Que 220 PETRA

(b)

Direct control Test of control

1) Supervision of clock card Observe factory staff entry and exit by using
Factory staff each have a unique clock card the clock card is properly supervision by
which they use to enter and exit the factory at security staff.
the beginning and end of their shift, and this
process is supervised by security staff.
Due to supervision of clock card reduce the
risk of one employee fraudulent clock in on
behalf of another employee.
2) Gross and net pay calculation Select the sample of payslips and recalculate
Payroll supervisor selects a sample of the gross and net pay calculation and if significant
payslips and reperforms the gross to net pay difference should be discuss with
calculations and investigates any management.
discrepancies.
Providing signature is the evidence of review
of payslips.
These reduce the risk of error by automatically
calculation of gross and net pay, and if any
error occurs are solved by payroll supervisor.
3) Segregation of duties Observe the procedure of produce the cash
Two members of the payroll department pay packet ensure that one member is
produce the cash pay packets in which one preparing, and another is finished and
member is preparing the pay packets by confirms the payslip.
reference to the payslips generated by system
and other recounts finished pay packets and
confirms the payslips.
This ensures the segregation of duties which
reduced the risk of fraud conducted by staff on
their own payslips and human error in
payslips.

(c)

Control deficiency Control recommendation

1) Credit checks Credit check should be reviewed regularly by
A credit checks for all new customers and a the finance director and if amendments are
credit limit is set by the finance director. The required it must be made.
credit limits are only reviewed if an increase is
requested by the customer.
If the credit checks are not reviewed regular
than there is a risk limit is too high, and sale is
made to poor credit customer.
2) No invoice sent to sales department There should be four copies being printed and
A three-part pre-printed order form, one copy 4th copy most be sent to the sales department.
is left with the customer, the second is sent to
the warehouse and the third to the finance
department.
There is no invoice is sent to sales department
and hence this will increase the risk of order is
not being fulfilled.
3) Discounts are not reviewed On a regular basis, sales director should review
The sales staff have monthly sales targets and the discounts granted to customer and ensure
are able to in grant discounts up to a that discount is not granted more than 8%.
maximum of 8% and no review is undertaken
of discounts granted.
To meet the sales target sales staff, grant more
than 8% discount to the customer and this will
raise the false revenue being recorded.

4) Master file access There should no access to the all member of

All members of purchasing department have purchase department, only senior members of
full access to the supplier master file data and purchase department have access to the
are able to make changes. master data file.
This increase the chances of purchase
department staff can credit a fake supplier and
fraud payments being made to fictitious
supplier.
5) Document count control Payables ledger clerk should review
The payables ledger clerk using document documents and ensure both completeness and
count controls to ensure that the correct accuracy are correctly invoiced.
number of invoices has been input.
Using document count will provide the
evidence of completeness but do not verify
the accuracy.
And this will lead to wrong amount being paid
to suppliers and loss suppliers goodwill.

(e)

Deficiency Recommendation
1) Marketing director as chair For the chair role independent person should
It is proposed by the nomination committee be appointed, who complete the
that the current marketing director is independence and objectivity.
appointed as Chair role.
As marketing director is existing employee,
this lead to lack of independence and
objectivity for this role of chair and unable to
perform the role of chair.
2) NEDs no financial expertise The company should appoint new Non-
All members of the audit committee and are Executive director (NED) with the relevant and
highly experienced but in field of sales or latest financial expertise.
purchasing roles. There should at least one
member from financial experience.
But there is no financial expertise member in
audit committee which cause misstatement in
financial statement.
3) Annual bonus to NEDs The board should appropriate decide the
The remuneration for the NEDs is in the form remuneration of NEDs based on their
of an annual bonus based on profit growth performance and time worked.
over the prior year.
NEDs should be paid on basis of their
performance and time worked. And if they
paid in the basis of annual bonus based on
profit growth that effect on their
independence.

Que 222 DALEY

(b)

Control deficiency Control recommendation Test of Control

1) No check of data The transfer of hours worked Review the sample of week
Each week the hours worked by the key card system to transfer of hours worked by
are automatically transferred payroll system should be the key card system to payroll
to the payroll system. As the checked by the senior system should be checked by
process is automated, no member of payroll the senior, should be properly
checks over this transfer are department. review by the senior member
performed. in evidence of signature on
As there are no checks over the documents.
this transfer from hours
worked by key card system to
payroll system, error could be
occur in under or
overstatement could be
made.
2) No reviewed-on clerk The work of payroll clerk Review the sample of weekly
A payroll clerk checks should be reviewed weekly review by senior payroll
calculations and makes the basis by the senior payroll member and also inspect the
amendment if required. An department member before signature is made by that
edit report of any posting to final payroll member to ensure that review
amendments is not reviewed. account and provide evidence is actually being done.
The payroll clerk should of being reviewed by
calculate incorrect calculation signature.
which cause misstatement of
payroll balance.
3) PPE Physical The board should make policy Review evidence of
verification of trace and compare the non- comparison made by internal
The company has an internal current assets register to audit department and ensure
audit (IA) department which physical assets on regular that any obsolete assets
carries out a comparison basis. should written off.
between all of the assets
recorded on the non‐current
asset register to those
physically present in each of
Daley Co's 21 sites. This year
plan and carried out on the
same basis as previous years,
means IA will only have
completed this comparison at
one factory and one
warehouse.
If internal audit department
have not compared the non-
current assets register to
physical assets regularly.
There is a risk of misstatement
in non-current assets as there
is no check of existence.
4) Finance director Finance director should detail A sample of payment to
review review of the payment list of supplier document should be
The finance director reviews supplier and ensure that review to ensure that finance
the total amount of the bank correct amount should be director has reviewed
payments list and authorises paid to every supplier. detailed payment documents.
it.
Finance director only review
the total amount to be paid to
supplier. There is no review of
detail payment of individual
supplier and hence there is
risk on wrong amount is paid
to the supplier.
5) No petty cash receipts The finance department A sample of petty cash
There is no requirement for should regularly review the transaction should be
the receipts on out cash to petty cash and also require reviewed to ensure that all
staff from petty cash for the receipts to be provide cash out is recorded with
sundry purchase. when cash out for the sundry there evidence.
This could increase the purchase.
deficiency that cash may use
for the non-business purpose
and cash should be
misappropriately.

