217.

POMERANIAN

Deficiencies Recommendation
1. The warehouse managers are responsible for An independent person such as a member of
supervising the inventory counts at their sites and the IA department should be assigned to
ensuring that the counting teams are following the supervise the inventory count.
issued instructions.
The warehouse managers may wish to hide any
discrepancies or inefficiencies relating to inventory
on their sites because they don't want to be
criticized.
This might result in inaccurate inventory counts and
inappropriate valuation of the inventory at the
year-end.
2. The company calculates the cost of inventory The standard costs should be revised on a
using standard cost. The basis of the standard costs timely basis so the costs are up to date and it
was reviewed approximately two years ago. should be reviewed by the production director
The cost of the raw materials and wages cost under and evidenced by signature.
the inventory might have changed since two years
which has not been adjusted for.
This might result in inappropriate valuation of
inventory and misstatement of inventory balances at
the year-end.
3. All the members of the purchasing department Restrictions should be in place to prevent
have full access to the supplier master data file and access of all the members of the purchasing
a monthly report of any changes is automatically department and only senior responsible
generated and filed without review. officials should be given access to make
The members might make inappropriate changes to the master data file.
amendments to the master data file or add a
fictitious supplier. As the exception report is not
reviewed, these changes may not be identified.
This might result in an increased risk of fraud as well
as loss to the company.

4. On receipts of the purchase invoices, the finance The purchase invoices should be agreed with
clerk matches the invoices to the relevant purchase the GRN and the purchase order and details
order only prior to input. should be matched prior to recording the
If the purchase invoices are not matched with the invoices.
goods receipt notes, payments might be made for
goods not received.
This will result in increased cost and loss to the
company.
5. The credit limit is only changed when a customer The credit limit should be reviewed annually
requests an increase. and if the credit status has changed from the
If the credit limit is not reviewed, the customer's original status, the credit limit should be
credit status might have deteriorated but the revised.
company might be providing the same level of
credit.
This might result in an increased risk of
irrecoverable debts and a reduction in cash flow and
profit.

6. Copies of the GDNs are sent to the sales ordering The copies of the GDNs should be sent to the
department and the finance department on a weekly sales ordering department and finance
basis. department on a daily basis and sequence
If the GDNs are not sent promptly, the goods being check should be performed.
dispatched may be invoiced late or the ordering
department might not be able to monitor fulfillment
of orders effectively.
This might result in loss of revenue and customer
goodwill.
7. The Co's credit controller is on maternity leave for A temporary credit controller should be
6 months and no one has taken over her duties. appointed or staff member trained and
No one is responsible for the monitoring and assigned the responsibility of the credit
chasing of aged receivables within the period which controller.
might lead to customers paying late or not paying at
all.
This might result in increased risk of irrecoverable
debts and reduction in cash flow.
8. A clerk reconciles the receivables ledger control The reconciliations should be reviewed by the
account to the receivables ledger and the financial controller monthly even when no
reconciliations are only reviewed by the financial exceptions are identified and the review
controller if there are any unreconciled differences. should be evidenced by signature.
The reconciliations might contain significant errors
that might cancel each other out or it could be
incorrectly prepared and manipulated.
If reconciliations is not reviewed, this might result in
errors in receivables and reduces the effectiveness
of control.
218. Castle Courier

Direct control Test of control

1. Sequence checks on key cards and the Review the details of the sequence checks
data recorded in the clocking-in system are to ensure they are being performed and
carried out by the human resources (HR) follow up on how the gaps are investigated.
supervisor on a regular basis.
This ensures that the payroll records are
complete, all the hours worked are being
recorded and the employees are only paid
for the hours worked.
This reduces the risk of payroll being
misstated.
2. The clock in process is monitored by the Review a sample of recordings logged and
HR department who reviews the video identify the person who reviewed the
footage and recordings are logged with the footage to ensure the footage is reviewed
name of the person who has reviewed the by a member from the HR department.
footage.
This ensures that the employees cannot
fraudulently clock in for someone else and
are paid for the actual hours worked.
This reduces the possibility of fraud and
employees being over/under paid.

3. The payroll clerk confirms that the Inspect the sample of the calculations
transfer hours and calculations have been performed by payroll clerk to ensure it has
done correctly by recalculating a sample of actually been performed and review for
employees' gross to net pay. A payroll evidence of signature to confirm that
supervisor then reviews this check and is payroll supervisor has reviewed the check.
evidenced by the supervisor's signature.
This helps to identify if the gross pay,
deductions and net pay calculated by the
automated system are correct and if not
the errors can be identified and rectified in
a timely manner.
This reduces the possibility of employees
being under/over paid.
4. The payroll system is password Attempt to login the payroll system by
protected, and the password is changed on using an outdated password and confirm
a monthly basis by the payroll manager that the system rejects the access.
using a random password generator.
This ensures a more secure payroll system
so that unauthorized individuals won't be
able to access the payroll system and
make changes to the payroll data.
This reduces the possibility of fraud and
payrolls being misstated.

5.Each month, the finance director Inspect the file of reconciliations to ensure
undertakes a payroll control account that they have been performed in a timely
reconciliations and investigates any manner and review for evidence that any
differences. differences are investigated and resolved.
This form of control helps to identify the
errors or frauds in the payroll records on a
timely basis and rectify them.
This ensures that the payroll records are
not misstated.

6. Each month the payroll supervisor Inspect a sample of calculation of monthly

calculates the total liability due to the tax tax liability and review for evidence of
authority and this is then passed to the checks being made to the calculation by a
financial controller who checks the financial controller such as signature.
calculations prior to the payment being
made.
This ensures that the tax liability calculated
is correct and that any errors present could
be identified and resolved before payment
is made to the tax authority.

Control deficiencies Recommendation

1. Department managers are required to Employees should obtain a written
approve all holiday requests by authorizing confirmation when their holiday is approved
the employees' holiday forms, however and be informed not to take holidays unless
this does not always occur. holiday is authorized
This might result in employees taking
unauthorized holidays that might cause
staff shortages and operating inefficiency.
The payment for an untaken holiday could
be incorrectly calculated as the number of
holidays taken are not correctly known.
2. The financial controller is responsible for The role of preparing the bank transfer and
both preparing and authorisation of bank authorizing it should be split up between
transfer. separate individuals with authorisation
This lack of segregation of duties done by a more senior person.
increases the possibility of the financial
controller deliberately paying higher
cheques for himself or other employees.
The errors in the preparation of bank
transfer might not be identified.
3. An edit report is generated which The edit report should be reviewed by a
records the changes made to the payroll responsible official and the review should
system but this report is not reviewed. be evidenced by signature.
As the report is not reviewed, there might
be errors in the changes made which
might result in new employees not being
paid, employees being paid incorrectly or
the leavers being paid.
This could result in loss of employee's
goodwill and well as wages and salaries
being misstated.

4. The operations manager has processed The HR members should be responsible for
six newly recruited temporary delivery processing all the new employees and if
drivers and instructed the payroll not the HR team should review the
department to set up new employees. joiner/leaver form and authorize it before it
The processing of new employees is the is sent to the payroll department.
responsibility of the HR department, the
operations managers may not carry out all
the procedures required for processing the
new employees.
This might result in employees not being
recorded in payroll, resulting in late
payment of salaries and incomplete payroll
records.
5. Where overtime is necessary, the All the overtime hours, including below 5
operations manager has to authorize hours should be authorized by a
overtime in excess of five hours per week. responsible official and the authorisation
The employees may falsely claim that they should be evidenced by signature.
have worked overtime up to 5 hours which
might result in employees being paid for
more hours than actual.
This might result in increased costs to the
company.
6. The delivery drivers are paid their Identity proof should be provided by all the
wages in cash simply by checking their delivery drivers before receiving their pay
name. and also required to sign for their pay
Since no identity proof or signature is packet.
required to get the pay packet, this might
result in payments made to incorrect
employees either due to error or fraud.
This might result in loss of employee's
goodwill as well as loss to the company.

