AUDIT 2 FINAL PROJECT

PT. BakpiaPia Solusi Galaksi

Group 3:
Jessabel Margaretha 17 / 415855 / EK / 21595
Muhammad Iqbal N S 17 / 408239 / EK / 21203
Sheila Dewani Anindya 17 / 415861 / EK / 21601
Anjar Respati Adityo 17 / 415850 / EK / 21590
Alan Mukarta 17 / 408231 / EK / 21195
Farah Ayu Lestari 17 / 411408 / EK / 21379
Nabila Qothrunada 17 / 408350 / EK / 21248

Lecturers:
Suyanto, S.E., MBA., Ak., Ph.D.
Dewi Wulansari, S.E., M.Sc.

Faculty of Economics and Business

UNIVERSITAS GADJAH MADA
2018
 EXECUTIVE SUMMARY

PT. BakpiaPia Solusi Galaksi (BakpiaPia) is a family-owned Small-Medium Enterprise (SME)

established in 2004, based in Yogyakarta, Indonesia. BakpiaPia specializes in the production
of bakpia, which is a traditional snack from Yogyakarta. BakpiaPia has expanded their retail
stores to five branches all over Yogyakarta and to reach international market, they have also
expanded their company by having a branch that is located in Brisbane, Australia.

The fieldwork report will be focusing on audit of the acquisition and payment cycle. Other than
producing goods, it is relatively easy for things to go wrong in a company’s acquisition and
payment cycle. In this case, companies can overstate the value of the inventory they purchase,
management can omit or undervalue their accounts payable, which amplifies financial strength.
The research methodology is by gathering company’s data through an observation and an
inquiry of the management. For theoretical framework, we referenced to Auditing and
Assurance Services by Arens, Eder, Beasley, and Hogan, and to Principles of Economics by
Mankiw. We had the opportunity to interview the Head of Purchasing, Mrs. Mita, whereby we
were able to gather more specific information regarding the business functions in the
acquisition and payment cycle. However, we can’t get a direct access to the financial statement
because it is regarded as confidential.

The fieldwork report conclude that although there are several deficiencies and shortfall
identified, BakpiaPia generally operated well: they don’t suffer from any major issues, because
they know well how to achieve their objective effectively. They maintain a good quality control
over its product and a modest control in regard to acquisition and payment cycle. We also
generate some recommendation for BakpiaPia: (1) Separation of duty between receiving and
payment function; (2) Purchase requisition should be presented in order to request raw
materials; (3) Inspection should be done more carefully; and (4) Installation of surveillance
technology.

1
 TABLE OF CONTENTS

EXECUTIVE SUMMARY 1
TABLE OF CONTENTS 2
CHAPTER 1 4
INTRODUCTION 4
1.1 Background 4
1.2 Purpose and Scope 4
1.3 Problem Formulation 4
CHAPTER 2 5
CLIENT BUSINESS MODEL 5
2.1 Company Profile (Appendix A) 5
2.2 Theoretical Framework 6
2.3 Methodology 7
2.4 Client Business Model (Appendix B) 7
CHAPTER 3 11
FINANCIAL STRENGTH 11
CHAPTER 4 12
STRATEGIC RISK ASSESSMENT ANALYSIS (External) (Appendix C) 12
CHAPTER 5 16
BUSINESS RISK (Internal) (Appendix D) 16
CHAPTER 6 18
INTERNAL CONTROL 18
CHAPTER 7 20
FRAUD RISK 20
CHAPTER 8 22
AUDIT PROGRAM 22
CONCLUSION AND RECOMMENDATION 23
APPENDIX A: Company Profile 25
APPENDIX B: Client Business Model 26
APPENDIX C: Strategic Risk Assessment Analysis 30
APPENDIX D: Business Process Risk Analysis 33
APPENDIX E: Control Risk Matrix 39

2
APPENDIX F: Audit Program 41
APPENDIX G: Acquisition and Payment Cycle of PT. BakpiaPia Flowchart 42
APPENDIX H: Documents Used in BakpiaPia 43
References 45

3
 CHAPTER 1
INTRODUCTION

1.1 Background

Audit reports are essential for users of financial statements of related companies around the
world, these users include investment managers, investment analysts, and even people in
general. Additionally, these users utilize audit reports to help them be more assured in deciding
whether a company’s financial statements are free from material misstatements and can be used
as a basis for judgment of the company’s performance. Auditors assess the risk of material
misstatement in a company’s financial reports to assure the users, therefore without a system
of internal controls, a company would not be able to create reliable financial reports for internal
or external purpose.

1.2 Purpose and Scope

The main purpose of this project is to audit the acquisition and payment cycle of PT. BakpiaPia
Solusi Galaksi. BakpiaPia is a Small-Medium Enterprise (SME) based in Yogyakarta,
Indonesia that provides various traditional snacks such as Bakpia and Kepyar ampyang. The
scope of this project will include:
1. The business model of BakpiaPia.
2. The payment and acquisition audit cycle of BakpiaPia.
3. The internal control of BakpiaPia.

1.3 Problem Formulation

1. How is the control matrix that has been implemented in BakpiaPia?

2. How is the acquisition and payment cycle of BakpiaPia?
3. What kind of audit program design can support the internal control of BakpiaPia?