(d)

Deficiency Recommendation
During the year, the Chair of Daley Co resigned Fred Johnson should resign the role of chair
and Fred Johnson, who is the chief executive and perform the role of chief executive. An
of the company, take over the role. independent Non-executive director should be
If Fred Johnson is playing both roles chair and appointed for the role for chair,
chief executive, Fred has a lot of power to
make decision and lead the whole board.
The non-executive directors’ remuneration is The board should agree remuneration of
set by the board and is based on pre‐tax profit NED’s is based on their performance and time
targets. worked for the company.
Non-executive directors should not be paid in
basis of per-tax profit, remuneration is paid
based on their performance and time worked
because it effects on their independence.
As the board is of the view The company should established audit
that the internal control environment is very committee as soon as possible. Audit
effective, an audit committee has not been committee should have 3 non-executive
established. directors and 1 with financial expertise.
Without audit committee directors fails to
perform their responsibility towards internal
audit and external audit department. Because
there is no link between external auditor and
directors.
Que 223 WHITTAKER

(b)

Direct control Test of control

1) New sales system Review the sample of procedures and
The new system and old system will be run in documents related to the comparing of old
parallel until the year end and internal audit and new system output and investigate any
department is responsible for comparing the significant difference and ensure that was
output from the old and new systems, resolved.
investigating any discrepancies.
This reduced the risk of data is being lost and
misstated.
2) Credit check Audit team should review the system of
The automated system generates a credit limit generating credit limit automatically and
for each new customer which the sales ensure that system is worked effectively.
director approves before the customer can
place any orders.
This helps to reduce the risk of lost revenue
and unrecoverable receivables as only
creditworthy customer are able to place order.

3) Aged receivables review Audit team should obtain copy of aged

Receivable ledger clerk reviews aged receivable documents to ensure that
receivables in which according to Whittaker receivable ledger clerk has reviewed by
Co. credit control policy, any overdue debt is evidence of signature.
greater than 30 days, are than passed to the
credit control department.
Regularly review of aged receivable helps to
collect receivable balance on time and
appropriately identify the aged receivables
which should be write off.

(c)

Control deficiency Control recommendation

1) Overtime reviewed on a quarterly The production supervisor should review the
All overtime reports are reviewed on a overtime report before transferring to
quarterly basis by the production supervisor production director which result correct
after the overtime has been paid. employees should pay correctly.
Reviewing the overtime reports on quarterly
basis is irrelevant because employees are
already being paid and this result that
employee being paid for hours not worked.
 2) Calculation no checked Review the sample of employees output to
The wages are calculating and deducted ensure that senior member of payroll
automatically by the payroll system, and this is department has reviewed and reperform the
not checked to confirm the calculation is gross and net pay calculation of employees
accurate. wages.
There is a risk of error in system which occur
during the processing would not identify. This
relates to the over or understatement in
calculation of wages. This should be reviewed
by the senior payroll manager.
3) Incorrect input Their should be proper review of documents
The bonus input in the payroll system by the which is provided by HR manager in relation of
payroll clerk, and number of employees performance. And input data is reviewed by
notified to the payroll department of error in senior member of the payroll department.
their pay.
The input of bonus in payroll system by payroll
clerk is not reviewed by the senior member of
payroll department by which increase the risk
in payroll system.
4) Internet Banking The internet banking log in passwords should
The login details including the password and be known by selected staff and finance
the passcode are saved in a shared file which director should review the transaction
is accessible to all payable’s ledger staff in the regularly.
accounts department.
There is risk that payables ledger staff can
make fraudulent withdrawal and set the
payees, and this will misappropriation of
funds.
5) Bank reconciliation The financial controller should review the bank
The bank reconciliation undertakes by reconciliation on a weekly basis, if these are
accounts clerk and sent to the financial significant or not. Evidence should be provide
controller, and he only investigates the in way of signature on bank reconciliation.
reconciling items if the sum of these items is
significant.
If the bank reconciliation is not proper review
than this cause reduction in effectiveness of
the bank reconciliation.
Que 224 POMERANIAN

(b)