7. The company pays a discretionary The bonus parameters should be set and
bonus to delivery drivers and the bonus should be provided in respect of
operations manager decides on the bonus. these parameters. The bonus should be
The operations managers may provide a authorized by a responsible official before
high bonus to their family or friends without notifying the payroll clerk.
taking into consideration the timing of
deliveries made.
This might result in increased costs to the
company.

8. The company has no way of monitoring The delivery drivers should be monitored
the length of breaks as the delivery drivers by electronic means such as placing
are out on deliveries. tracking devices on the vehicles to ensure
The delivery drivers may take long breaks the breaks are monitored.
which might result in company paying for
hours not actually worked or take less than
15 min breaks which would be breaking
the law and might require fines to be paid
adding costs to the company.

219. SWIFT

Direct control Test of control

1. A multi-part purchase order is generated Inspect the sample of purchase order and
and the purchasing manager authorizes all review for evidence of authorisation in
orders up to $5000. Orders over $5000 are accordance with authorisation limits.
authorized by the purchasing director.
The authorisation of purchase orders
ensures that only the goods required by the
business are being purchased.
2. The goods received are agreed with the Review a sample of GRNs held in the
purchase order and the quality and quantity warehouse department for signature, as
are checked. The GRNs are signed to evidence of checks being undertaken on
evidence the checks. the receipts of goods,
This ensures that the company is not
paying for less quality goods, or for goods it
didn't order.
3. A payables clerk logs the purchase Review the sample of control total sheets
invoices in batches of 20 into the purchase for evidence of control totals being utilized
day book utilizing control totals. A batch to ensure completeness and accuracy of
control sheet is completed for each set of purchase invoice.
20 invoices and the clerk signs to evidence
the checks undertaken.
This ensures that all the purchase invoices
are completely and accurately logged into
the purchase day book.

4. Supplier statement reconciliations are Review the file of reconciliation to ensure

taken on a monthly basis and these are that they are being performed on a regular
reviewed by the financial controller. basis and that they have been reviewed by
This ensures that the errors in the payables a responsible official.
and purchases are identified and corrected
on a timely basis and therefore payables
are complete and accurate.

5. The finance director authorizes the bank Review the payment list for the evidence of
transfer payment list for its suppliers after review and authorisation by the finance
agreeing the amounts to be paid to director.
supporting documentation and reviewing
any duplicate payments.
This ensures that the suppliers are not paid
incorrectly, or the fictitious suppliers are not
being paid so that the payables are not
misstated.

5. The company has a human resource Review the job description of the HR and
department which is responsible for setting payroll department and ensure there is
up all new joiners and a payroll department proper segregation of duties between them
which processes wages and salaries. in regards to setting new customers.
This segregation of duties reduces the risk
of the payroll department setting up
fictitious employees and paying them which
would result in increased cost to the
company.
6. On a monthly basis, an exception report Inspect a sample of exception report and
relating to changes to the payroll standing review for evidence of review and the
data is produced and reviewed by the follow up of any unexpected changes by
payroll manager who evidences this review. the payroll manager.
This ensures that any unauthorized
amendments to the standing data are
identified and investigated on a timely basis
so that the data used when the payroll is
run is valid and accurate.
7. The payroll supervisor selects a sample Inspect a sample of calculation performed
of the payslips, re-performs the gross to net by the payroll clerk to ensure the
pay calculations and investigates any calculations are performed and review for
discrepancies. The sampled payslips are evidence of review by a senior official.
then signed as evidence of this review.
This ensures that the gross to net pay
calculations performed by the system is
correct and if not the errors are identified
and resolved on a timely basis.
This reduces the risk of employees being
over/under paid.

8. The unique employee number must be Attempt to add a new joiner to the payroll
entered into the payroll system before the without the identification number to confirm
employee can be added to the payroll. that the system rejects this addition.
Since the employees cannot be added into
the payroll without the unique employee
number there is less risk of fictitious
employees being added to the payroll and
paid.
This results in reduced risk of fraud and
loss to the company.

220. SNOWDOWN

Control deficiencies Recommendation

1. The credit limits remain unchanged in The credit status should be checked
the system unless a review is requested by annually. If the status has changed from the
the customer. original status, the credit limit should be
The credit status of customers might have revised.
deteriorated from the original status but the
company might be providing the same level
of credit.
This might result in an increased risk of
irrecoverability of receivables and a
reduction in profit and cash flows.
2. The invoices which are over 90 days A credit controller should be appointed and
outstanding are notified to the relevant provided responsibility for chasing any
client service manager to chase payment outstanding invoices rather than the client
directly. service manager.
The client service managers are likely to be
focused on managing customer
relationships and maximizing sales rather
than chasing payments.
This might result in an increased risk of
irrecoverable debt and reduced profit and
cash flow.
3. All members of the payroll department The password of the standing data should
can amend employees' standing data in be given to only the senior members of the
the payroll systems as they have access to department and restrictions should be
the password. placed to prevent every member from
The members can make inappropriate making changes to the data.
amendments to the standing data or input
incorrect data which might result in
incorrect payment of wages and an
increased risk of fraud.
4. The senior payroll manager reviews the The discrepancies should be thoroughly
list of bank payments and agrees this to investigated and the adjustments should be
the payroll records. If any discrepancies made in both payroll records or the
are noted, the senior payroll manager payment list as required.
always makes the adjustment in the payroll
records.
The discrepancies might be because of
errors in the list of bank payments as well.
Assuming that the errors are always in the
payroll records may result in incorrect
amendments being made to payroll or
incorrect amounts being paid to the
employees.
Each training center is set up as a separate The capital purchases should be compared
department and is given an annual capital with the capital expenditure budgets and
expenditure budget but some departments any expenditure over the budget should be
have already significantly exceeded their authorized by senior officials before making
annual budgets. purchase.
There is an indication that there is a lack of
control over the capital expenditure
process which might result in overspends.
This might result in increased cost for the
company and reduction in profit.
When new equipment is acquired the For a sample of the classification noted on
finance department classifies the the purchase orders, agree the
expenditure between capital and revenue, classification to the guidelines of the
noting the classification on the purchase finance director to ensure it was correctly
order. The classification is made with done.
reference to guidelines established by the
finance director, who checks that the
capital or revenue expenditure allocation
has been correctly applied.
Since the classification is made with
reference to the finance director, the
expenditure will be correctly allocated
which reduces the risk of non-current
assets being misstated or the depreciation
charge being incorrect.

Direct control Test of controls

1. The HR department is responsible for Review the job description of the HR and
setting up all new joiners and payroll payroll department to confirm there is
department for processing payment. proper segregation of duties regarding
This segregation of duties reduces the setting up employees and processing
possibility of the payroll department setting payments.
up fictitious employees and making
payments to them that could result in
increased cost to the company.