4
 PART I
CHAPTER 2

CLIENT BUSINESS MODEL

2.1 Company Profile (Appendix A)

BakpiaPia is a family-owned SME based in Yogyakarta, Indonesia that specializes in the

production of bakpia, which is a traditional snack from Yogyakarta. The company was
established in 2004 and it is currently run by Mdm. Marizna, the CEO of PT. BakpiaPia Solusi
Galaksi. BakpiaPia has expanded their retail stores to five branches all over Yogyakarta,
located in Jl. Dagen, Malioboro mall, Jl. Kaliurang, Jl. Mataram and Jl. Wates. Besides that,
they have also expanded their company to reach international market by having a branch that
is located in Brisbane, Australia. The company has approximately 45 employers and with 18
employers working in the central kitchen that acts as the production factory for the bakpia and
Kepyar ampyang. Besides their retail stores, they also operate an online store that can be
accessed through their website www.BakpiaPia.com.

The types of products that BakpiaPia offers include; traditional bakpia with green bean fillings,
blasteran BakpiaPia which is a modernized bakpia with a wide array of flavours such as
Blueberry Cheese, Chocolate, Cappuccino, etc and Kepyar ampyang. The price range of their
products is approximately IDR 20,000 – 50,000 depending on the size of the box.

5
The division of the production process is as follows:

Figure 1: Division of Production Process in BakpiaPia Production Facility

2.2 Theoretical Framework

2.2.1 Classes of Transactions in the Acquisition and Payment Cycle

There are three classes of transactions in the cycle that include:

1. Acquisition of goods and services
2. Cash disbursements
3. Purchase returns and allowances and purchase discounts

2.2.2 Business Functions in the Acquisition and Payment Cycle

There are four business functions in the cycle that include:

1. Processing purchase orders
2. Receiving goods and services
3. Recognizing the liability
4. Processing and recording cash disbursement

6
2.3 Methodology

Our group uses several methods to obtain the relevant data and information regarding the
acquisition and payment cycle, which are:

1. Observation
Our group were able to obtain information about the acquisition and payment cycle
after conducting an observation during one of our visits to the production facility of
BakpiaPia. We were able to see the process of purchasing raw materials as well as the
payment process.
2. Inquiry
Additionally, our group have also conducted an interview with the CEO of BakpiaPia,
Mdm. Marizna. During the interview, we were able to gather a general understanding
of the company’s structure, visions and missions and how BakpiaPia is going to move
forward in the future.

Besides that, we also had the opportunity to interview the Head of Purchasing whereby we
were able to gather more specific information regarding the business functions in the
acquisition and payment cycle, the different types of documents used in the cycle and the
different possible risks.

2.4 Client Business Model (Appendix B)

Through the methods mentioned above, our group has managed to arrange the Client Business
Model. This model allows us to document our understanding regarding the company’s
business, global environment, risks and controls.

2.4.1 Strategic Objectives

There are three main strategic objectives of BakpiaPia that we have discovered. Firstly,
BakpiaPia aims to maximize profits by minimizing their costs of production. The company
achieves this objective by seeking suppliers that offer them the best quality raw materials at a
lower price. They have also partnered up with some suppliers such as Wincheese for their
cheese supplies so that they can attain lower prices. Besides that, maintaining good
relationships with their suppliers also help BakpiaPia is obtaining the best price for their raw
materials, hence lowering the costs of production.
Secondly, BakpiaPia aims to maximize their output of production by minimizing production

7
loss. Production loss here refers to the wastage that can be caused during the production
process. These include baking loss where the products are overcooked or burnt, and inefficient
usage of raw materials. Lastly, BakpiaPia’s stategic objectives include the low cost of
equipment maintenance. The company achieves this objective by making sure that the
employers uses and maintain the machines used in the production facility with great care and
proper training.

2.4.2 Core Products

BakpiaPia offers:
1. Traditional bakpia with green bean fillings.

Figure 2: Traditional Bakpia

2. Blasteran BakpiaPia which is a modernized bakpia with a wide array of flavours such
as Blueberry Cheese, Chocolate, Cappuccino, etc.

Figure 3: Blasteran Bakpia

8
 3. Kepyar ampyang

Figure 4: Kepyar ampyang

2.4.3 Primary Customers

BakpiaPia’s primary customers are mostly domestic, international tourists and the locals.
However, the company also set a specific target group that they are trying to reach for the
different types of products. The target groups is divided into two groups which are customers
of age of 35 and above and of 35 and below. BakpiaPia targets the older generation for their
traditional bakpia because they tend to prefer the green-bean flavoured bakpia over the more
modern flavours. Meanwhile, BakpiaPia targets the younger generation for the Blasteran
BakpiaPia as the youths tend to be more attracted to newer, and trendy flavours.

2.4.4 Market the Company Operates in

BakpiaPia currently operates in the local market, more specifically in Yogyakarta, Indonesia.
There are five branches in the city and customers can also find their provides in some souvenirs
shop or even hotels such as Hotel 101 and Grand Zuri Hotel. However, BakpiaPia has also
expanded their market overseas, specifically to Australia whereby they have opened up a retail
store in Brisbane.

2.4.5 Strategic Partners and Alliances

There are some parties that BakpiaPia had worked with that have contributed to the growth of
the company. These include partnering up with their suppliers, hotels, supermarkets and even
software companies. BakpiaPia has worked with Wincheese on supplying cheese from the raw
materials for BakpiaPia’s cheese flavored products at a lower price. Besides that, The company
also partnered up with different hotels in Yogyakarta, namely Grand Zuri Hotel and 101 Hotel.
Whereby they provide their bakpia as the welcoming food in the hotels and if there are orders

9
made in the hotel, the hotel would earn a 20% commission. Additionally, BakpiaPia also sells
their products in various pop-up stalls in Carrefour supermarket in different cities namely
Jakarta and Yogyakarta. They have also expanded their business operations by investing in a
software start-up company whereby they make use of phone applications for marketing
purposes. For example, they have created the application “Go-Rileks” through which they also
advertise their Bakpia products.