Control deficiency Control recommendation

1) No credit limit is check The sales director should review the credit
The credit limit set by the sales director and limit on fixed interval basis.
only change when a customer requests an
increase.
There is no credit limit reviewed by the sales
director therefore this will cause to out-dated
credit limit and sales is made to poor
creditworthy.
2) GDNs sent weekly basis The GDNs are sent to the finance department
Goods despatch notes are sent to the finance on regularly basis like daily basis.
department on a weekly basis.
If the finance department is not received
GDNs on time, this will cause invoice are not
recorded and receivables are understated.
3) No credit controller As the credit controller is on leave, so
As the credit controller is on maternity leave company should appoint a new credit
for six months and no one has undertaken the controller with relevant experience of credit
credit controller duties. controller duties and review most be done on
During the period no reconciliation is made on aged receivables and overdue customers.
receivables, and this could result in an
increase in irrecoverable receivables and
customers are not paying on time.
4) No reconciliation reviewed Financial controller should review the
Reconciliation are only reviewed by the reconciliation on at least monthly basis and
financial controller if there are any provide evidence in form of signature on the
unreconciled differences. reconciliation is reviewed.
If reconciliation review is not made by the
financial controller than this will reduce in
effectiveness and errors could not be
detected.
5) Authorised limit is too high The amount of $0.5m should be reduced to
Asset expenditure below $0.5m can be appropriate level and proper evidence should
authorised by the relevant head be recorded of the use of this funds and
of department. should be review monthly basis.
$0.5m is significant amount, by which head of
department may use for non-business purpose
or for personal use. These could result in
decrease in profit and cash flow.
6) No complete verification of PPE Physical verification of all assets should be
Internal department comparison non-current complete on regularly and if any obsolete
asset registers to physical assets of only one assets found during the verification that
factory and one warehouse in a year. And it should be written off.
comparison should be completed over a three
years cycle.
If the comparison between non-current assets
registers with physical verification is not
completed on regular basis this could result
assets being obsolete and misappropriate.
7) Warehouse managers supervision The independent person should be selected
The warehouse managers are responsible for from the company for the supervision in
supervising the inventory counts at their sites inventory count.
and ensuring that the counting teams are
following the issued instructions.
There is risk of manipulation of inventory by
warehouse manager during inventory count,
this could result in inaccurate of inventory
count.
8) Purchase invoice are not match to All the purchase invoices should matches with
GRNs both purchase order and also with GRNs. Than
Purchase invoices are match with purchase sent to the finance director for authorisation.
order but not matches with Goods Received
notes (GRN).
If purchase invoices are not match with the
GRN, this relates that goods are being which
were not received.

Que 225 CASTLE COURIER

(b)

Direct control Test of control

1) Sequence checks Select sample of key cards and the data
All employees are sequentially numbered key recorded in the clocking in and out system,
card. Sequence checks on the key cards and and ensure that this records are supervised by
the data recorded in the clocking‐in system are the HR.
carried out by the human resources (HR)
supervisor.
This could result all employees are being paid
for hours worked and ensure that payroll
records are complete and accurate.
2) Clocking in process reviewed by HR Obtain the procedure of check in and out
The clocking‐in process is monitored by a observed by HR department and ensure that
camera on entry to the distribution centre and observation is carried by member of HR
video footage are reviewed by the HR department.
department.
This will reduce the risk of fraudulent check-in
is carried out by employees on behalf of
another employee. And employees being paid
for actual hours worked.
3) Payroll calculation is reperform The recalculate of sample of gross and net pay
The payroll clerk confirms that the transfer of calculation and compare with the automated
hours and calculations has been done correctly calculation system and if any difference occurs
by recalculating a sample of employees’ gross that should be discuss with the payroll
to net pay. A payroll supervisor then reviews department.
this check.
This reduced the risk of error occur from
automatically calculations of gross and net
pay. And any error is identified is timely
correct.
4) Password is changed monthly Attempt to log on by using the out dated
The payroll system is password-protected, and password and ensure that it would rejected.
the password is changed on a monthly basis
by the payroll manager using a random
password generator.
This reduces the risk of unauthorised changes
in the payroll system.

(c)

Control deficiency Control recommendation

1) Holiday requests are not authorised Ensure that employees are not taking holidays
Department managers are required to approve without authorised by the department
all holiday requests by holiday forms, however managers.
this does not always occur.
There is a risk of employees are taking
unauthorised holidays leaves and this result
could decrease in companies staff.
2) Lack of segregation of duties Once the bank transfer is being prepare by the
The payroll clerk provides details financial controller is then passes to finance
of the net pay due to each employee to the director for reviewed and authorised.
financial controller who then prepares and
authorises the bank transfer to be paid to the
employees’ bank accounts.
There is lack of segregation of duties because
financial controller who prepare payroll of
each employee and then authorised by himself
for the bank transfer, there is a risk that
financial controller make payment to himself
and paid more to employees than due.
3) Edit report is not checked The edit report is generated which records the
On receipt of the joiner/leaver form a payroll change should be reviewed by the payroll
clerk updates the payroll system. An edit supervisor and ensure that report is accurate
report is generated which records the changes and complete by providing evidence of
made but this report is not reviewed. signature on report.
There is risk of fictitious employees should be
add by the payroll clerk and these is not
reviewed.
4) Overtime is authorised excess of 5h. All the overtime including below should be
Only overtime excess of five hours per week authorised by the operations manager and this
should be authorised by the operations authorisation should be evidence by the
manager. signature.
There is risk of fraudulent claim by delivery
drivers that they have overtime up to 5 hours
without authorised and received the payments
of hours not worked.
5) Cash paid without confirmation All cash pay packet drivers should require to
The delivery driver collects their pay packet show the identity proof and make signature
from the finance department by only required then collect the cash packet.
to providing the driver’s name to collect the
pay packet.
Delivery drivers fraudulent collect the pay
packets of another drivers without id proof
and signature.
6) Driver’s break is not monitored The company should review the break taken
The company has no way of monitoring the by the delivery drivers by using the tracking
length of breaks taken by delivery drivers. device which is installed in vehicles and ensure
There is a deficiency in which drivers take that only give time of breaks should be used.
longer break because is not monitored and
payment being made for time not worked.