2. The cashier reconciles the bank Inspect the sample of bank reconciliations
statements to the cash book. The to ensure they are being performed and
reconciliations are reviewed by the financial review the evidence of signature by the
controller, who also investigates all finance controller to confirm the
reconciling items and evidences his review reconciliations are reviewed.
by the way of signature.
The bank reconciliation is a key control
which reduces the risk of fraud. Monthly
review and investigations ensure that the
errors during reconciliations are identified
and resolved on a timely basis.
This reduces the risk of misstatement of
bank and cash balances.

221. AMBERJACK

Control deficiencies Recommendation

1. The credit limit are set by the Credit limits should be set by a senior
receivables ledger clerks. member of the receivables ledger
The receivables ledger clerks might not be department.
competent and set the limits too high
resulting in increased risk of irrecoverable
debts as well as reduction in profit and
cashflow.

2. The Co's credit controller is currently on A temporary credit controller should be

secondment to the internal audit appointed and assigned responsibility for
department for six months and no monitoring and chasing aged receivables.
replacement has yet been appointed.
No one is responsible for the monitoring
and chasing of aged receivables for the
six-month period might lead to customers
not paying balances on time. This might
result in increased risk of irrecoverable
debts and reduction in profit and cash
flows.
3. The GDN is assigned the same The GDNs should all be sequentially
sequential number as the order number. numbered using a sequence which is
Without a separate sequential number, it is different to the order number. Sequence
difficult for the Co to identify if any GDNs checks should be performed to identify any
are missing as they are not likely to be missing invoices.
raised in the same sequence as sales
orders.
If GDNs are missing, invoices relating to
GDN might not be raised leading to loss of
revenue and a reduction in profit.

4. A three-part goods dispatch note is A four-part goods dispatched note should

completed; one copy is sent with the be produced and one copy should be sent
goods, one remains in the warehouse and to the sales order department.
one is sent to the finance department.
If the copy of the goods dispatched note is
not sent to the sales ordering department,
the department will not be able to monitor if
orders are being fulfilled on a timely basis.
This may result in loss of revenue and
customer goodwill.
5. Additional temporary staff have been Only the sales clerks should be given to
appointed to help the sales clerks to raise invoices. Consideration should be
produce the sales invoices. given to recruiting more sales clerks who
The temporary staff are not can produce sales invoices.
well-experienced so errors can occur in the
sales invoices.This could lead to
customers being over or under-charged
leading to misstated revenue and
dissatisfied customers.
6. Receivables ledger clerks record new Receivables ledger clerks should not be
customer's details and credit limits in the able to access the customer master data
customer master data file. files such that only a senior person can
The receivables ledger clerks are not make changes to these files.
senior enough to be given access to
making changes in the customer master
data file. The clerks could incorrectly set
up customers or manipulate data.
This could result in loss of revenue and
increase the risk of fraud.

7. The company offered a 10% discount on The invoicing system should be amended
all the orders placed. The discount has to so that discounts are automatically
be manually entered by the sales clerks recorded rather than sales clerks having to
onto a sequentially numbered invoice. manually enter discounts into sales invoice.
The clerk could forget to manually enter
the discount or enter an incorrect level of
discount for a customer. This could lead to
customers being overcharged leading to
overstated revenue and dissatisfied
customers.
8. Customer statements are no longer The Co should produce monthly customer
being generated and sent to the statements for all the customers and send
customers. them out promptly.
If the statements are not sent regularly, this
increases the likelihood of errors and any
disputed invoices not being quicky
identified and resolved by the Co.
This could lead to cash flow issues.

9. The receivables ledger control account The receivables ledger control account
is only reconciled at the end of April in should be reconciled on a monthly basis to
order to verify the year-end balance. identify any errors which should be
The errors in the receivables balances will investigated and corrected.
not be identified promptly and adjusted.
This might result in misstatement of
receivables.

222. FREESIA

Control deficiencies Recommendation Test of control

1.Sales ledger clerks carry The credit limit should be
out credit checks on new checked and the limit set by Inspect a sample of credit
customers prior to being a senior official. The check form for the new customer
accepted and then set their should be evidenced by and review for evidence of
credit limits. signature. credit check being made by a
The sales ledger clerks are senior official.
not sufficiently senior and can
set very high credit limits
resulting in increased risk of
irrecoverable debts.
If a lower credit limit is set, it
might result in loss of
revenue.
2. Each order number is Orders should be sequentially Review the sample of sales
based on the sales person's numbered. The sequence order to ensure they are
own identification number in check should be performed sequentially numbered.
order to facilitate monitoring on a regular basis to identify Reperform sequence checks
of sales staff performance. missing orders. and discuss any gaps with
These numbers are not responsible officials.
sequential. Without the
sequential numbers, it is
difficult to identify the missing
order which might lead to
unfulfillment of orders.
This results in loss of
customer goodwill and loss of
sales.
3.There is a lack of The roles for posting bank Review the logs of ID's of
segregation of duties. The receipts, updating the sales individuals who have posted
errors might have occured ledger, and performing bank bank receipts, updated the
during postings which will not reconciliation should be split sales ledger and performed
be identified because it is between different individuals. reconciliations to ensure they
performed by a single are different individuals.
individual. There is also an
increased risk of deliberate
misstatements of balances
increasing the risk of fraud.
4. The GRNs are sent to the A three-part GRN should be Enquire the purchase
finance department. created with one copy ordering department if it has
If the GRNs are not sent to retained in the warehouse, a received a copy of GRN and
the purchase ordering copy sent to the finance review that these GRNs are
department, the department department and a copy sent matched to orders and
won't be able to monitor the to the purchase ordering flagged as complete.
fulfillment of orders. department.
This might result in a
significant level of unfulfilled
orders leading to stock-outs
and loss of sales.
5. Camila Brown, the The purchase clerk should Observe the inputting of
purchase ledger clerk is input the invoices in batches purchase invoices and
responsible for matching the and perform controls such as identify if the clerk is
purchase invoice to GDNs control totals to ensure both performing controls that
and order, logging the the completeness and checks both the
invoices to purchase ledger accuracy of input. completeness and accuracy
and utilizing the documents of input.
to ensure the correct number
of invoices has been input.
The control can confirm the
completeness of controls but
do not verify the accuracy or
validity of input.
If the invoices aren't input
correctly, suppliers may be
paid incorrect amounts
leading to overpayment or
underpayment and loss of
customer goodwill.
6. The details of the overtime The payroll details should be Review the overtime report
worked per employee is reviewed and authorised by and for evidence of
collated and submitted to the the senior official before being authorisation and note the
payroll department by the paid. The authorisation date this occured to ensure
production clerk and the should be evidenced by this was done prior to the
overtime is paid without signature. payment.
authorisation.
The overtime recorded might
not be correct which is
reviewed after the payments
have already been paid
resulting in employees not
being overpaid/ underpaid.
This results in loss of
employee's goodwill.
7. The finance director When authorizing the Obtain a sample of payment
reviews the total to be paid payment list, the finance list and review for the
on the list of automatic director should agree the staff evidence of signature by the
payments and compares this records from the HR finance director to ensure
to the total payroll amount to department to the payment that checks are being made.
be paid for the month per the list and vice versa to confirm
payroll records. the payments are complete
There could be employees and made to actual
omitted or fictitious employees.
employees added to the The payment list should be
payment list so that even if signed as evidence of checks
the total on payment list being carried out.
agrees to the payroll amount,
there could be fraudulent or
incorrect payments being
made.
223. CAMOMILE

Control deficiency Control Recommendation

1. The IA department has noted that the Petty cash reconciliations should be
petty cash sum held and receipts does performed on a weekly basis and if any
not always equals to the float. receipts or are missing, it should be
This could be as a result of sundry items investigated with relevant employees.
being purchased without the relevant
receipt or voucher. There is also a
possibility that the cash is being
misappropriated by the staff members,
or being spent on non-business related
items.

