DJ MARKETING

E. Luna Street, Butuan City

Audit Plan
JULY – AUGUST 2017

Auditors:

Eco

Jaque

Palen

Quilantang

Rueras
 TABLE OF CONTENT

Title Page

Table of Content

I. Company Profile

Vision and Mission

Core Values

Goals and Objective

Organizational Structure

Organizational Departments

Competitors

II. Understanding the Business

Background

The Inventory System

Manual Inventory System

Business Model

Audit Subject Areas

III. Risk Assessment

Risk Likelihood

Impact Scale

Composite Risk Score

Risk Assessment Matrix

IV. Audit Plan

Objectives

Scope

Audit Procedures
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I. Company Profile

Vision and Mission

"To create and establish strong committed service-oriented to our valued clients- buyers
and resellers. [Provide] wholesome and healthy products that will build confidence especially to
every women including self-esteem."

Core Values

-Trust and friendly nature among clients

-To offer guidance to every woman the right to stay fit and enhance their inner and outer beauty.

Goals and Objectives

"A long lasting business venture and widen the branches in the city area."

Organizational Structure

DJ MARKETING
Business Entity

Owner
Divina Gracia P. Gorme

Sales Person
Joy B. Villa
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Competitors

 Rowena's Store is a boutique that sells variety of products similar to DJ Marketing; it is located
beside it. Marketing price of their product is likely the same.

 Julie's Beauty Products and Boutique sells similar products to DJ Marketing. It is located within
20 meters from the entity.

 Robinson's Mall is one of the largest shopping malls and retail operators in the Philippines. It
contains variety of retail stores which also sells similar products to DJ Marketing such as
slippers, beauty products, clothes, health and wellness products, but the price of the products in
the mall is expensive than DJ Marketing.

 Gaisano Mall is a chain of shopping malls under the DSG Sons Group. It contains variety of retail
stores which also sells similar products to DJ Marketing.
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II. Understanding the Business

Background of the Company

DJ Marketing, owned by Mrs. Divina Gracia P. Gorme is originally a Caribean distributor. Due to the
increasing demands of health and wellness products and fashion apparels such as bags and clothes, they were
able to venture and sell variety of products. The entity started its operation last August 22, 2012, located at E.
Luna Street, Butuan City. The store opens at 9 o'clock in the morning until 7 o'clock in the evening every day.
The reason why the owner started the business is to augment financial status and earn more profit.

The Inventory System

Inventory systems are tracking systems that inform you of the amount of raw materials, supplies or
final products a company have readily available. It is updated each time it sells an item or use raw materials
to create a product, so that the company knows what they have available for the following day or week. This
type of system also allows companies to order products in advance, so they’ll have everything they’ll need at
all times.

The purpose of an inventory system is to keep track of what an entity has in their small stores, large
offices or product development factories. An owner or manager that is knowledgeable about what they have
available for sale or to build products, can easily satisfy the needs of their customers when they contact them
to buy their products. The inventory system informs the management including the owner when they need to
purchase more products or supplies.

There are two main types of inventory systems. A technological inventory system tracks the
purchases and gives you an updated number of inventory items left for sale; and smaller privately owned
stores may use a manual inventory system, where the cashier manually keeps track of all items sold each day.
At the end of the day, sold items are subtracted from the total inventory count to get an updated number
available for sale. Both systems require that you manually count all of the products or items in the inventory.
DJ Marketing specifically uses the manual inventory system. Books are updated right after every transaction
is made to keep inventory records up to date.

Manual Inventory System

Traditional bookkeeping is widely used in the late 70's and until now some businesses venture this
kind of method. The system is to manually calculate company books, record sales, inventory, and prepare
financial statements. A manual accounts system developed correctly can deliver timely and accurate
information. Though requires a greater understanding of how to book keep, it can be easier to manage once
the key concepts of double entry book keeping have been learnt. The basic book keeping skills needed, once
mastered, apply to all the books of account and can be applied to any business. Although traditional
bookkeeping is bit impractical but it's much easier to perform bookkeeping tasks for a company on the
computer than by hand.

Any inventory system has a manager to keep track of all the items in the inventory system. The
manager is responsible for ordering new items or products when supplies are getting low and manually
counting the items to catch any employees who may be stealing or find any inventory items that may be
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broken. The manager should also be responsible for locating items that have expiration dates in the inventory
and that are subject to mold or damage.

Business Model: Distribution

A business model is the manner in which goods move from the manufacturer to the outlet where the
consumer purchases them; in some marketplaces, it's a very complex channel, including distributors,
wholesaler, jobbers and brokers.

The distribution model has three levels: the producer, the wholesaler and the retailer. This is a time-
tested system with many well-established members at all levels.

The distribution model, however, calls for all parties in the channel to protect their own best
interests. Thus, retailers are pitted against wholesalers, and wholesalers try to best producers. This web of
conflicting interests sometimes works to the detriment of the entire system. For instance, a producer may try
to bypass the wholesaler and go straight to retailers, prompting the wholesaler to retaliate by dropping the
producer's products.