2.4.6 External Forces

There are some external forces that may affect the process and sales of the company. The forces
include the growing number of competitors, the changing of customers’ preference and
seasonal sales. Firstly, BakpiaPia faces growing number of competitors. Since BakpiaPia has
two kind of products, the original Bakpia and the Blasteran, they also face different
competitors. The original Bakpia competes with many competitors such as the well- established
Bakpia Kurniasari. Blasteran BakpiaPia on the other hand faces relatively newer competitors
offering trendier pastries such as Jogja Scrummy, Mamahke and Cakekinian. From the
emergence of these new competitors, the sales of BakpiaPia dropped significantly before rising
again after a year.

Besides that, in the increasingly globalised world where there are increasing influences from
outside the city/country especially on food, there is a changing trend in the type of food that
people consume. More people are switching away from eating traditional snacks such as bakpia
to more modern pastries. Resulting in the decrease in sales of BakpiaPia. Additionally because
most of BakpiaPia customers are tourists, they experience seasonal sales. This means that on
some occasions such as the holiday season, the sales for bakpia is high.

2.4.7 Internal Forces

Managing the Human Resource is a challenge for the company. The company is required to
hire motivated and trustworthy employees. There are few previous employees who have
conducted fraudulent activity. Another issue is that some employees tend to do their job lazily.
As BakpiaPia hand-made their own bakpia, it requires a lot of people to produce the bakpia
speedily. It also requires skilled workers so company can run effectively. BakpiaPia solve this
problem by purchasing machine to help making the bakpia. The price of raw materials is also
an important internal force of the company. This is because the company aims to reduce the
cost of production by finding the cheapest raw materials with the highest quality of products in
order to maximize their profit.

10
 CHAPTER 3

FINANCIAL STRENGTH

Bakpia is a traditional Yogyakarta delicacy which uses basic and traditional ingredients
and fillings such as green beans and red beans. Most of BakpiaPia competitor sells the same
type of that traditional Bakpia, but BakpiaPia offers more flavours and fillings option compared
to conventional bakpia producer. To appeal to many markets, BakpiaPia offers modern twist
to this traditional delicacy with using chocolate and cheese as the filling opposed to green beans
and red beans. We consider this as their financial strength since they have advantage to appeal
to broader and more diverse market.

Another financial strength of BakpiaPia is their marketing strategy. BakpiaPia have

partners with several company which help them market and distribute their product more
effectively. BakpiaPia have collaborated with several hotels in Yogyakarta. Since Yogyakarta
is a tourist destination, by marketing their product with hotels, it gave them brand exposure to
tourist. The hotels would provide BakpiaPia’s bakpia as the welcoming food. If the tourist like
it, they can buy it instantly at the hotel and the hotel would get 20% commission. BakpiaPia
also partnered with Carrefour, an international supermarket retailer, which operates across
Indonesia. Partnering with Carrefour allows BakpiaPia to distribute their product to other cities
and provinces at minimum cost. They also have an application called ‘Go-Rileks’, in which
they could advertise their products through.

11
 CHAPTER 4

STRATEGIC RISK ASSESSMENT ANALYSIS (External) (Appendix C)

A. Economic Inflation Affecting the Price of Raw Materials

External Source of Activity Likely Potential Potential FS Potential Audit

Risk/ Threat to Be Affected Management Implications Implications
Threats Control

Economic Indonesian Acquisition and Acquires Increase in Increase in

inflation economy and payment potentially manufacturin manufacturing cost
affecting the imported regarding the increased asset g cost might need further
price of raw economy purchase of raw before the price audit procedures to
materials materials increase or using make sure that non-
coupons to existing or overpriced
prevent price manufacturing cost
inflation (raw materials) are
recorded

Economic inflation is defined as an increase in the overall level of prices in the economy
(Mankiw, 2011). A rise in inflation is likely to mean a rise in the cost of raw materials. As seen
in the table above, the source of threat of this business risk is the Indonesian economy and also
the imported country economy since the raw materials acquired variously from different
suppliers and countries. Therefore, this is considered as external risk. This type of inflation is
usually called Cost-Push Inflation; this occurs when price of production inputs increases, rapid
wages increases, and rising raw materials prices. The cost of raw materials indeed affects the
manufacturing cost and will therefore minimize profit.

12
 B. Competitors

External Source of Activity Likely Potential Potential FS Potential Audit

Risk/Threats Threat to Be Affected Management Implications Implications
Control

Increasing Increasing Sales and Make Increase in Increase in

number of number of collection process innovative production production time
similar Bakpia sellers products and time and cost and cost may
products or and modern maintain good require the
sellers pastry seller quality manager to
products maintain
effectiveness and
efficiency to meet
with the
production target

BakpiaPia faces growing number of competitors. Since BakpiaPia has two kind of products,
the original Bakpia and the Blasteran, they also face different competitors. The original
Bakpia competes with many competitors such as but not limited to:
● Bakpia Kurniasari
● Bakpia Pathuk
● Bakpia Tugu
● Bakpiaku
Blasteran BakpiaPia on the other hand is considered differently. It is part of the pastry market
which has competitors such as but not limited to:
● Jogja Scrummy
● Mamahke
● Cakekinian

13
 C. Changing Preference of Customers

External Source of Activity Likely Potential Potential FS Potential Audit

Risk/Threats Threat to Be Affected Management Implications Implications
Control

Changing Increasing Sales and Awareness of Sharp decrease Increase in

preference of influence on collection the changing in sales research and
customers modernized process trends and revenue development
pastries from customers’ cost might need
different parts demands, further audit
of the world produce more procedures to
innovative make sure that
products non-existing or
overpriced cost
are recorded

In the increasingly globalized world where there are increasing influences from outside the city
/ country especially on food, there is a changing trend in the type of food that people consume.
More people are switching away from eating traditional snacks such as bakpia to more modern
pastry. This results in the decrease in sales of BakpiaPia.

