Section:

Date:05-31-2021 Score

Finance and Accounting Operations Audit:

ABC Corporation is a newly registered Company. The company was blessed from being a sole proprietor to
corporation. However, the transition was not easy because setting up a corporation entails a lot of process to do.
Coming from an entrepreneur set up where everything was fast pace, the President find it hard to cope up so he
started to get people that will help him to manage the affairs of his Company.
To start with, he wanted to streamline the finance and accounting department. This is the current process of the
department:
The Company process the check vouchers without purchase orders. Since there was no purchasing department, all
requests go directly to the president for approval. However, if the requests amount to Php50,000 these can be
facilitated for procurement.
Petty Cash replenishments and liquidations were not religiously followed thus piling up for 3 to 6 months.
The president was puzzled for poor performance of the company considering they have a lot of purchases within the
three months period (January to March) only to find out that billing invoices were not timely recorded. Billing invoices
were recorded upon receipt of cash and at the same time the VAT component was not recognize.

Instruction:
You are hired as an operations auditor and the first task handed over to you is to audit the finance and accounting
department. Prepare the Control Objectives, Risk and Issues noted, and recommendation if any.
If you will prepare the ideal business process as part of the recommendation what would it be?
Accounts payable
1. On the part of the company process which they have a check vouchers without the purchase orders, the control
objectives are:

 To ensure that all payments are for valid and suitably approved creditor accounts for goods and services
actually received.
 To ensure that all payments are correct and accurately reflected in the accounting system.
 To prevent the possibility of supplier or staff malpractice
Risk and Issues noted:

 How does management ensure that only valid invoices are paid where the goods and services have been
correctly and fully received?
 Are all invoices authorized prior to payment and confirmed as being within the agreed budget?
 What mechanisms prevent the payment of inaccurately priced/calculated or duplicated invoices?
 What processes ensure that the values of paid accounts and outstanding invoice liabilities are accurately
and completely
  reflected in the accounting system?
 Is the organization adequately protected from the payment of invalid or fraudulent invoices?
 What would prevent staff from introducing false invoices into the system and these subsequently being
paid?
 Are all invoices identified, recorded, trailed and accounted for?
 How does management ensure that the goods and services being charged for have actually been fully
received?
 What prevents payment of invoices where the goods were returned or proved to be unsatisfactory
Recommendations:

 I suggest that the company would first have the proper purchasing order cycle before issuing a check
vouchers.
 Undergo an accurate process first is to ensure that the purchase requisition is approved by the management
before issuing a purchase order which is next to have the check vouchers.

Accounts payable
2. Petty Cash replenishments and liquidations were not religiously followed thus piling up for 3 to 6 months.
Control objectives:

 To ensure that all payments are correct and accurately reflected in the accounting system.
 To prevent the possibility of supplier or staff malpractice
 To ensure that there is a control within the replenishment and disbursement of petty cash fund.
Risk and Issues noted:

 What mechanisms prevent the payment of inaccurately priced/calculated or duplicated invoices?

 Is the organization adequately protected from the payment of invalid or fraudulent invoices?
 What would prevent staff from introducing false invoices into the system and these subsequently being
paid?
 Are all invoices identified, recorded, trailed and accounted for?
Recommendations:

 The company must follow the rules about handling the petty cash fund whether in its replenishment or
disbursement transaction.
 Accurate piling up or the replenishment and disbursement of the petty cash fund shall take into
consideration, meaning that it should be replenished as soon as the disbursement exceeds the level
assigned by the company or as needed.

Accounts payable
3. Considering they have a lot of purchases within the three months period (January to March) only to find out that
billing invoices were not timely recorded. Billing invoices were recorded upon receipt of cash and at the same time
the VAT component was not recognize.
Control Objectives:

 To ensure that all payments are correct and accurately reflected in the accounting system.
 To ensure that the prevailing sales tax or VAT regulations are correctly complied with
 To prevent the possibility of supplier or staff malpractice
Risk and Issues noted:

 How does management ensure that only valid invoices are paid where the goods and services have been
correctly and fully received?
 What mechanisms prevent the payment of inaccurately priced/calculated or duplicated invoices?
 Are all invoices authorized prior to payment and confirmed as being within the agreed budget?
 How does management ensure that the application and accounting treatment of VAT (or local sales tax) and
duty is correct and in accord with the prevailing legislation or requirements?
 What processes ensure that the values of paid accounts and outstanding invoice liabilities are accurately
and completely reflected in the accounting system?
 Is the organization adequately protected from the payment of invalid or fraudulent invoices?
 What would prevent staff from introducing false invoices into the system and these subsequently being
paid?
 Are all invoices identified, recorded, trailed and accounted for?

The president was puzzled for poor performance of the company considering they have a lot of purchases within the
three months period (January to March) only to find out that billing invoices were not timely recorded. Billing invoices
were recorded upon receipt of cash and at the same time the VAT component was not recognize.
Recommendation

 The company must monitor and record the billing invoices in a timely manner to ensure the accurate
payment of goods and services they received.
 Thoroughly check if the VAT component is correct in accordance with the law.
 They must monitor the volume of purchases in a monthly basis and ensure that it is properly recorded in the
accounting system.

If you will prepare the ideal business process as part of the recommendation what would it be?