The primary alternative distribution channel is direct distribution. It calls for them to sell and deliver
their product themselves, using their own salespeople and warehouses. Going direct can cut significant costs
from the system because they don't have to provide a profit for intermediaries such as wholesalers and
retailers. But slicing two steps from the traditional distribution channel tends to alienate wholesalers and
retailers.

A producer could use a two-level distribution framework by selling direct to retailers and cutting out
only the wholesalers. A retailer could do the same thing by going directly to manufacturers.

Audit Subject Areas

The following are the selected subject areas the audit will take into consideration throughout the
duration of the audit:

 The factors considered in purchasing goods.

These factors includes what goods to purchase, when to purchase, how to purchase
and how much to purchase.

 The documents used in relating to inventories.

These refer to the documents such as purchase requests, invoices, official receipts,
stock cards and inventory records.

 The list of Suppliers and the method of payment and purchasing agreed between entities.
This includes the medium of purchasing, delivering, receiving and paying of goods.

 The person/s assigned to the inventory system.

These includes the person assigned in recording, receiving, monitoring, organizing,
purchasing, securing and any other person who has access of the inventories.
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 The place where inventory is stored.

This refers to the place inventory is stored and secured, also includes the manner in
which the inventories are organized and presented.

 The accounting method used in recording inventory.

This includes the inventory system chosen, the frequency of updating records and
the accounting standards used,

 The methods used in monitoring and securing inventory.

This refers to the controls and policies set in order to monitor and secure inventory.

III. Risk Assessment

After defining DJ Marketing's audit system and identifying the audit areas, next is to assess the risk
associated in each audit area. The utilization of threats versus factor matrices to evaluate consequences and
controls is applied in the assessment. The following grades are used in assessing the risk:

Risk Criteria: Likelihood

Level of Likelihood Likelihood in a Year (Frequency)

5 Thirteen or more times a year

4 Ten to thirteen times a year

3 Seven to nine times a year

2 Four to six times a year

1 Three times a year

Risk Criteria: Impact

Level of Impact Impact in Peso Volume

5 P20,000.00 or more

4 P15,000.00-P20,000.00
3 P10,000.00-P15,000.00

2 P5,000.00-P10,000.00

1 P0.00 to 5,000.00
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Composite Risk Score

Risk Assesment Matrix

5

4.5

4
Transfer Avoid 1

3.5

3 2
3,4
2.5

2 6 5

1.5
Accept Mitigate
1

0.5

0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Legend: Risks

1 – Calamities (Flood,
Fire, Earthquake)

2 – Theft

3 – Lack of Information
System

4 – Overstocking

5 – Competition

6 - Instability of
Economy
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Risk Assessment Matrix

Risk Calamities ( Flood, Theft and Earthquake)

Risk
Man-made or Nature-Caused Calamities
Definition

Causes Heavy rains, typhoons, earthquake and fire

Butuan City under state of calamity. Frequent earthquakes and rains due to climate change
Example and fire incident at love radio station a neighbouring entity near the store of DJ Marketing
last 2012
Impact
Damages and Losses due to these calamities
Definition
Projected
P15,000.00-P20,000.00
Impact
Likelihood
Thirteen or more times a year Impact Score 4
Score

Risk Strategy Avoid

-Relocation if frequent flood in that area

-Have fire extinguisher for a quick action to prevent fire
Risk Actions
-Store, secure and organize the products in a proper place to avoid damages/loss such as
earthquake and flood.
Risk
Management
Champion
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Risk Theft

Risk Definition Losses due to stolen inventories

Causes Too much customer cater which may give thieves a chance to steal inventories

Due to low manpower and no CCTVs present, they will more likely to be unaware of
Example
theft.
Impact
Low security of inventories will lead to a loss of sale in the business
Definition

Projected Impact P10,000.00-P15,000.00

Likelihood Score Four to six times a year Impact Score 3

Risk Strategy Transfer

-Have an insurance in the products in case there will be theft.

Risk Actions -Provide CCTVs to secure the inventories of the business.

Risk Champion Management

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Risk Lack of Information System

Risk Definition Unable to back-up or recover important and confidential data.

Causes Dependence to manual ways of storing data which is inconvenient and costs too much time

Example No information system to back-up incase data will be lost, misplaced or burned.

Impact
Inconvenience due to lacking proper information system.
Definition
Projected
P10,000.00-P15,000.00
Impact
Likelihood
Thirteen or more times a year Impact Score 3
Score

Risk Strategy Avoid

-DJ marketing should have an information system such as MS word or excel to store sales,
Risk Actions
important, and confidential data.

Risk Champion Management

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Risk Overstocking

Risk Definition Holding too much inventory on hand

Due to the changing trends, shifts in demand of the people which causes the inventories to
Causes
overstock.

Example Unsold stocks in the inventory will cause deterioration and obsolescence of goods.