14
 D. Seasonal Sales

External Source of Activity Likely Potential Potential FS Potential Audit

Risk/Threats Threat to Be Affected Management Implications Implications
Control

Seasonal Sales Customers tend Sales and The company Inconsistency Increase in
to change their collection cycle should produce in sales production time
consumer more bakpia revenue and cost may
behaviours in during the high require the
the different season to manager to
seasons, e.g prepare for the maintain
they tend to increased effectiveness
buy more demand and efficiency to
product during meet with the
holiday season production
target

The sales of BakpiaPia is also affected by the season. On some occasions, such as during the
holiday seasons, the sales of BakpiaPia tend to be higher. This is because a large number of
BakpiaPia’s customers are tourist. Hence, during the holiday seasons, the number of tourists in
Yogyakarta would increase and they would buy more bakpia as souvenirs. Because of this risk,
the auditor should examine the inventory activity report (Appendix H) for the different demands
according to the different branches of BakpiaPia so they can produce the appropriate amount
of bakpia.

15
 CHAPTER 5

BUSINESS RISK (Internal) (Appendix D)

A. Insufficient Balance in Petty Cash Fund for Cash Payment

Core Process Process Risk Potential How Control Key Potential

Management Mitigates the Performance Audit
Controls Linked Specific Risk Indicator Complication
to Risk

Cash payment The lack of Separation of duties The usage of Vendors’ Examine the
separation of between the petty cash is invoices and relevant
duties may personnel in charge supervised by receipts from documents for
result in fraud of making orders the production miscellaneous verification
and and payment. The manager. So, expenses
misallocation personnel in charge this reduces
of cash. Human of payment can be the misuse of
error can also the production cash
cause the manager
insufficient
balance in the
petty cash fund

One business risk of PT. BakpiaPia include the insufficient balance in petty cash fund that will
affect the cash payment process. This risk is mainly caused by the the lack of separation of
duties and also human error. If many people are able to access the petty cash fund with no
supervision from the higher authority, it can result in theft. Hence a potential control to reduce
this risk is by the separation of duties between the personnel in charge of making orders and
payments. The production manager should be the one in charge of supervising the the use the
petty cash fund, so that the employee will not be able to misuse the cash available easily. As a
result of this risk, a potential audit complication would be to examine the relevant documents,
which is the vendors’ invoices for cash payments and receipts from miscellaneous expense, to
make sure that the amount of cash used in the petty cash system is correct.

16
 B. Careless Documentation

Core Process Process Risk Potential How Control Key Potential Audit
Management Mitigates the Performance Complication
Controls Specific Risk Indicator
Linked to Risk

Processing and Improper system The production By keeping The usage of This may result
recording cash in keeping manager must track of each accounting in misstatements
disbursement physical always keep transaction, system and in some
documents, track of each this will ensure documents accounts
resulting in some transaction and that all
documents being immediately transactions
lost due to record occurred are
careless transaction to recorded
documentation the accounting
system

Another business risk would include the careless documentation in the processing and
recording cash disbursement process. This can be caused by an improper system in keeping
physical documents, resulting in some documents being lost. In order to reduce this risk, a
potential control would include that the production manager must always keep track of each
transaction and immediately record transaction to the accounting system and this will ensure
that all transactions occurred are recorded. A potential audit complication would include the
misstatements in some accounts such as accounts payable.

17
 PART II

CHAPTER 6

INTERNAL CONTROL

Internal Control Internal Control Deficiency

Purchase order forms are used to order The amount may be inaccurate
inventory

Receiving reports are received No proper system in keeping physical

documents, hence may be lost

Inspection of material received (quality and Done by one person

quantity)

Vendors’ invoices are received No proper system in keeping physical

documents, hence may be lost

Acquisition transaction file are generated
upon receiving vendors’ invoices
Individual checks are used and are signed
by an authorized personnel
There is listing or report generated from
cash disbursement transaction file
Person in charge may forgot to record in the
system as they use manual system
Not used for all transactions
Personnel in charge may forgot to record in
the system

Internal controls and internal control deficiency evaluation was obtained through inquires and
direct observation during the plant visit. BakpiaPia have a deep concern over quality of their
bakpia and ampyang, and care much about hygiene. They also only want to automate few of
its production process, as an effort to maintain the taste and quality over their product. They
believe handmade processed food tastes better. They do not want to compromise quality for
the sake of efficiency. To prevent overproduction, BakpiaPia have a WhatsApp group consisted
of representative of all branches specifically to communicate the stock available. They monitor
the stock and sales from all branches daily (Appendix H) to forecast the production needed for
the following week, and adjust the amount to order from suppliers. Supplies of materials arrives
each week, and they have a contract with Wincheese, a cheese supplier. They paid for the
supplies in tempo. The greater amount of supply order, the greater amount of Rupiah, the lesser
the tempo.