2. To speed up the payment process, Each employee should be provided with a

each venue has a specific log on code unique log on code and this is required to
which can be used to access all five tills enter the till system.
and is changed every two weeks.
In the event of cash discrepancies
arising in the till, it would be difficult to
ascertain which employees may be
responsible as there is no way of
tracking who used the till.
This could lead to cash being easily
misappropriated.

3. The restaurant manager counts the The reconciliations should be performed on

total cash in all five tills and the sum of individual tills rather than in aggregate and
credit card vouchers and these totals are any discrepancies should be investigated
reconciled with the aggregated daily immediately.
readings of sales taken from each till.
This means that when the discrepancies
arise, it will be difficult to ascertain which
till caused the difference .
This increases the risk of employees
misappropriating cash as there is less
chance of identifying who carried out the
fraud.
4. The counting of cash, reconciliations Two individuals should be responsible for
with daily readings of sales, noting down counting the cash and recording it. Any
of discrepancies is undertaken by just exceptions should be reviewed and
one individual, the restaurant manager. investigated with the relevant employee.
This lack of segregation of duties results
in errors during count or reconciliations
not being identified. The manager could
remove some cash and simply show it
as an exception on the daily sales list
which increases the risk of fraud.
5. The daily sheets are scanned and The daily sales sheets should be sequentially
emailed to the cashier at head office at numbered and sent to the head office on a
the end of each week. daily basis.
Since the daily sheets are not sent Sequence checks should be performed and
promptly, they might be misplaced which any gaps should be investigated.
results in incomplete sales and cash
receipts being recorded to the
accounting system.
6. The cash is stored in a safe accessed The current key lock safe should be replaced
via a key which the restaurant manager with a digital key lock safe and only
has responsibility for. Each key is stored authorized personnel should have the code.
in a drawer of the manager's desk when The code should be updated on a regular
not being used. basis.
Since the key is easily accessed, this
might result in theft of cash by the
employees.
This will cause a loss for the company.

7. The cashier receives the daily sales The key roles should be split up between
sheets, agree it with bank deposits slip, different members of the finance team.
updates the cash book and performs
reconciliations.
This segregation of duties results in the
errors during recording or reconciliation
not being identified.
This results in cash receipts balances
being misstated.

8. The credit card company sends a The cashier should reconcile the credit card
statement of all credit card receipts from vouchers per restaurant to the monthly
the six venues which is filed by the statement received from the card company.
cashier without checking. The reconciliations should be reviewed by a
There is a possible risk that the receipts responsible official and evidenced by
of cash by the credit card may be signature.
omitted or incorrectly recorded and this
would not be identified.
This may result in difficulties in solving
any discrepancies with the credit card
company.
9. The bank reconciliations are only The bank reconciliations should be performed
carried out every two months. on a regular basis rather than every two
The bank reconciliation is a direct control months and the reconciliations should be
which reduces the risk of fraud and reviewed by a responsible person evidenced
identifies errors. in signature.
If not performed regularly, it will not be
effective at identifying fraud and errors
on a timely basis.

10. The finance director only views the The finance director should review the whole
total amount of payments to be made payments list and agree the amounts to be
rather than the amounts to be paid to paid with the supporting documentation to
each supplier. confirm the amounts are correct and made to
Without looking at the details of the actual employees.
payment list, as well as supporting
documentation, there is a risk that
suppliers could be paid an incorrect
amount, or that sums are being paid to
fictitious suppliers.
This will cause loss for the company.

224. RASPBERRY

Direct control Test of control

1. The human resource department is Review the job description of the HR and
responsible for setting up all new joiners payroll department and ensure there is
and payroll department for processing proper segregation of duties between them
payments. regarding the setting up of new employees.
This segregation of duties reduces the
possibility of setting up fictitious employees
by the payroll department and paying them
which could result in increased cost for the
company.
2. Pre-printed forms should be completed Review the pre-printed form for a sample
by HR for all new employees and once of new employees and confirm that the
verified a copy is sent to the payroll forms are being completely filled and
department for the employee to be set up verified as accurate and received by the
for payment. payroll for setting up for payment.
The use of pre-printed forms ensures that
all the relevant information such as the tax
Ids of the employees are obtained prior to
set up.
This minimizes the risk of incorrect wages
and tax payments and the possible
misstatements of payroll costs.
3. The quarterly bonus is entered into the Inspect the bonus listing and review for
system by a clerk and each entry is evidence of signature by the senior clerk to
checked by the senior clerk for input errors confirm that the checks have been
prior to processing. The senior clerk signs performed prior to input.
the bonus listing as evidence of
undertaking this review.
This ensures that the bonuses are being
correctly input into the system which
reduces the possible misstatements of
payroll costs and over/under payment of
bonuses to the employees.
4. The process of clocking-in by the Observe the use of clock-cards by the
production employees are supervised by employees when entering the power
security staff 24 hours a day. station. Confirm the security staff is
This reduces the possibility that the supervising the process and following up
employees might clock-in for other on discrepancies by discussing with the
employees and ensures that the employees security staff.
are paid for the actual hours worked.
This reduces the risk of overstatement of
payroll costs.

5. On a quarterly basis, exception reports Inspect a sample of the exception report

relating to the changes to the payroll and review for evidence of signature to
standing data are produced and reviewed confirm that the data are reviewed by the
by the payroll director. payroll director.
This ensures that the standing data are
correct and any unauthorized amendments
to the data can be identified and resolved
on a timely basis.
This ensures that the payroll costs are
correctly calculated.
6. Two members of the payroll department For a sample of weeks, inspect the
produce the pay packets, one is payment listing and review for evidence of
responsible for preparing them and the signature by both the employees to confirm
other checks the finished pay packets. Both two members were involved in preparing
members are required to sign the weekly the pay packets.
payroll listing on completion of this task.
This segregation of duties ensures that any
errors in the payroll packets are identified
which reduces the risk of employees being
over/under paid. This also reduces the risk
of fraud.
7. For the production employees in cash, Enquire the payroll clerks about how the
the necessary amount of cash is delivered cash is delivered to the Co to confirm that
weekly from the bank security company. the control is in place.
It is likely that the sum of money to be paid
for over 175 employees would be
significant.
The control ensures that the cash is
adequately safeguarded which reduces the
possibility of misappropriation of cash.

Control deficiency Control recommendation

1. The Co introduced a discretionary bonus Approved bonus parameters should be set
for the production staff which is determined by the board and the bonuses should be
by the production supervisor and notified to determined by a senior official in line with
the payroll department. the parameters.
As there are no parameters for setting
bonuses, the production supervisor might
give higher bonuses to their family and
friends.
This results in increased cost for the
company
2.The gross and net pay along with The gross and net pay calculations should
relevant deductions are automatically be reperformed for a sample of employees
calculated by the systems. These and the results should be compared with
calculations are not checked. the output from the system.
System errors could occur during payroll
processing and the payroll costs calculated
might be incorrect which will not be
identified if the calculations are not
checked.
These could result in misstated payroll
costs.
3. The student loan deductions forms are A schedule should be kept of the payments
completed by the relevant employee and and outstanding balances to the third
the payments are made directly to the parties and should be adjusted after each
government until the employee notifies HR payment to ensure no under/over payments
that the loan has been repaid in full. are made.
The employees might not be closely
monitoring the payments which might result
in overpayments being made which then
needs to be reclaimed.
This might result in customer's
dissatisfaction.
In case of underpayments, if the company
does not make payments in full on time,
this could result in non-compliance by both
the company and employee, which could
result in fines or penalties.
4. Holiday request forms are required to be Written confirmation should be provided to
completed and authorised by relevant line the employees to authorise the leave and
managers, however, this doesn't always the staffs should be informed not to take
occur. leave unless they get written confirmation.
This might result in staff taking
unauthorised leaves that could lead to staff
shortages or operating inefficiency.
Also, employees taking unauthorised leave
could result in overpayment of wages.

