Outstanding
Additional Paid-In Capital 25,546
Retained Earnings 68,990
99,536
Total Liabilites & Shareholders' Equity $ 208,303
 PC Plus, Inc.
Income Statement
For the Year Ended December 31, 2019

Net Sales $ 1,022,477

Cost of Goods Sold 686,477
Gross Profit 336,000
Operating Expenses:
Selling Expenses $ 76,411
General & Adminstrative Expenses 213,939
Total Operating Expenses 290,350
Operating Income 45,650
Interest Expense 6,074
Income before Income Taxes 39,576
Income Taxes 8,458
Net Income $ 31,118