18
In each of the control objectives and key internal control for each of the business function in
regard to acquisition and payment cycle, BakpiaPia do relatively well. In authorization of
purchases, they have a purchase authorization which requires an order form from the raw
materials storeroom, then given to the production manager and prenumbered to inventory
activity report (Appendix H). For separation of asset custody from other functions, BakpiaPia
have a separate storeroom personnel, independent from the receiving personnel. However, the
payment and receiving function are done by the same personnel. For timely recording and
independent review of transactions, BakpiaPia record the liability based on the invoices and
receipt of goods and services. They also utilize a company-wide accounting software in
‘Akuntansi GPlus Pro’. In others, recording is deferred until the vendor’s invoices and receipt
is received. The accounting department is responsible to verify the appropriateness of
acquisition. For authorization of payments, BakpiaPia has a payment procedure, in which
payment less than IDR 1,000,000 is authorized/controlled by the production manager, with
petty cash, and payment above it are authorized/controlled by the accounting department.

The internal control stated on the table above are somewhat related to the control matrix and
the business functions in the Acquisition and Payment cycle. The internal control deficiencies
can mainly be attributed to the fact that the company uses manual system for almost all its
business processes. As mentioned in the table, such deficiencies mostly stem from possible
human errors that can occur in the key personnel in charge of this cycle. The documentation of
a more complete analysis of the internal control of PT. BakpiaPia can be seen through the use
of a control risk matrix (Appendix E). In addition, our group has also documented acquisition
and payment cycle of PT. BakpiaPia through a flowchart (Appendix G).

19
 CHAPTER 7

FRAUD RISK
Our group has used the fraud triangle in assessing the fraud risks in PT. BakpiaPia. Below is
fraud triangle:

Figure 5: Fraud Triangle

Fraud triangle is designed to explain the reason why a worker conduct a fraudulent activity,
which are; pressure/incentive, rationalization, and opportunity. Pressure is the motivation of an
individual that can be either personal financial pressure or workplace debt or workplace debt
problems such as high revenue target. Rationalization is a mindset of the fraudster to justify
them to commit the fraud. Opportunity is the situation that enables fraud to occur.

We have gathered some information regarding the fraud risk of PT. BakpiaPia Solusi Galaksi
by observing the company. There are 5 risks that might impact workers to commit fraud,
namely:

Opportunity:

● Easy to manipulate on recording the petty cash transactions.

● Payment and receiving function is handled by the same person.
● Inefficient use of the raw materials from the employee that would lead to purchasing
more of raw materials.
● No surveillance technology installed.

20
 Rationalization:

● The managers are in a higher position that enables them to commit the fraud easily.

Incentives/Pressure:

● The employees are experiencing financial difficulties, hence they need the money for
their personal expenses.
● They haven’t met their sales target for most of this year.

There are several frauds that have been committed in PT. BakpiaPia Solusi Galaksi, which are:
1. Some of the employees have stolen raw materials from the factory. This include raw
materials such as cheese, chocolate, etc.
2. A previous personnel in the top level management who was the production manager
had committed fraud. When purchasing for raw materials, he negotiated for lower price
of materials. However, instead of giving the cashback to the company, he kept the
money for his own personal use.

21
 CHAPTER 8

AUDIT PROGRAM

After understanding the internal control of PT. BakpiaPia, our group have come up with an
audit program (Appendix F) for the company in order to make sure that each of the key control
meets the audit objectives.

22
 PART III

CHAPTER 9

CONCLUSION AND RECOMMENDATION

Conclusion

We have conducted a fieldwork in Pt. BakpiaPia Solusi Galaksi (BakpiaPia), focusing in the
acquisition and payment cycle. In the process, we understand the company’s business industry
and processes, its internal control, to design control matrix and audit program.

BakpiaPia has been operating since June 2004. Financially wise, they have failed to meet their
sales target for several periods. This result could signal that they are facing tough competition,
despite offering well varied products compared to conventional bakpia producer. BakpiaPia
use inventory activity report, delivery form, invoices, shipping document, and purchase
order/requisition documents in their acquisition and payment cycle operation. They put a lot of
attention of quality control over their bakpia and ampyang. They care a lot about the hygiene,
and they only want to automate few of the production process because they do not want to
compromise quality over efficiency. They also perform a relatively good internal control in
regard to acquisition and payment cycle.

BakpiaPia have experienced two fraudulent activities in the purchasing department, in which
they actually haven’t implemented better control to prevent it from happening again. We also
identify several risk that could make fraud to occur again.
Despite several deficiency and shortfall, BakpiaPia operated relatively well: they don’t suffer
from any major issues due to the business process they conduct as they know well how to
achieve their objectives effectively.

23
Recommendation

To improve its operation and performance, we have generated the following recommendations
for BakpiaPia, based on our analysis:

1. Separation of duty between receiving and payment.

One of the previous fraudulent activities experienced by BakpiaPia was a consequence
of not separating the duty between receiving and payment. It is now handled by new
person, but it is still not separated. Confidence and trust is the only basis.

2. Purchase requisition should be presented in order to request the raw materials.

In processing purchase orders, BakpiaPia only use purchase order as a document to
order goods and services rather than to use both (requisition and order). With a formal
purchase requisition, it is to prevent the payment department where they might order
materials for personal use. The request must be from an authorized employee which is
by the storeroom supervisor.

3. Inspection should be done more carefully, by two people at least.

The receipt of goods and services from the vendor is a critical point in the cycle because
it is when the company first recognize the acquisition and related liability on to their
records. Therefore, when goods are received, it requires to be inspected to fulfill an
adequate control of the description, quantity, timely arrival, and condition.