5. For employees paid by bank transfer, the The senior manager should not be able to
senior payroll manager reviews the list of process changes to the payroll system as
bank payments and agrees this to the well as authorise the payments. The
payroll records prior to authorizing payments should be authorised by
payments. If any errors are noted, the someone outside the payroll department
payroll senior manager amends the such as finance director.
records.
This lack of segregation of duties might
result in errors/ fraud not being identified.
The senior manager could fraudulently
increase the amount to be paid to certain
employees, authorize the payments as well
as amend the records.
6. The pay packets are delivered to the All the pay packets should be distributed by
production supervisors, who distribute them the payroll department directly to the
to the employees at the end of their shift. employees by taking identity proof and
The production supervisors are not signature after receipt.
sufficiently independent to pay the wages
out. They could adjust the pay packets to
increase those of close friends while
reducing others.
7. Monthly management accounts are The monthly management accounts should
produced which detail variances between be amended to include an analysis of the
budgeted amounts and actual. However, wages and salaries compared to the
wages and salaries are not analyzed. budgeted costs. Any variances should be
Wages and salaries are significant investigated.
expenses and the management should
understand why these variances may have
arisen.
If these are not analyzed and investigated,
it might impact on the profitability of the
company.

225. COMET PUBLISHING

Control deficiencies Recommendation Test of control

1. Customers who wish to An inter-branch transfer Inspect a sample of
order books, which are not system should be inter-branch inventory form
in stock at the branch established between stores, for each branch to ensure
visited, are told to contact with inter-branch inventory that the control is operating.
the other stores directly or forms being completed for
visit the company website. store transfers.
As the customers have
alternatives, it is unlikely
that the customers will
contact the other stores
themselves.
This might result in loss of
sales.
2. The purchase order clerk All purchase orders should Obtain a sample of
only sends the orders be authorized by a purchase order and review
above $1000 for responsible official and for evidence of
authorization from the evidenced by signature. authorisation by a
purchasing director. responsible official.
The clerk could place
personal orders for
personal goods up-to
$1000 which is very
significant.
This could result in
non-business purchase and
an increased risk of fraud.

3. The goods received A copy of the goods Enquire with the accounts
notes are sent to the received notes should be clerk about the frequency of
accounts department every sent to the finance when GDNs are received to
two weeks for processing. department on a daily basis assess if they are being
If the goods received notes and sequence check should sent promptly. Reperform
are not sent promptly, the be performed to ensure sequence checks and
invoices issued might be none of GRNs are missed discuss any gaps with the
paid late. Any prompt for processing. accounts clerk.
payment discounts offered
by suppliers might be
missed.
This might result in loss of
supplier's goodwill as well
as increase cost to
business.
4. GRNs are only sent to The GRNs should be made Review the files of copy
the accounts department. in three-parts and a copy of GRNs held by the purchase
If the GRNs are not sent to GRN should be sent to the ordering department and
the purchase ordering purchase ordering ensure they are matched to
department, it cannot department to agree with orders and flagged.
monitor the fulfillment of them with orders and flag as
orders. complete.
It might lead to significant
orders unfulfilled leading to
stock-out and loss of sales.

5. The purchase ordering The roles for ordering the Inspect the log of Id's of
clerk, Olier Dancer, has goods and processing the individuals who have
responsibility for ordering related supplier invoices ordered the goods and
goods below $1000 and for should be allocated to processed the invoice to
processing all purchase separate members of the identify if they are separate
invoices for payment. staff. individuals.
There is a lack of
segregation of duties which
might lead to non-business
related purchases being
made and increasing the
risk of fraud.
6. The finance director is The payment lists should be Obtain the payment list and
given the total amount of reviewed by the finance review for evidence of
the payment list, which she director before payments authorisation by the finance
authorizes and then and the review should be director.
processes the bank evidenced by signature.
payments.
If the payment list are not
reviewed prior to
processing bank payments,
the payment list contains
errors.
This might result in
suppliers being overpaid or
underpaid that might result
in loss of supplier goodwill.
7. Due to the staff The supplier statements' The file of reconciliation
shortages in the accounts reconciliations should be should be reviewed to
department, supplier performed monthly and assess if reconciliations are
statement reconciliations reviewed by a responsible performed on a monthly
are no longer performed. official. basis and reviewed by a
If the supplier statements responsible official.
are not performed, the
errors in the amount owed
to the supplier may not be
identified and resolved on a
timely basis.
This might result in
suppliers being underpaid
or overpaid and lead to loss
of customer goodwill.

227. CATERPILLAR

Control deficiency Recommendation

1. All employees based on the store are The employees should be provided with
able to use each till and individuals do not their own log on code and should be
have their own log on code. restricted from access to tills other than the
Allowing all employees to access the till one they use.
increases the risk of misappropriation of
cash.
In case of any cash discrepancies it will be
difficult to identify whom to make
responsible as there is no way of tracking
who used the till.
2. Where employees' friends or family The Co should formulate a policy where no
members purchase clothes in store, the employee should be allowed to serve at the
employee is able to serve them at the till till point for their friends or family. An
point. alternative employee should be required to
The employees might be biased towards serve the till.
their friends and family and charge them
less or not take payments from them at all.
This might result in reduction of cash and
loss for the company.
3. If the store is low on change for cash The store manager should authorize a
payments, a junior sales clerk is sent by a member of the staff to obtain cash from the
till operator to the bank with money from bank and all the movements in and out of
the till and asked to change it into smaller the till should be fully recorded.
denominations.
There is a possibility that the cash could be
stolen or misplaced on the way to the bank.
The purchase clerk and till operator may
collude and misappropriate cash as no
records are being kept of how much money
is removed from the till.
4. A clerk is responsible for overseeing the The key roles should be split between
existence of sales, agreeing the cash separate individuals with the bank
transferred by the security company has reconciliations being undertaken by
been banked by agreeing cash deposit another member of the finance team.
slips to the bank statements and
performing reconciliations.
As there is a lack of segregation of duties,
the errors will not be identified on a timely
basis and there is a greater chance of
fraud.
5. The reconciliations are reviewed by the The reconciliations should be regularly
financial controller if there are any reviewed by the finance director even when
unreconciled amounts. there is no unreconciled amount. The
There might be significant errors in finance director should sign the
reconciliations that might cancel off each reconciliation as evidence of review being
other and the balances might reconcile. If carried out.
the reconciliations are not reviewed, these
errors might not be identified and rectified
on a timely basis.
This might result in misstatement of cash
balances.
6. The Co has 45 stores throughout the The Co's internal audit department should
country but the reviews have taken place in access and reschedule its programme to
only 20 stores. ensure all the stores are visited and
The other 25 stores might have control reviewed on a cyclical basis.
deficiencies which will not be identified
because no reviews of the internal controls
are performed.
This might result in control errors leading to
an increased risk of error and fraud through
misappropriation of cash.