Impact Overstocking of inventories due to changing of demands and hassle monitoring of

Definition inventory
Projected
P15,000.00-P20,000.00
Impact
Likelihood
Thirteen or more times a year Impact Score 3
Score

Risk Strategy Avoid

-The entity needs to control the purchase of goods and they need to know what item that
will sell in the market and should be bought.
Risk Actions
-Sell the excess stock online
-conduct a discount or sale of the excess stock in the market
Risk
Management
Champion
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Risk Competition

Risk Definition Increase number of competitors

More people are currently engaging in selling similar products (Cloths, bags, slippers,
Causes
health & wellness products, etc)
-Presence of different entities of selling products
Example
-Lack customer loyalty
Impact -Adjust in sales due to competitors
Definition -create more marketing strategy to attract more customers
Projected
P5,000.00-P10,000.00
Impact
Likelihood
Thirteen or more times a year Impact Score 2
Score

Risk Strategy Mitigate

-Kill the market and accept resellers

Risk Actions -Improve display products and conduct a sale in social media and publicize all over the
social media.

Risk Champion Management

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Risk Instability of Economy

Risk Definition The influence of the instability of the government to the economy or to the entity itself

Economic issues such as Martial Law which causes the increase of taxes, tariffs and strict
Causes
implementation in business compliance
-The recent event such as Martial Law might increase the tax, price and inflation in services
Example and goods

Impact -Adjust in sales due to competitors

Definition -create more marketing strategy to attract more customers
Projected
P5,000.00-P10,000.00
Impact
Likelihood
Four to six times a year Impact Score 2
Score

Risk Strategy Accept

-Accept the sudden increase of price

Risk Actions -Control price of goods and monitor options to distributors and suppliers.

Risk Champion Management

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IV. Audit Plan

Objectives

Our audit team decided to conduct an audit in your business particularly in the inventory system
used, specifically how the company receive and store inventory.

The objectives of the audit are as follows:

A. Identify the policies, controls and standards set as to the inventory system used in the entity
through research.

B. Assess the efficiency and effectiveness of the design and implementation of the inventory
system by comparing the actual from standards set.

C. Express an opinion regarding the inventory system and provide recommendations if necessary
with regards to the entity's inventory system.

Scope

The scope of work of the Internal Audit is to determine whether the establishment network of risk
management, internal controls and processes, as designed and represented by management are adequate and
functioning in a manner to ensure that the inventory system used is effective in the following area:

Purchase

-Types of goods to purchase (Factors to consider in choosing which goods to avail)

-Any documents to approve before purchasing the goods

-List of Suppliers

-Number of goods to purchase

-Identify whether the inventories are purchased on cash or on consignment

-Time to purchase the goods

-Person designated to purchase the goods

-Time being before the goods to arrive

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Store

Upon the arrival of the goods purchased:

-Place to store the goods

-The manner in which the inventories are organized and stored

-The security of goods stored

Record

-Person/s in-charge of recording the inventory:

>Sales

>Updating of inventory

-The manner in recording the inventory:

>Whether it is manual or automated

>Documents involved such as stock cards or ledger

Monitor

-Person/s assigned in monitoring the inventories

-Inventories are monitored frequently to secure the good quality of products

-Controls used in assuring the security of the inventories:

>CCTV

>Security guards or padlocks

Custody

-Person/s that has the access to inventories

-When to update the inventory:

>Directly update when sold, or

>On a designated time (Ex. Every night or weekly)

-Frequency in reconciling the books and the actual inventory

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Audit Procedures

The set objectives are to be met through the following methods with their corresponding outputs:

Objective Method/Procedure Output Remarks

A. Identify the policies, controls
and standards set as to the
inventory system used in the
entity through research:

 The factors considered in  Interview  Transcript of recording

purchasing goods.
 Checking of  Photocopied
 The documents used in documents documents
relating to inventories.
 Walkthrough  Documentation
 The list of Suppliers and the
method of payment and
purchasing agreed between
entities.

 The person/s assigned to the

inventory system.

 The place where inventory is

stored.

 The manner in which the

inventories are organized
and stored.

 The accounting method used

in recording inventory.

 The methods used in

monitoring and securing
inventory.
B. Assess the efficiency and
effectiveness of the design and
implementation of the inventory
system by comparing the actual
from standards set:

 Purchasing goods.  Interviews  Transcript of recording

 Filing of documents  Walkthrough  Documentation

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 Inventory system controls  Random company

visits.
 Storage of inventory
 Inventory
 Compliance with the inspection
accounting method used.

 Monitoring and security of

inventory.
C. Express an opinion regarding  Through writing a  Audit Report
the inventory system and provide technical report.
recommendations if necessary
with regards to the entity's
inventory system:

Resource Allocation

Method/Procedure Auditor Time

A.
 Interview  A1 & A4  August 18, 2017

 Checking of documents  A1, A2 & A4  August 19, 2017

 Walkthrough  A2, A3 & A5  August 21, 22, 23 & 25

B.
 Interviews  A1 & A4  August 18, 2017

 Walkthrough  A2, A3 & A5  August 19, 2017

 Random company visits.  A1. A2, A3, A4 & A5  August 21, 22, 23 & 25

 Inventory inspection  A1, A2, A3, A4 & A5  August 21, 22, 23 & 25
C.
 Through writing a  A1. A2, A3, A4 & A5  August 30 – 31, 2017
technical report.
Legend: (A1) Eco, (A2) Jaque, (A3) Palen, (A4) Quilantang, (A5) Rueras