4. Installation of surveillance technology to prevent or detect fraudulent acts.

By installing surveillance technology of some sorts, the management can monitor their
assets and worker better. A simple CCTV can be accessed from a distance using an
application. Also, with surveillance technology, The management have a real footage
of their operation if there’s ever needed for some sort of evidence or as a means of
quality control.

24
 APPENDIX A: Company Profile

Company Profile

Founded : June 2004

CEO : Mrs. Marizna

Employees : Approximately 45 employees in total

Production department: 18 employees

a. Filling: 2 employees
b. Inventory: 2 employees
c. Skin dough: 2 employees
d. Admin: 1 employees
e. Delivery: 1 hotline, and 1 branch

Location :

1. Main Store: Ruko Bayeman Permai No. 4, Jalan Wates Km 3, Onggobayan,

Ngestiharjo, Kasihan, Kota Yogyakarta, Daerah Istimewa Yogyakarta 55182
2. Other Stores: BakpiaPia has several outlets near Malioboro, Jl. Kaliurang, and
Ambarrukmo Plaza.

Facilities :

1. Central kitchen/factory for the production of the Traditional and Blasteran bakpia.
2. Central kitchen/factory for the production of the Ampyang Kepyar

25
 APPENDIX B: Client Business Model

BakpiaPia Djogja
Client Business Model

Strategic Objectives
1. Maximising profits and minimising costs.
2. Maximising output of production minimizing production loss.
3. Lower cost of equipment maintenance.

Goals
Being the culinary destination that is “More than the Original’ for both domestic and
international tourists who are selective towards food with high quality.

Product and Service Lines

BakpiaPia offers
1. Traditional bakpia with green bean fillings.
2. Blasteran BakpiaPia which is a modernized bakpia with a wide array of flavours such as
Blueberry Cheese, Chocolate, Cappuccino, etc.
3. Kepyar ampyang.

Primary Customers
BakpiaPia primary customers are mostly domestic and international tourists and the locals. The
target group that they are trying to reach is divided into two groups:
1. Age of 35 and above: Traditional green bean bakpia.
2. Age of 35 and below: Blasteran BakpiaPia.

Markets the Company Operate in

The company operates in the domestic market specifically in the regional market of Yogyakarta.
BakpiaPia has its main store located in Jl, Wates and it have four other branches located in Jl.
Dagen, Malioboro Mall, Jl. Kaliurang, Jl. Mataram.

Additionally the company also operate in international market specifically in Brisbane,

Australia.

Strategic Partners and Alliances

Wincheese
BakpiaPia has partnered up with Wincheese on supplying cheese from the raw materials for
BakpiaPia’s cheese flavored products.

Hotels
BakpiaPia has worked with different hotels in Yogyakarta, namely Grand Zuri Hotel and 101

26
Hotel. Whereby they provide their bakpia as the welcoming food in the hotels. If there are order
made in the hotel, the hotel would earn a 20% commission.

Carrefour
BakpiaPia has partnered up with various Carrefour supermarket in different cities namely
Jakarta and Yogyakarta. Whereby BakpiaPia is able to open pop-up stalls in these Carrefour
supermarkets to sell their products.

Phone applications
BakpiaPia also invested in a software start-up company whereby they make use of phone
applications for marketing purposes. For example, they have created the application “Go-
Rileks” through which they also advertise their Bakpia product.

Environment and Industry Overview

Yogyakarta is a city that is visited by international and local tourists. These tourists are commonly
interested in yogyakarta’s home industry products. Bakpia is an icon of Yogyakarta home industry
products. The high demand of bakpia made many companies to enter the market. Thus, company
such as BakpiaPia is now facing tough competition in the market.

Today, the demand for bakpia is decreasing. Fewer people are interested in purchasing bakpia and
bakpia is now regarded just as specialities from jogja.
In addition, There are a lot of pastry companies in indonesia. These companies usually have better
technologies and lower costs.

Recent Changes in Business Practice

Automatization of few production process. BakpiaPia has started to use several machines such as
peeling machines for peeling the skin of green bean. This increases the efficiency of the production
process. However, it is contrary to their view of maintaining quality through handmade production
and they do not plan to automate other production process to not reducing the quality furthermore.

External Force that may have impact on company

Competitors
BakpiaPia faces growing number of competitors. Since BakpiaPia has two kind of products, the
original Bakpia and the Blasteran, they also face different competitors. The original Bakpia
competes with many competitors such as but not limited to:
● Bakpia Kurniasari
● Bakpia Pathuk
● Bakpia Tugu
● Bakpiaku
Blasteran BakpiaPia on the other hand is considered differently. It is part of the pastry market
which has competitors such as but not limited to:
● Jogja Scrummy

27
 ● Mamahke
● Cakekinian

Changing Preference of Customers

In the increasingly globalised world where there are increasing influences from outside the city/
country especially on food, there is a changing trend in the type of food that people consume.
More people are switching away from eating traditional snacks such as bakpia to more modern
pastry. Resulting in the decrease in sales of BakpiaPia.

Seasonal Sales
Because most of BakpiaPia customers are tourists, they experience seasonal sales. This means
that on some occasions such as the holiday season, the sales for bakpia is high.

Key Internal Business Processes

Some of the key internal business processes that we have identified include:
- Purchasing Raw Materials: In acquiring raw materials, the company uses only purchase
order.

- Receiving Raw Materials: The company receives and keeps the vendors’ invoice that
consists the amount of raw materials purchased and the total price.