Que 226 SWIFT

(b)

Direct control Test of control

1) Segregation of duties Discuss with the HR department related to
The company has a human resources (HR) new joiners setting up and review the related
department which is responsible documentation.
for setting up all new joiners and a payroll
department which processes wages and
salaries.
This segregation of duties between HR
department and payroll department reduce
the risk of fictitious employees being set and
paid.
2) Unique employee number Attempt to add new joiner in payroll system
The unique employee number must be without unique employees number and
entered into the payroll system before the ensure that it must be rejected.
employee can be added to payroll.
This will ensure that only authorised or correct
employees are entered in payroll system and
new joiner required the unique employee
number.
3) Exception report is reviewed Select the sample of monthly payroll standing
An exception report relating to changes to the data is produced and reviewed by the payroll
payroll standing data is produced and manager by reviewing signature as evidence of
reviewed by the payroll manager who reviewed is carried.
evidences this review on monthly basis.
This ensure that unauthorised changes in
payroll standing data is identify and corrected.
4) Reperform on gross and net pay Review the sample of payslips reperformed by
The payroll supervisor selects a sample of the the payroll supervisor to ensure that
payslips, reperforms the gross to net pay reperform is accurate and review signature for
calculations and investigates any evidence of reviewed.
discrepancies.
This reduced the risk of automated system
errors during the calculation of gross and net
pay.
5) Authorisation of purchase order Review the sample of orders and ensure that
A multi‐part purchase order is generated, and authorisation is given by the proper
the purchasing manager authorises all orders authorised person by reviewing the evidence
up to $5,000 and orders over $5,000 are of signature.
authorised by the purchasing director.
This ensures that only genuine purchases are
made by Swift Co.
6) Good received are check Review the sample of GRNs and compare with
The warehouse team processes goods the purchase order and difference should be
received from suppliers and check the quantity discuss with the management.
and the quality of the goods after those goods
received note (GRN) is produced.
This ensure that ordered goods are received
and proper quantity and quality goods
received.
7) Supplier statement reconciliations Reperform the sample of reconciliation to
Supplier statement reconciliations are ensure that they are appropriate and any
performed monthly, and any differences are differences are fully investigated.
fully investigated, and reviewed by the
financial controller.
These ensure that suppliers and payables are
recorded accurately and completely and
properly reviewed.
8) Bank transfer authorised Review the related documents to ensure that
The finance director authorises the bank finance directors has review the bank transfer
transfer payment list for suppliers having first payment list for supplier.
agreed the amounts to be paid to supporting
documentation and review of any duplicate
payment.
This reduced the risk of suppliers being paid
twice or incorrect account.

Que 227 SNOWDOWN

(b)

Direct control Test of control

1) Classification of assets Select sample of new equipment are acquired
The classification is made with reference to by the finance department to ensure that they
guidelines established by the finance director, are appropriately classified and review the
who sample checks that the expenditure signature as the evidence of the review is
allocation has been correctly applied. carried by the finance director.
This ensures that assets are recorded
accurately and completely and reduced the
risk over and understatement of assets and
profit.
2) Segregation of duties Review that the work are separate of HR
Human resources (HR) department is department who is responsible for setting up
responsible for setting up all new Joiners and and verify and payroll department set up
verified, a copy is sent to the payroll payroll payment.
department so that the employee can be set
up for payment.
There is segregation of duties between HR
department and payroll department which
reduce the risk of fictitious employees being
set and paid.
3) Bank reconciliation Sample of monthly bank reconciliation should
The cashier reconciles the bank statements to be reviewed to ensure that this reconciliation
the bank ledger account. The reconciliations is properly reviewed by the financial controller
are reviewed by the financial controller, who and review the signature as review of
also investigates all reconciling reconciliation.
Items.
These bank reconciliations reduce risk of fraud
and error and reduced the risk of
misstatement in bank and cash balance.

(c)

Control deficiency Control recommendation

1) IA staff shortage Senior level management should recruit new
The company has a small internal audit (IA) member for the internal audit department.
department, which has experienced significant
staff shortages and is currently
under‐resourced.
If shortage of staff in internal audit
department which causes controls are not
effective and lake of monitoring.
2) Exceeded in annual budget Verification should be done in between
Some departments have already significantly purchase of assets with assets expenditure
exceeded their annual budgets. budget of the year and difference should be
This shows that assets are purchased without discuss with the managements.
seeing the assets expenditure budget.
3) Physical verification of assets
The IA department is carried out the physical
verification of the non‐current asset register
with physical assets. This year’s programme of
visits, which has been planned and carried out
on the same
basis as previous years, means that by the year
end IA will only have visited the four largest
centres and five of the other centres randomly
selected.
4) Amend to standing data Password should be changes on timely basis
All members of the payroll department can and only senior management can access this
amend employees’ standing data in the payroll passwords.
system as they have access to the password.
As all members of payroll department have
access to employees’ standing data in payroll
system which results may in increases error
and unauthorised manipulation is made on
employee’s data.
5) No credit limit check Credit limit should be reviewed and changed
New customers are set up in the individual regularly basis by the sales director.
customer master file and a credit limit is set by
the sales director and then this remain
unchanged in the system unless a review is
requested by the customer.
As credit limit is unchanged this may increase
risk of high credit limit and by that sales are
made to poor creditworthy customer.