Direct control Test of control

1. At the end of the day, daily records of For a sample of stores visited, inspect the
sales are taken from each till. These are reconciliations files to confirm that
reconciled to the total of cash in the tills reconciliations are performed at the end of
and the credit card payment slips and any the day and any discrepancies are followed
discrepancies are noted. up.
Reconciliation is a form of control which
ensures that the errors in cash records are
identified and resolved on a timely basis.
The employees will be aware that the
manager will be looking for discrepancies
which reduces the risk of fraud.
2. The cash is stored in the safe until it is During the visit, enquire with the staff how
transferred to the bank via collection on the the cash is transferred to the bank to
same day. confirm the cash is collected by a security
This ensures the cash is adequately company.
safeguarded so that the risk of theft when
transferring it to the bank is minimized.
This reduces the risk of misstatement in the
cash balances.

3. The daily sales readings from the tills For a sample of sales and cash receipts
along with the cash data and credit card records in the head office, review the date
payment data are transferred daily to the when it was recorded to ensure this
head office through an interface with the occured promptly.
sales and cash receipts records.
This ensures that the sales and cash
records are updated on a prompt basis and
the records are complete and accurate.
This reduces the risk of misstatement of
sales and cash balances.
4. On a daily basis, the clerk agrees the Review the daily reconciliations the clerk
cash transferred by the security company has performed to ensure that he has
has been banked in full by agreeing the performed all the processes described as
cash deposits slips to the bank statements, undertaken.
and that the credit card receipts have been
received from the credit card company.
This ensures the completeness of the cash
receipts, as they are transferred from two
sources, being the security company and
the credit card operator.

228. HERAKLION

Control deficiencies Recommendation

1. Sales staff are responsible for assessing New customers should complete a credit
new customer's creditworthiness and application which should be checked
proposing a credit limit which is then through a credit agency and then the credit
authorised by the sales director. limit set.

The sales staff might suggest the new

customers are creditworthy simply to meet
their sales targets.

This could result in increased risk of

irrecoverable debts and reduction in profit
and cashflow.

2. Sales staff have the discretion to grant All the discounts granted to customers
sales discounts to customers of up to 10%. should be authorized by a senior official,
such as a sales director.
The sales staff can give unrealistic
discounts to customers to meet their sales
targets. Discounts are not reviewed leading
to unauthorized discounts allowed.

This could result in loss of revenue and

reduction of profit.

3. Sales staff are able to make changes to

the customer master data file, in order to
record discounts allowed and these
changes are not reviewed.

The sales staff are not sufficiently senior to

be given access to the customer master
data file. The staff could record incorrect
amounts of discounts and manipulate the
data.

This could result in loss of revenue and

increase the risk of fraud.
4. The orders are completed using a The order form should at least be four-part.
two-part pre-printed order form, one copy is The third and fourth part of the form should
left with the customer and one with the be sent to the warehouse department and
sales person. the finance department.

If the copy of order is not provided to the

warehouse department and finance
department, the ordered goods might not
have been dispatched or invoice issued.

There is a possible risk of loss of revenue

or customer goodwill

5. The sales order number is based on the Sales order should be sequentially
sales person's own identification number. numbered. Sequence checks should be
performed regularly to identify any missing
The sales order should be sequentially orders.
numbered. Without sequential numbers, it
is difficult for the Co to identify missing
orders and to monitor if all goods are
dispatched on a timely manner.

This could lead to a loss of customer

goodwill.

6. The salesperson emails the warehouse The copy of the sales order form should be
dispatch team with the customer ID and the forwarded directly to the warehouse
sales order details and from this a pick list department and picklist should be
is generated. generated from the original order form.

Incorrect or insufficient details might be

recorded by the sales person resulting in
incorrect order being dispatched, order
being dispatched late or order failing to be
dispatched at all.

This could result in loss of customer

goodwill or revenue.
7. Sequentially numbered goods A four part GDN should be completed, with
despatched notes are completed and filed copies given to customer, warehouse
by the warehouse department. department, sales department and a copy
for the finance department.
If the finance director does not receive a
copy of the GDNs, it will not know when to
raise the related sales invoice. The goods
being dispatched might not be invoiced.

This could result in loss of revenue.

8. The salesperson is given responsibility A credit controller should be appointed and

to chase customers directly for payment it should be their role to chase the
once an invoice is outstanding for 90 days. outstanding sales invoices.

The salesperson has sales targets, they

are more likely to focus on generating sales
orders rather than chasing payments.

This could result in increased irrecoverable

debts and reduced profit and cash flows.

9. The Co markets itself on being able to Prior to finalizing the order, the inventory
dispatch all orders within three working should be checked to assess whether the
days. The inventory is not checked at the foods are available and customers should
time the order is placed. be notified.

If the goods are not available, the customer

would not be made aware of this prior to
placing their order. The order might not be
fulfilled.

This would lead to customer dissatisfaction

and impact on the company's reputation.

229. BRONZE

Control deficiencies Recommendation Test of controls

1 Employees swipe their The clock-in process should Observe the clock-in
cards at the beginning and be supervised by a process and ensure it is
the end of the eight-hour responsible official and any supervised by a
shift and this process is not suspicious activity during responsible official. Enquire
supervised. clock-in should be the official on whether the
As the process is not investigated on a regular unusual activity is
supervised, the employees basis. investigated on a regular
could fraudulently clock-in for basis.
other employees.
This could result in
employees being paid for
hours not worked and
increased costs to the
company.
2. Appointments of All appointments of staff Inspect the job description
temporary staff are made by either temporary or of the HR department to
factory production permanent should be only confirm it is their
supervisors. made by the human responsibility to hire
The production supervisors resources. temporary and permanent
could appoint unsuitable staff.
employees and may not
carry out all the procedures
required for joining the new
joiners.
This could result in
decreased productivity or
temporary employees not
receiving correct pay causing
the dissatisfaction of
employees.
3. During the break, The employees should be Observe the dining area
employees do not need to supervised by a supervisor during the break times to
clock out to access the to ensure they are taking ensure a supervisor is
dining area. not more than 30 minutes present.
The employees breaks are breaks.
not supervised which could
result in employees taking
excessive breaks.
This could result in
decreased productivity and
increased payroll costs.
4. Overtime reports which All overtime should be Enquire with the production
detail the amount of the authorized by a responsible department about when the
overtime worked are sent out official prior to the payment overtime reports are being
quarterly by the payroll being processed. The sent and review for
department to the production authorisation should be evidence of signature in
department for review. evidenced by signature. the report to ensure they
These reports are reviewed are authorized before
after the payments are being payments are made.
made which might result in
more/less than actual
overtime being paid or
amounts being paid
incorrectly.
5. Production supervisors Approved bonus Review the bonus payment
determine the amount of the parameters should be set for a sample of employees
discretionary bonus to be and the bonus should be and ensure they are in line
paid to the employees. authorized by a senior with bonus parameters and
Production supervisors are official before notifying the approved by senior
not senior enough to payroll department. officials.
determine bonuses. They
could pay extra bonuses to
their friends or family which
result in increased cost for
the company.
6. The bonus is input by the All the entries should be Observe the inputting of
clerk into the payroll double checked by another bonuses by the payroll
system.There is no indication member of the team to clerk and confirm
that the input process is identify any amount entered subsequent checks are
reviewed. incorrectly. done by another team
This could result in input member of the department.
errors or the clerk could
fraudulently change the
amounts.
This could lead to incorrect
bonus payments being made
and increased payroll costs.
7. The payroll manager The payroll manager should Inspect the bank transfer
reviews the bank transfer not be able to process listing and review the
listing prior to authorizing the changes to the payroll signature of authorisation
payments and also amends system and also authorize to confirm the signature is
the payroll records for any the payments and the of someone outside from
changes required. authorisation of bank the payroll department.
There is a lack of transfer should be taken by
segregation of duties. someone outside the
The manager could payroll department.
fraudulently increase the
amounts to be paid to certain
employees, process this
payment as well as amend
the records causing loss to
the company.
8. A payroll clerk distributes The wages should only be Observe the process of
cash pay packets to paid after identity proof and wage collection to ensure
employees without signature should be done that the employees can
requesting proof of identity. by the employees after only collect their wages by
Without identity proof, there receiving their pay packets. showing their identity proof.
is a possibility that the wages
could be paid to incorrect
employees.
This could result in increased
payment costs or dissatisfied
employees if incorrect
amounts are received.