- Payment of Raw Materials: For purchases above IDR 1 million, the production manager
will send the invoice to the accounting department. The accounting department will then
give money/cheque needed to pay for the acquired raw materials to the production
manager and the suppliers will visit the store and attain the money from the production
manager. For purchases below IDR 1 million e.g: bananas, ginger, etc. the production
manager will pay the supplier using the money from the petty cash.

- Production of Bakpia: Even though BakpiaPia have started using automatization, they
still hand-make their own bakpia in the central kitchen/factory. There are five production
processes in BakpiaPia, these include;
1. Peeling process. This is where raw materials namely green bean skin are being peeled.
2. Filling process: This process is whereby the raw materials are being mixed by machines
and turned into the filling of the bakpia.
3. Warehouse: Serves as the storage of raw materials.
4. Administration
5. Delivery

- Product Delivery: After the production, the bakpia are sent to the different branches all
over. The company keeps track of the products shipped by using a shipping document
namely delivery order. The document consists information about the date, amount (in
boxes and units) of products shipped. The document also needs to be signed by the sender,
warehouse, driver and receiver. The sender, driver and receiver will then keep each copy

28
 of the document.

Internal Forces that may impact the company

● Managing the Human Resource is a challenge for the company. The company is required
to hire motivated and trustworthy employees. There are few previous employees who have
conducted fraudulent activity. Another issue is that some employees tend to do their job
lazily. As BakpiaPia hand-made their own bakpia, it requires a lot of people to produce
the bakpia speedily. It also requires skilled workers so company can run effectively.
BakpiaPia solve this problem by purchasing machine to help making the bakpia.
● The price of raw materials is also an important internal force of the company. This is
because the company aims to reduce the cost of production by finding the cheapest raw
materials with the highest quality of products in order to maximize their profits

29
 APPENDIX C: Strategic Risk Assessment Analysis

BakpiaPia Djogja
Strategic Risk Assessment Analysis

Strategic Objectives
1. Maximising profits and minimising costs.
1. Maximising output of production minimizing production loss.
2. Lower cost of equipment maintenance.

Critical Success Factors

1. Lower cost of production by finding the best supplier with the lowest price of raw
materials.
2. Minimizing product defects and wastage due to baking loss.
3. High maintenance of the equipment.
4. Better trained labour to reduce product defects.

Business Risk/Threat [including Impact/Implications and Likelihood (high, low,

moderate)]:
1. Daily production does not meet actual target
2. Insufficient petty cash fund for payments
3. Careless documentation

Source of Threat

1. Lack of separation of duties

2. Inaccurate production forecast made from the previous day
3. Lack of owner’s control
4. Human error
5. Unmotivated labour
6. Transactions are recorded manually

Activity Likely to be Affected:

● Production Activity
Production process is ineffective and inefficient. Hence, more resources are needed in
the production process in order to meet the daily target.

● Cost of Production
There will be higher cost of production because of the higher cost of raw materials and
higher wastage in the production process. Since more materials are needed to replace the
product defects.

30
● Delayed Payments
The company will not be able to make payment if there is insufficient balance in the
petty cash fund and they would have to defer the payment.

● Accounts Payable Accounts

There will be higher accounts payable account if there are any delayed payments.

Control Objective(s):

1. Authorization of Purchases
PT. BakpiaPia Solusi Galaksi has a purchase authorization which require an order form
from the raw materials storeroom then given to the production manager and prenumbered
to the Inventory Activity Report.

2. Separation of Asset Custody from Other Functions

PT. BakpiaPia Solusi Galaksi initiate a receiving report as evidence of the receipt and
examination of goods, one copy is given to the raw materials storeroom and another given
to the accounting department. The personnel for the receiving is the production manager,
while the raw materials storeroom is another personnel as well as the accounting
department.

3. Timely Recording and Independent Review of Transactions

PT. BakpiaPia Solusi Galaksi record the liability of the acquisitions based on the invoices
and receipt of goods and services. They utilize accounting software named ‘Akuntansi
GPlus Pro’. In others, recording is deferred until the vendor’s invoices and receipt is
received. Moreover, the accounting department has also a responsibility to verify the
appropriateness of acquisitions.

4. Authorization of Payments
PT. BakpiaPia Solusi Galaksi has a payment procedure which include payment less than
IDR 1.000.000 (controlled by the production manager with the petty cash) and payment
above than IDR 1.000.000 (controlled by the accounting department).

Specific Audit Objective(s):

1. Existence or Occurrence
All purchase order made by the production manager from the supplier exist.

2. Completeness
All purchase order made by the production manager are recorded to the accounting system.

3. Accuracy

31
 All recorded transactions are internally verified and matched with the computer summary
reports.

4. Posting and Summarization

Acquisition transactions are correctly included in the accounts payable masterfile and
inventory masterfile from the accounting system and are correctly summarized.

5. Classification
Acquisition transactions are correctly classified in the accounting system.

6. Timing
Acquisition transactions are recorded in the accounting system on the correct dates.

Potential Key Controls Related to identified Business Risks:

1. Purchase acquisition are approved at the proper level (Occurrence)

2. Computer accepts entry of purchase only from authorized vendor in the vendor of master
file (Occurrence)
3. Vendor’s invoices, receiving reports, purchase orders, and purchase requisition are
internally verified. (Occurrence )
4. Receiving reports are prenumbered and accounted for (Completeness )
5. Calculation and amounts are internally verified and summarized (Accuracy, Posting and
Summarization)
6. Account classification are internally verified (Classification)
7. Procedures require recording transaction as soon as possible after the goods and services
have been received. (Timing)

Audit Risks (e.g., Potential Financial Impact):

1. Misstatements in the accounts payable balance.
2. Payment made to fictitious accounts.
3. Fraudulent activities committed by top-level management.