Que 229 FREESIA

(b)

Control deficiency Control recommendation Test of control

1) Credit limit The credit limit should be set Review the sample of new
Sales ledger clerks, carry out by the senior level customers in the year to
credit checks on new management and reviewed, ensure that credit limit is set
customers prior to being not by the sales ledger clerk. by reasonable member.
accepted and then set their
credit limits.
Sales ledger clerk is not a
senior member.
2) Lake pf segregation of There should be proper Review the bank
duties distribution of duties like bank reconciliation documents to
Lily Shah, a finance clerk, reconciliation is prepared by identify who prepare them.
posts the bank transfer other member.
receipts from the bank
statements to the bank ledger
account and updates the list
of individual customers. On a
monthly basis, Lily performs
the bank reconciliation.
There is lack of segregation of
duties because Liliy shah is
performing many tasks
together, and this cause many
error occur.
3) Insufficient copies of Three copies should be made Review the sample of GRNs
GRN and sent to the finance copy should to sent to the
The GRNs are sent to only the department, purchase reasonable department and
finance department on daily department and warehouse ensure that they are recorded
basis. department. accurately and completely.
No copies sent to purchase
department and this result
invoice is not recorded and
lost the supplier goodwill.
4) Outdated standing The review of standing date Obtain the copies of standing
data should be undertaken on data and ensure that the are
The basis of the standard timely basis. accurately valued.
costs was reviewed
approximately 18 months ago,
which is out-dated.
This could result under or
overstatement of inventory.
5) Overtime not Production director should Review the sample of
authorised review and authorised the overtime report to ensure
The company’s payroll overtime report before that review is conducted by
department sends overtime payment to staff. the production department
reports which detail on timely basis and review the
the amount of overtime signature as evidence.
worked to the production
director for their review, on
quarterly basis.
These shows that
authorisation is not made
before the payment.
6) Bank transfer Finance director should check Review the sample of payrolls
authorisation the total payroll before bank from payment list and ensure
The finance director reviews transfer and ensure that they that finance director reviewed
the total to be paid and should accurately and and sign on report as
compares this to the total completely. evidence.
payroll amount to be paid for
the month per the payroll
records.
This cause increasing the risk
of fictitious employees and
have been paid.

(d)

Deficiency Recommendation
1) Finance director in audit committee The audit committee must comprises with
The company’s finance director review of the non-executive directors and hence finance
company’s compliance with corporate director should resign from this committee.
governance principles.
This shows that finance director who is
executive director, is member of audit
committee. But audit committee is made by
full of Non-executive directors.
2) Directors’ remuneration Remuneration policy should be prepared in
Executive directors are paid an annual salary accordance with corporate governance code
as well as a significant annual bonus and ensure that remuneration motivates for
based on Freesia Co’s profits. company growth not self growth.
Remuneration should motivate to the directors
for long term growth of the business but
sometimes it sifted to self interest rather than
maximization of shareholders wealth.

Que 230 CAMOMILE

(b)

Control deficiency Control recommendation

1) Petty cash The monthly reconciliation on petty cash
Each venue has a petty cash float of $400, should be made by restaurant manager and if
held in the safe. The petty cash sum held, and any difference should be discuss with the
receipts should equal the float of $400 but it relevant employees.
has been noted by the company’s IA
department that on some occasions this has
not been the case.
This could be resulting purchase of sundry
items without any invoices.
2) Access tills There should be unique log on code for each
To speed up the payment process, each venue employees and this could be entered every
has a specific log on code which can be used time of transaction recording in tills.
to access all five tills and password is changed
every two weeks.
This could result cash being easily manipulated
as there is access to all tills by all employees.
3) Totals of tills reconciliation Reconciliation should be made individual till by
The total cash in all five tills and the sum of till rather than total of tills and any deficiency
the credit card vouchers and these totals is identify immediately investigate.
are reconciled rather than each till.
If any problem occur it is very difficult to
identify from which till problem is arises.
 4) Sales sheet transfer Daily sales sheet should be sequentially
The daily sales sheets are scanned and number and should be sent to head office
emailed to the cashier at head office at the daily basis.
end of each week.
There is possibility that sales sheet is not
complete and incorrect accounting records
made.
5) Cash stored in safe The key should be replaced with the digital
Cash is stored in the safe at each venue on a password safe and only authorised personal
daily basis and each safe is accessed via a key has access of that code.
which is stored in a drawer of the restaurant
manager’s desk.
There is risk of theft of money, if easy access to
manager’s desk.
6) Cashier duties The cashier roles should be properly split
The cashier is responsible for several element between in different finance team members.
of cash like agrees daily sales sheets, security
company receipts, agrees the cash per the
daily sales sheets to bank deposit slips and to
the bank statements and the cashier updates
the bank ledger account with the cash banked
and details of the credit
card vouchers.
There is lake of segregation of duties and error
will not identify on timely basis.
7) No reconciliation of credit card The cashier should reconciled the credit card
statement receipts as per the restaurant to monthly
The credit card company sends a statement of credit card statement by from card company.
all credit card receipts and which is filed by the
cashier. And this is not reconciled by the senior
member.
There is risk of missing of some credit card
receipts and this is not identified.
8) No frequent reconciliation of Bank Cashier should reconciliation of bank
Every two months, the cashier reconciles the statement on regular basis and any
bank statements to the bank ledger account. deficiencies identified should be investigate
There is risk of fraud in bank statement due to immediately.
reconciliation is not frequently conducted.
Que 231 RASPBERRY

(a)