231. FOX INDUSTRIES

Control deficiencies Recommendation

1. The purchase orders are not The purchase orders should be sequentially
sequentially numbered. numbered and sequence checks should be
performed to identify any missing orders.
Without the sequential number, it will be
difficult for the Co to identify any missing
orders.

If orders are missed, they will be unfulfilled

that might result in stock-out as well as
loss of sales.
2. Only purchase orders above $5000 All the purchase orders should be
require authorisation. authorized by a responsible official and
evidenced in the form of signature.
If all the purchase orders are not
authorized, the purchase clerk could order
goods for personal use up to $5000 which
is significant This might result in
unnecessary cash outflow and increased
risk of fraud.

3. The purchase ledger clerk does not The purchase ledger clerk should perform
apply any information processing controls controls such as control totals to ensure the
over the input process. invoices are completely and accurately
inputted.
The purchase invoices could be inputted
incorrectly or missed to input which might
lead to errors in payables and suppliers
being paid an incorrect amount or not
being paid at all.

This might result in loss of supplier

goodwill.

4. The purchase ledger is posted manually A purchase ledger control account

to the general ledger by a purchase ledger reconciliations should be performed
clerk. monthly and reviewed by a responsible
official.
There might be errors during the postings
such that the posting might be incorrect or
missed.

This might result in payables balances in

the financial statements being misstated.
5. When purchase requisition is obtained, An approved supplier list should be made
the order clerk raises a purchase order and taking into account quality, price and the
contacts a number of suppliers to see speed of supply and goods should be
which can dispatch goods first and chose ordered from suppliers on the list.
this supplier.

The Co might order goods at a much

higher price of inferior quality than required
because the supplier is only chosen based
on who can supply faster.

This could lead to loss to the business of

loss of sales because of low quality goods
being produced.

232. LILY WINDOW GLASS

Control deficiencies Recommendation

1. The warehouse manager will supervise The independent person should be

the count as he is most familiar with the assigned to supervise the inventory count
inventory. such as a member of the IA department.

The warehouse manager might wish to

hide inefficiencies or discrepancies
regarding the inventory count so that his
department won't be criticized.

This might result in errors in inventory

counts and incorrect valuation of inventory
as well as an increased risk of fraud.
2. As the process is systematic, it is not felt The team should flag the areas once
that the team will need to flag areas once counted. At the end a check should be
counted. performed that all 20 areas are flagged.

There are 20 aisles and many people

performing the count, so even if the
process is systematic there is a possibility
that some aisles might be missed or
counted twice.

This might result in incorrect inventory

valuations at the year-end.

3. To assist with the inventory counting, The IA counters should perform sample
there will be two teams of counters from checks on the counts being performed by
the internal audit department and they will other teams to provide extra control over
perform the inventory counts. the completeness and accuracy of count.

The internal audits should be responsible

for reviewing the controls in place and
performing sample test counts to confirm
count is being performed effectively. If they
become involved in the count, they might
not be able to perform their responsibility.

Issues within the counts may not be

identified resulting in an ineffective count.

4. If the counters identify any inventory The sheets given to the counters for
which is not in their sheets, then they are entering any inventory which is not on their
to enter the item on a separate sheet, sheets should be sequentially numbered.
which is not numbered. Sequence checks should be performed to
confirm completeness of the sheets.
Without the sequential numbers, some
separate sheets might be misplaced and
that won't be identified. The supervisors
will be unable to ensure the completeness
of all inventory sheets.

This could result in understatement of

inventory.
5. The damaged goods are not moved to a Damaged goods should be flagged and
central location, but the counter is to make moved to the central location at the end of
a note on the inventory sheets detailing the the count so that the finance team can
level of damage. inspect the goods and assign the write
down value.
It will be difficult for the finance team to
decide on the write down value of the
goods if they don't see the damaged
goods. This might result in misstatement of
inventory. The goods might be mixed with
the other goods and sold to the customers
leading to customer's dissatisfaction.

6. Lily Co undertakes continuous Any goods received from the supplier

production and so there will be movements should be stored in one location and
of good during the counts. counted at the end to be added to raw
materials. The goods to be dispatched
This might result in goods being counted should be kept minimum for the day.
twice or missed to count.

Inventory records could be misstated.

7. The warehouse manager is given the A specialist should be assigned to assess

responsibility to assess the value of raw the value of WIP and raw materials.
materials and work-in progress.

The warehouse manager might not have

required knowledge and experience to
assess the value of raw material and work
in progress.

This might result in errors in assessment

leading to misstatement of inventory.
8. The counters have been asked to count All the third party inventory should be
the inventory for all bays noting the third moved to one separate location before
party inventories on separate blank carrying out inventory count which should
inventory sheets, and the finance be clearly marked and excluded from the
department will make any necessary counting process.
adjustment.

The counters are not provided with

methods to identify the third party's
inventory. If the inventory are not removed
from the sheets this might result in
inventory being misstated.

232. TROMBONE

Control deficiency Control recommendation Test of control

1. The standard hours per The gross and net pay Inspect a sample of
employee are automatically should be recalculated for a recalculations performed to
set up in the system which sample of employees and ensure they are undertaken
automatically calculates the this should be agreed with and review for evidence of
gross and net pay along the pay calculated by the signature to confirm they
with relevant deduction. system to ensure accuracy. are approved before
These calculations are not These calculations should payment.
checked at all. be signed as approved by a
senior official.
The system errors might
occur while payroll
processing and the gross
and net pay calculated
might be incorrect. If these
calculations are not
checked, the errors won't be
identified.

This might result in

employees being
under/over paid.
2. The clerks are The clerks should not be Review the log of standing
responsible for updating the given access to update the data amendments made to
standing data in the payroll standing data and only identify whether the wage
system. senior officials should be rate increment was
able to make any changes changed by a senior official.
The clerks are not to it.
sufficiently senior to be
given access to update the
standing data because they
may make inappropriate
amendments and set high
wage rates.

This might result in

overstatement of payroll
costs and increased risk of
fraud.

3. If employees choose to All the overtimes, including Inspect a sample of

be paid for overtime, below 30% should be overtime sheets with
authorisation is required by authorized by the overtime below 30% of
the department heads of department heads before standard hours and review
any overtime in excess of processing for payment. for evidence of
30% of standard hours. authorisation by the
department heads.
If all overtimes are not
authorized, employees can
falsely claim overtime up to
30% of standard hours
which might result in
employees being paid more
than actual hours worked.