Audit Implications (Audit Response) to each identified Risk (e.g., planned audit objectives
or tests of financial statement assertions):

We were unable to attain the financial statements of the company due to confidentiality.

32
 APPENDIX D: Business Process Risk Analysis

A. Insufficient Balance in Petty Cash Fund for Cash Payment

Business Process Analysis Template

(Cash Payment)

Client Name: PT. BakpiaPia

Process: Cash Payment

Description and Objective(s) of Process:

When the company makes a payment for less than IDR 1 million, they use the petty cash
fund to pay the vendors. Adequate control over payment should be maintained to prevent
the misuse of the petty cash fund which would result in the insufficient balance in the petty
cash fund.

Critical Success Factors:

Payment of raw materials using cash should be accompanied by the relevant documents
such as vendors’ invoices and receipts from miscellaneous expenses.

Key Performance Indicators:

The use of vendors’ invoices and receipts from miscellaneous expenses.

Inputs:
The related documents should be properly authorized to prevent misuse of the related
documentations for personal purposes.

Key Business Activities:

Performing control relating to acquisition of raw materials and manufacturing costs which
means that the acquisitions are correctly stated.

Outputs
Correct balance and number related to cash accounts and petty cash fund.

33
Identify the classes of transactions that are likely affected by the activities within
each process: Specify the transaction type as either routine, non-routine transaction
or accounting estimation:

● Cash Disbursement (Routine transaction)

Identify and evaluate at least TWO (2) Risks that may negatively impact the Business
Process:
● The lack of separation of duties that may result in fraud and misallocation of cash.
● Human error can also cause the insufficient balance in the petty cash fund.

Identify TWO (2) Key Controls Over/Related to each identified process risk
● Separation of duties between the personnel in charge of making orders and
payment. The personnel in charge of payment can be the production manager
● Recorded cash payment transactions are accurate (accuracy) - Calculations and
amounts are internally verified.

Potential Tests of Controls (Be Specific, identify one test (other than observation or
inquiry) for each identified control):

● Examine the documents used

● Examine indication of approval

34
Potential Implication on Planned Evidence (i.e., Substantive Testing): If the controls
are (are not) operating effectively, what is the effect on planned substantive tests?
Consider risks of misstatement of specific assertions and expectations about the
financial statements.
1. Identified controls are operating effectively:
If the controls are operating effectively and all the objective are assured, substantive test
could be reduced.

2. Identified controls are not operating effectively:

● Review of the vendors’ invoices, receipts
● Examine underlying documents for authenticity

35
 B. Careless Documentation

Business Process Analysis Template

(Careless Documentation)

Client Name: PT. BakpiaPia

Process: Processing and recording cash disbursement

Description and Objective(s) of Process:

The payment for goods and services represents a significant activity for all entities. This
activity directly reduces balances in liability accounts, particularly accounts payable. There
are various documents associated with the disbursement process that auditors should
examine. Hence, documents should be kept properly so that the documents will not be lost.

Critical Success Factors:

A well and proper system to keep all the documents/evidence.

Key Performance Indicators:

The usage of accounting system and documents such as checks, invoices.

Inputs:
Processing and recording cash disbursement documents that include check, cash
disbursement transaction file.

Key Business Activities:

The production manager must always keep track of each transaction and immediately record
transaction to the accounting system.

Outputs
All transactions are recorded and supported with document evidence.

36
Identify the classes of transactions that are likely affected by the activities within
each process: Specify the transaction type as either routine, non-routine transaction
or accounting estimation:

● Cash disbursement (Routine transaction)

Identify and evaluate at least TWO (2) Risks that may negatively impact the Business
Process:
● Improper system in keeping the physical documents, resulting in some documents
being lost due to careless documentation
● Transactions are not immediately recorded into the accounting system by the
product manager.

Identify TWO (2) Key Controls Over/Related to each identified process risk (use
format below):

● Information is obtained to make sure materials purchases and used are recorded in
the proper period (cutoff)
● Recorded cash payment transactions are accurate (accuracy) - Calculations and
amounts are internally verified

Potential Tests of Controls (Be Specific, identify one test (other than observation or
inquiry) for each identified control):
● The production manager must always keep track of each transaction and
immediately record transaction to the accounting system.

37
Potential Implication on Planned Evidence (i.e., Substantive Testing): If the controls
are (are not) operating effectively, what is the effect on planned substantive tests?
Consider risks of misstatement of specific assertions and expectations about the
financial statements.
1. Identified controls are operating effectively:
If the controls are operating effectively and all the objective are assured, substantive test
could be reduced.
2. Identified controls are not operating effectively:
● Review of the vendors’ invoices, receipts
● Examine underlying documents for authenticity

38
APPENDIX E: Control Risk Matrix

39
40
APPENDIX F: Audit Program

41
APPENDIX G: Acquisition and Payment Cycle of PT. BakpiaPia
Flowchart

42
APPENDIX H: Documents Used in BakpiaPia

Inventory Activity Report

Delivery Order Form

43
Vendor’s Invoice

44
References

Mankiw, N. G. Principles of Economics, 5th edition. South-Western Cengage Learning; 2011.

Arens, A. A., Eder, R. J., Beasley, M.S., Hogan, C.E. Auditing and Assurance Service, 16th
edition. Pearson Education Inc., Edinburgh Gate, Harlow; 2017.

45