Direct control Test of control

1) Segregation of duties Review the HR and payroll department of the
Human resources (HR) department, split of responsibility of new joiners setting up.
responsible for setting up all new joiners.
There is proper segregation of duties between
HR department and payroll department and
this reduces the risk of fictitious employees
being paid.
2) Pre-printed forms Review the sample of new joiners pre-printed
Pre‐printed forms are completed by HR for all forms and ensure that they are completed by
new employees and once verified, a copy is HR and detail is recorded accurately and
sent to the payroll department for the complete.
employee to be set up for payment. This form
includes the staff member’s employee number
and payroll cannot set up new joiners without
this information.
This reduced the risk of incorrect wages and
tax payment. Correct payment to employees.
3) Data processing checks Observe the process of quarterly bonus into
Quarterly bonus is entered into the system by the system and checks by the senior clerk and
a clerk and each entry is checked by a senior review the signature as evidence of reviewed.
clerk for input errors prior to processing and
the senior clerk signs the bonus listing as
evidence of undertaking this review.
This reduced the risk of error in payroll cost
and accurate payment to every employees.
4) Clock card process monitoring Observe the process of clock card are required
Production employees are issued with clock at beginning and end of their shift and ensure
cards and are required to swipe their cards at that security staff is properly reviewing the
the beginning and end of their shift. This process.
process is supervised by security staff 24 hours
a day.
This ensures that only genuine employees are
being paid and reduce the risk of employees
clock in using another employee card due to
supervised by the security staff.
5) Automated transfer data Test the dummy data of clock card to ensure
Each card identifies the employee number and that controls are processing accurately.
links into the hours worked report produced
by the payroll system, which automatically
calculates the gross and net pay along with
relevant deductions.
This reduced the risk of manipulation in hours
worked because this are automated transfer
the data to payroll system.

(b)

Control deficiency Control recommendation

1) No calculation checked The automated calculation of gross and net
The wages calculation automatically calculates pay must be recalculate by the senior member
the gross and net pay along with relevant of payroll department before payment.
deductions. These calculations are not
checked.
There is risk of error in automated calculation
of gross and net pay, and this may not identify
and correct at timely basis.
2) No monitoring on student loan At least annually student loan deduction
Raspberry Co student loan deduction forms should be reconciled to annual loan statement
are completed by the relevant employee and sent by the government.
payments are made directly to the
government until the employee notifies HR
that the loan has been repaid in full.
There is risk of overpayment is made to the
government as no monitoring by HR.
3) Holidays request are no authorised All Holidays request form should be authorised
Holiday request forms are required to be by relevant line members and ensure that they
completed and authorised by relevant line will not take holidays without authorisation.
managers, however, this does not always
occur.
There is risk that employees may be paid
wages for holidays, and this indicates
overpayment of wages.
4) Lake of segregation of duties There should be proper distribution of duties
The senior payroll manager reviews the list of between senior payroll member and other
bank payments and agrees this to the payroll payroll members.
records prior to authorising the payment and
also any errors have occurred they are amends
the records.
There is lake of segregation of duties in payroll
department as all significant duties carried by
senior payroll manager.
5) Distribution of pay packets The pay packets should be directly distribution
The pay packets are delivered to the by the payroll department to employees.
production supervisors, who distribute them
to employees at the end of the employees’
shift.
There is risk of manipulation of pay packet by
the production supervisor for his/her friends
or family members.

Que 232 COMET PUBLISHING

(b)

Control deficiency Control recommendation Test of control

1) No inter stores Inter store transfer activity Auditor should review the
transfer should be established inter transfer inventory
It is not currently possible between nine stores. records to ensure that
for store managers to request controls are operating.
books from any of the other
nine stores, and customers
who wish to order books,
contact the other stores
directly or visit the company
website.
There is risk of losing valuable
customer, because they are
unlikely to contact other
stores or visited company’s
website.
2) Authorisation of order Each purchase order should Select sample of purchase
The purchase order clerk has be authorised by the senior orders and review that all
authority to place an order member of purchase orders are authorised by
below $1000. department. senior member and review
There is risk that fraudulent the signature as evidence.
purchase order clerk place
order for personal use.
3) GRNs no process The GRNs are sent to the Auditor should enquiry with
regularly accounts department more warehouse team member
The GRNs are sent to the regular basis. regarding regular GRNs
accounts department every transfer to related
two weeks for processing. departments.
There is risk of delay in
recording of entries and
payments to suppliers, which
causes understatement of
payables.
4) Insufficient copies of There should be three copies Review the GRNs files and
GRNs of GRNs are to be produced ensure that it should be sent
The GRNs are only sent to the and sent to purchase to the purchase department
accounts department. department, supplier and as well.
There is a risk of failing to accounts department.
send GRNs copies to another
departments which causes of
missing of records.
5) No reconciliation of There should be monthly Review the sample of
supplier statement reconciliation of supplier suppliers statement
Due to staff shortages in the statement and should be reconciliation and ensure that
accounts department, properly reviewed by they are review and signature
supplier statement responsible officers. by senior members of
reconciliations are no longer accounts department on
performed. reconciliation report.
There is risk of errors in
supplier statement and
payables are not made on
timely basis.