This might result in

increased cost to the
company.
4. If employees choose The overtime worked report Inspect a sample of
instead to take days off, the should be compulsorily overtime sheets with days
payroll clerks should check checked before authorizing taken off and review for
back to the 'overtime leave for employees. The evidence of signature to
worked' report. However, overtime sheets should be ensure they are checked
this report is not always signed to evidence the days and agreed.
checked. taken off are relevant to the
overtime worked.
If the report is not checked,
it might result in employees
taking more days off than
relevant to the overtime
actually worked. This
might result in staff
shortages or operating
inefficiency.

This will cause loss for the

company.

5. The overtime worked The department heads For a sample of overtime

report is run by the payroll should report on each reports sent to the
department weekly and overtime report on whether department heads, confirm
emailed to department they are correct or not and that a response has been
heads for authorisation. The the payroll department received from the head by
payroll department asks should not process the reviewing the responses.
department heads to only payment until department
report if there are any errors heads agree to the
recorded. payment.

The department of heads

might not receive the emails
or do not check emails on
time and the payroll
department might simply
process the payment
thinking there are no errors.

This might result in errors

not being reported and the
payroll costs being
misstated.
6. Department heads are The department heads Inspect a sample of
required to arrange for should be reminded to overtime sheets and review
overtime sheets to be arrange for a suitable official for evidence of the sheets
authorized by an alternative for authorizing overtime being authorized by an
responsible official if they sheets before taking leave alternative official.
are away on annual leave; and the payroll clerk should
however, there are ensure that the overtime
instances where this sheets are being authorized
arrangement has not on a timely basis.
occured.

If the arrangements are not

made, the overtime sheets
may be authorized late
which results in late
payment to the employees.

This results in loss of

employee goodwill.

7. The finance director The finance director should Inspect a sample of

reviews the total list of bank agree the names in the payment list and review for
transfers and compares this payment list with the records the evidence of signature
to the total amount to be from the HR department to by the finance director to
paid per the payroll records. confirm that payments are ensure that the control is
being made to actual operating properly.
The employees could be employees. The finance
omitted or fictitious director should sign the
employees set in the payment list as evidence of
payment list so the total in this check being made.
payment list and the payroll
records will still agree but it
is incorrect.

This might result in

fraudulent payments being
made making loss for the
company.

233. PEAR INTERNATIONAL

Direct control Test of control

1. The website has some inbuilt validation Input a sales order with invalid details to
checks to ensure details such as the assess whether the inbuilt checks detects
customer's postcode and payment card and rejects the order.
details are in the correct format.

This reduces the risk of goods being

delivered in the wrong location, payment
not being received and the orders being
processed incorrectly.

This ensures customer's satisfaction and

reduces loss of revenue.

2. Pearl's retail customers undergo credit Inspect the customer's file and review
checks prior to being accepted and credit whether credit check has been performed
limits are set accordingly by a sales and an appropriate credit limit set by the
manager. sales manager.

This ensures that the company only sells to

customers who are likely to pay the full
amount and on time.

This reduces the risk of irrecoverable debts

and reduction in profit.

3. Sales invoices are raised by the Obtain a sample of sales invoice and agree
accounts department using the GDNs. the quantity and quality of goods with the
related GDN to ensure they match.
This ensures that the customers are being
charged for the goods that were actually
sent which might be different from what
was ordered.

This reduced the risk of customers being

invoiced for goods not actually ordered
which might misstate revenue.
4. Monthly customer statements are sent to Inspect the copies of monthly statements to
retail customers by the credit control team confirm that they are actually sent out and
and the credit control team follow up on review evidence of follow ups like phone
overdue debts as soon as they become calls or emails sent.
overdue.

As the customer statements are sent, the

customers will be reminded of the balance
outstanding and any error or disputes in
balances can be identified and rectified on
a timely basis.

Since the debts are followed up, this

reduces the risk of irrecoverable debts.

5. Factory supervisor checks the stock Observe the weekly stock level checks
levels on a weekly basis. being performed by the factory supervisor
in a number of different locations.
This ensures that there is always sufficient
level of inventory to fulfill the orders taken
and only necessary items are purchased
which reduces the risk of stockouts as well
as loss to the company.

6. The requisitions must be authorized by Inspect the sample of purchase requisition

the factory managers before the order is and review for evidence of authorisation
processed by the procurement department. such as signature by factory managers.
Agree the signature with the approved
This ensures that only items that are signature list.
necessary and relate to the business are
being requisitioned that reduces the risk of
inventory being obsolete and personal use
goods being requisitioned.

7. Orders can only be placed with suppliers Inspect the sample of the purchase order
from the approved suppliers list. and agree the supplier's name to the
authorized supplier's list.
This reduces the risk that the orders
received are of inferior quality or
unreasonable price and helps to ensure
that the customers are being sold goods of
consistent quality.
Deficiencies Recommendation

1. The website is not integrated into the The website should be updated to be
inventory system and the inventory levels integrated into the inventory system so that
are not checked at the time the orders are the level of inventory is checked and the
placed. order is only accepted if it can be fulfilled.

If the inventory level are not checked prior

to accepting the order, there might not be a
sufficient level of inventory to fulfill the
order.

Unfulfillment of orders might result in

customer's dissatisfaction and loss of
revenue for the company.

2. The customers place their orders The discount should be authorized by a

through one of the sales teams, who senior responsible official and the
decides on sales discount levels. authorisation should be evidenced by
signature.
The sales team are not sufficiently senior
and might give unrealistic discounts to
customers to increase the sales.

This might result in loss of revenue to the

company.

3. The local couriers do not always record The local couriers should be reminded that
customer signatures as proof that the they must record customer signatures after
customer has received the goods. the goods reach the customer's hand as a
proof of delivery.
The customers might falsely claim that
they have not received the goods which
might result in the company having to send
goods twice.

This results in loss for the company.

4. The sales order had been entered to the The system should be checked and
sales system correctly but was not updated so that all the sales orders are
forwarded to the despatch department for forwarded to the dispatch department. The
processing. goods dispatched should be agreed with
the order and flagged as fulfilled.
Goods might not be dispatched for all
orders accepted which might result in the
unfulfillment of orders leading to
customer's dissatisfaction and loss of
customer's goodwill.

5. Supplier statement reconciliations are Supplier statement reconciliations should

no longer performed. be performed on a monthly basis and
reviewed by a responsible official.
Errors relating to the purchase and
payable balances might not be identified
and resolved in a timely manner. This
might result in suppliers being overpaid or
underpaid leading to loss of supplier's
goodwill.

6. Changes to supplier details in the Only senior officials should be authorized to

payables ledger master file can be make amendments to the master file and
undertaken by payables ledger clerks as restrictions should be in place to prevent
well as supervisors. clerks from accessing the file.

Payable ledger clerks are not sufficiently

senior to be given access to make
amendments as they might input incorrect
details or add fictitious suppliers.

This might result in increased risk of fraud

and loss to the company.
7. Purchase requisitions for all new Capital expenditure authorisation levels
equipment have been authorized by should be established. The high value
production supervisors. items should be authorized by the board
itself.
Production supervisors are not sufficiently
senior or independent to authorize the
purchase of capital assets.

There is a scope for unnecessary assets or

personal use assets being purchased
which results in increased cost and
reduced profit for the company.