Que 233 EQUESTRIAN

(b)

Direct control Test of control

1) System checks by IA Review the checks of receivable system are
A new receivables system was introduced in appropriately carried by the internal
May 20X5 and will continue to be run in department.
parallel with the old system until IA has
completed its checks between the two
systems.
This reduces the risk of loss of data or
incorrect processing of data in receivables
system.
2) Credit limit reviewed every six months Inspect sample of customer files and ensure
Credit limits are reviewed every six months by that credit limit are checked and reviewed by
the sales managers and any amendments are sales managers.
made via a credit limit review form which must
be authorised by the sales director.
This means sales are only made to
creditworthy customers and reduced the risk
of overstatement of receivables.
3) Approved price list Review the sample of sales invoice and ensure
Sales invoices are raised by the accounts that correct price is use from price list.
department using the approved company
price list, which is updated quarterly.
This reduced the risk of errors when raising
sales invoice and accurate revenue will be
recorded.
4) Discount authorisation Review the sample of sales order invoice
Discounts must be requested by a sales discount offering and ensure that it must be
manager and authorised by the sales director. authorised by the sales director, review the
This reduced the risk of fraud in revenue and signature as evidence of review is made.
accurate authorisation of discounts.
5) Segregation of duties Review the process of payment of purchase
Payments are made by the cashier’s office by invoice and ensure that segregation of duties
bank transfer. Invoices are stamped as ‘paid’, between cashier officer and purchase ledger
and returned to the purchase ledger team who team.
record the payment.
Segregation of duties prevent fraud and errors
as many people involving in the process of
recording payment to purchase invoice.

(c)

Control deficiency Control recommendation

1) Physical verification of assets Internal audit department should complete
By the internal audit department conducted physical verification with non-current assets
physical verification with non-current assets register on monthly basis.
register and no reconciliation had occurred for
some time and currently 15% of assets have
been verified.
If reconciliation is not made there is increase
risk of misstatement in non-current assets.
2) Staff shortage in IA department Senior members or Audit committee should
Internal audit department has experienced appoint more experienced employees in
significant staff shortages. internal audit department.
If shortage of staff in internal audit
department, this could indicates less
effectiveness and lake of monitoring controls.
3) Employees setting up by Payroll Payroll department work related to setting up
department new employees files should be reviewed by
The human resources department (HR) has the HR department to ensure that they are
been very busy and to ease their workload accurate.
during this period, the payroll department has
assisted by setting up any new employees who
have joined the company.
There is a risk of fictitious or duplicate
employees set up by the payroll department
due to lack of segregation of duties.
4) Changes in wages rate Increasing wages rate should be approved by
The wage rate paid to employees was the board of directors not only by the HR
increased by the HR director. The change in director.
wage rate was communicated to the payroll
department by email.
There is lack of approval in increasing wages
rate by board of directors and there is risk of
fraud or errors in payrolls.
5) Perpetual inventory count All inventory count should be made during the
Monthly perpetual inventory counts are year and remaining inventory count should be
undertaken at each of the nine warehouses, as done.
a full year‐end inventory count is too
disruptive for the company. But inventory
count is outstanding.
If inventory counts are outstanding there is a
risk of incorrect inventory is recorded.

Que 234 CATERPILLAR

(b)

Direct control Test of control

1) Daily tills reconciliation Review the sample of reconciliation of tills to
At the end of each day, the tills daily readings ensure that they are properly and cash
of sales taken from each till. These are balance are accurate.
reconciled to the total of the cash in the tills
and the credit card payment slips and any
discrepancies are noted.
Daily reconciliation reduced the fraud and
misstatement in cash balance, as manager are
alert of any deficiencies.
2) Data transfer daily to head office Review the sales and cash invoice are
The daily sales readings from the tills along accurately and completely recorded at general
with the cash data and credit card payment ledger.
data are transferred daily to head office
through an interface with the sales and cash
receipts records.
This ensure that cash and sales are recorded
accurate and complete.
3) Cash transferred by security company Observe the process of cash collection by the
The cash is stored in the shop’s safe until it is security company.
transferred to the bank via collection by a
security company the same day.
This ensure cash is safeguarded and reduce
the risk of theft while transferring cash to
bank.

(c)

Control deficiency Control recommendation

1) No unique log on codes Unique log on code and tills should be
All employees based at the store are able to provided to significant employees.
use each till and individuals do not have their
own log on codes, although employees tend to
use the same till each day.
As all employees have access to tills there are
increased risk of fraud and error.
2) Employees can serve friends and Caterpillar Co should established a policy,
family when employees friends or family members
Where employees’ friends or family members purchase from store, they don’t serve them at
purchase clothes in store, the employee is able the till point.
to serve them at the till point.
There is risk that employees should
undercharge or provide free goods to there
family or friends while employee’s serve at till.
3) Junior salesclerk sent to bank Store management should undertake the
If the store needs change, then a junior responsibility to convert the cash into smaller
salesclerk is sent by a till operator to the bank denomination and authorised person should
with money and asked to change it into be sent to the bank.
smaller denominations.
There is risk of misplace or stolen money by
junior salesclerk in the way to bank.
4) Lake of segregation of duties Caterpillar co should split the duties between
The clerk is responsible for several elements of other finance team members.
the cash receipt system.
There is lake of segregation of duties and error
are not identify on timely basis and increase of
frauds and errors in cash receipt system.
5) No proper Bank reconciliation is made The finance controller should monthly review
The reconciliations are reviewed by the the bank reconciliation made by clerk either is
financial controller if there are any unreconciled amount or not.
unreconciled amounts.
There is risk of fraud and error in bank
statement and as Caterpillar Co is cash based
business indicates more errors and frauds can
occurs.

Que 235 BRONZE

(b)

Control deficiency Control recommendation Test of control

1) No supervision on Clock in and out process Observe clock in/out process
clock card should be reviewed by to ensure that supervision is
Employees swipe their cards security staff. conducted by security staff.
at the beginning and end of
the eight‐hour shift and this
process is not supervised.
There is risk of increasing of
fraud due no supervision,
employees get paid of wages
for no worked hours.
2) Employees break is The break time should be Observe the dinning area to
not monitored monitored and ensure that ensure that supervision is
During the shift employees employees are only take 30- conducted.
are entitled to a 30‐minute minutes break.
paid break and employees do
not need to clock out to
access the dining area.
There is risk of employees
take more than 30 minutes
break as this is not monitored
and they are paid for no
worked hours.
3) Temporary staff All permanent or temporary Review the sample of
appointment new employees should be employees files and ensure
Appointments of temporary appointed by the HR that the are appointed by the
staff are made by factory department. HR department.
production supervisors.
There is risk of unsuitable
employees are being
appointed.
4) Production Determination of bonus Discuss with the payroll staff
 supervisors decide the amount should be determine to ensure that the bonus
bonus amount. by senior member of amount is determined by the
Bronze pays a discretionary production department. senior member of production
bonus every six months to department.
factory staff; the production
supervisors determine the
amounts to be paid.
There is risk that the
production supervisor pay
extra bonus to his family or
friends.
5) Lack of segregation of There should be process Review the changes in payroll
duties in payroll segregation of duties and any department and ensure that
department. change should be amend by they are amends by the
The payroll manager perform outside the payroll outside from payroll
several activities like reviews department (finance director). department.
the list of the payments and
agrees to the payroll records
and the amends the records.
There is lack of segregation of
duties in payroll system as
payroll manager manipulate
the amount of pay to
employees causes loss for the
company.

Que 236 TROMBONE

(b)

Control deficiency Control recommendation Test of control

1) Change in standing Payroll clerk have not access Review the sample of changed
data to change standing data to the reports of standing data in the
The clerks are responsible for payroll system, it must be payroll system to ensure that
updating the standing data in done by senior members. they are amend by the senior
the payroll system. member.
There is risk of fraud or error
made by the payroll clerk as
he/she is not senior enough to
make changes.
2) No authorisation on All overtime work should be Review the sample of weekly
overtime authorised by relevant head hours employees overtime
Authorisation is required by of department with providing sheet to ensure that they are
department heads of any the signature as authorised. authorised as evidence of
overtime in excess of 30% of signature on overtime sheet.
standard hours.
There is risk that employees
claim overtime which they no
worked and this increase the
cost of payroll.
3) No checks on days off Payroll clerk should always Review the sample of
taken checked overtime worked overtime sheets and ensure
Employees choose instead to report and matched with days that they are reviewed by the
take days off, the payroll off by the employees. payroll clerk.
clerks should check back to
the ‘overtime worked’ report,
and this report is not always
checked.
There is a risk that employees
may take unauthorised leaves
and no work in overtime,
which causes companies loss.
4) Department head Overtime sheets must be Enquiry with the payroll clerk
required to authorised authorised on time basis and of the process of
Department heads are should be properly authorisation of overtime
required to arrange for monitored. sheets and payment of
overtime sheets to be overtime.
authorised by an alternative
responsible official and this
has not always happened.
There is a risk if authorisation
is delay then payment of
overtime is also delayed.
5) No detailed check of The finance director should Review the sample of
payroll records undertake the complete check payment list to ensure that
The finance director reviews of bank transfer list and they are review by the finance
the total list of bank transfers compare with total amount to director with evidence of
and compares this to the total be paid to employees. signature.
amount to be paid per the
payroll records.
There is the risk of missing
employees or fictitious
employees being paid.
Que 237 LILY WINDOW GLASS

(a)

Control deficiency Control recommendation

1) Warehouse manager supervised Warehouse department members are not
The warehouse manager will supervise the allowed to attend inventory count.
count as due to being the individual who is Independent member should be hired and
most familiar with the inventory. from the other department.
There is risk that warehouse manager hide or
avoid some inventory.
2) No responsibilities assign There should be proper division of
There are ten teams of counters and each responsibility between two staff member
team will contain two members of staff. team, one should be count and other should
There is lack of division of responsibilities in record and review.
team which has two members and both are
counting together rather than one should
count and other review.
3) No flag to counted aisle Each team should marked the flag on
There is no flagged made by the team on completion of aisle count and than move to
counted aisle. next aisle.
If each team will count an aisle and no marked
flag on completion then there is the risk of
double count of same aisle.
4) Additional sheets are not sequence All spread sheets are sequentially numbered
Inventories are to enter the item on a separate and blank sheets should be returned.
sheet, which is not sequentially numbered.
There is risk of misplacement of additional
spread sheet and which indicated
understatement of inventory.
5) Damaged goods are not separate Damaged inventory should be separated from
Any damaged goods identified by the counters the aisle and ensure that they write off from
will be too heavy to move to a central location, inventory.
hence they are to be left where they are.
If damaged inventory is not move separately
from aisle than there is risk that this damaged
inventory will sale to the customer.

6) Movement of goods during count During the inventory count there should be no
There will continue movements of raw movement of in and out of goods from
materials and finished goods in and out of the warehouse.
warehouse during the count.
If goods are in and out from the warehouse
during the count than there is a risk of over or
under statement of inventory in count and
hence inventories are misstated.
7) Third party inventory included in Inventory belongs to the third-party should be
count separately stored in other locations before the
The third‐party inventories also involved in count beings.
inventory count by the team and later the
finance department will make any necessary
adjustments.
If the third-party inventories involved in
inventory count than there is risk of
overstatement of inventories.