J : Transport and Logistics : $ 2 million

B: Airport services : $ 100 million

F: Pharmacy- Aster / Life $ 3 million
A: Clothing $ 10 million
E : Hotels ( Le Meridien) : $ 50 million

How to Think?

Deficiency in Control

Cost : BUSINESS
- Loss
- Reputation
- Increased costs
- Loss of revenue
- Cash losses

Understand the system for each area: purchases, sales…

Internal control

1) Established by Management
2) Prevent and detect fraud and error
3) Completeness and accuracy of accounting records
4) Efficient running of the business
5) Safeguarding of assets
DEFICIENCY Control Recommendation
BUSINESS impact
1. Position : Director etc
-think from 2. Regularity of review: monthly/ daily /
..sequential numbered? regularly
…segregation of duty? 3. Review evidenced by signature
…authorization missing? 4. Sequence check
…junior clerk 5. Training for staff replacement
authorization? 6. Supervision by independent person
…sufficient number of
copies
7. Authorization
8. Discrepancies investigate

9. Select a sample …reperform/match

10.

Q 228

1) Authorized transfer

Controls

- Mention the control e.g segregation of duties, reconciliation,

authorization……
- Control objective : ALL ( completeness) and accuracy,

Q 232 Lily - inventory

Q 224 Raspberry Payroll

Deficiency & Recommendations

217 Pomeranian (sales)

Deficiency Recommendation

Credit limits not reviewed Limits set by sales director and reviewed
and amended as appropriate on a regular
Limit set too high or too low. losing basis by a responsible official
potential revenue.

GDNs sent weekly to finance Send GDN on frequent basis and

sequence check of the GDNs to ensure
Goods dispatched but being invoiced late. none are missing for processing.
revenue cut-off issues and understated
receivables.

No credit controller Alternative member of finance department

should be trained for credit control or
Lack of monitoring and chasing of aging recurit temporary credit controller
receivables, which could result in reduced
cash flow due to irrecoverable or late
payments.

Reconciliations only reviewed if Financial controller should review &

differences evidence RLCA reconciliations monthly

RLCA reconciliation may have errors or

manipulation

Capex authorisation limits too high
Possible misuse of funds or surplus asset
purchases can harm profits and cash
flow.
Lower authorisation limit for department
heads or create committee for approving
capital items.

PPE verification work not as Increase resources for physical

scheduled verification of all assets to be completed
every three years

Physical verification of non-current assets

register should be regular to prevent
misappropriation or obsolete assets

Warehouse manager supervising Inventory counts should be supervised by

counts independent party

Warehouse managers may hide

inefficiencies or discrepancies to avoid
criticism, leading to inaccurate inventory
records and potential fraud

Standard costs out of date Review standard costs to ensure

accuracy & Production director should
Outdated standard costs may result in review and evidence standard cost
misstated inventory and profits review, at least annually.

Exception report not reviewed Master file data changes should be

restricted to authorized personnel &
Purchasing department members can Exception report of master file data
potentially add new suppliers without changes should be reviewed and
detection, increasing risk of fraud unauthorized changes investigated

Purchase invoices not agreed to GRNs Agree purchase invoices to orders and
GRNs before authorization and logging
Ineffective invoice processing controls
may lead to payment for unreceived
goods

218 Castle Courier (payroll)

Deficiency Recommendation

Holiday requests not authorised Employees should receive written

confirmation for approved holiday
Unauthorized employee leave could
cause operational problems & Incorrect
holiday records may result in payments
for untaken leave.

Lack of segregation of duties Finance director should review and

authorize bank transfers.
Lack of segregation of duties increases
risk of fraud or error
Edit report not checked
Unchecked edit report may result in
incorrect payroll payments and
accounting errors.
Payroll supervisor or finance team should
review edit reports and resolve
discrepancies.

Temporary staff not processed by HR HR should process all staff appointments

to ensure correct procedures are
Incorrect payroll setup may cause late followed.
payment, incorrect deductions, and
incomplete records.

Only overtime > 5 hours authorised Overtime, including below five hours,
should be authorized and signed off
Unauthorized overtime claims could result before payroll processing.
in payment for hours not worked and
increased payroll costs.

Cash wages collected without ID Drivers collecting cash pay packets

should provide identification and sign for
Paying wages without proof of identity or their pay packets.
signature may lead to incorrect payments
or fraud resulting in a loss of cash.

No approved bonus parameters Board should establish approved bonus

parameters and senior official should
Lack of approved parameters for bonuses communicate bonus to payroll department
may result in excessive payouts or in writing.
favoritism, increasing payroll costs.

Driver’s breaks not monitored Use electronic tracking to monitor delivery

driver activity and ensure prescribed
Unauthorized longer breaks or failure to breaks are taken.
take required breaks may result in
payment for time not worked or risk of
fines.

220 Snowdown (internal control)

Deficiency Recommendation

IA staff shortages Senior management should consider

adding staff to IA department or
An Internal Audit (IA) department helps outsourcing the IA function.
senior management test controls and staff
shortages can reduce its effectiveness.

Capex budgets exceeded Management accounts should include

analysis of capital expenditure per
Capital expenditure purchase orders may department, with narrative for significant
be placed without budget approval, variances.
leading to overspend and reduced profits.

Physical verification of assets
Regular physical verification of
non-current asset register reduces risk of
misappropriation and helps identify
obsolete assets.
IA should review its site visit program and
potentially visit all sites over a shorter
period to ensure regular physical
verification of assets.

Amendment of standing data Password to amend standing data should

be regularly changed and only shared
Allowing all payroll members to amend with senior payroll members.
standing data may result in errors or
unauthorized changes, leading to
incorrect wage payment and increased
fraud risk.

Lack of segregation of duties

Senior payroll manager should not
Discrepancies in payroll records or bank process payroll changes and authorize
transfer listings may lead to incorrect payments. Finance director, rather than
payroll amendments or employee payroll department, should authorize bank
payments. Lack of segregation of duties
transfer listings.
allows senior payroll manager to
fraudulently increase or incorrectly amend
payment amounts and records.

Credit limits not reviewed Credit limits should be set by sales

director but reviewed and amended
Failing to regularly review credit limits regularly by responsible official.
may result in lost revenue or sales to poor
credit risks.

Invoices only chased after 90 days A credit controller, not client services
 managers, should chase outstanding
Client services managers prioritizing invoices over 30 days old.
customer relationships may lead to
increased irrecoverable balances and
reduced profits and cash flow.

221 Amberjack (sales)

Deficiency Recommendation

Customer credit limits Senior receivables ledger department

member, not clerks, should set credit
Receivables ledger clerks may set credit limits and responsible official should
limits too high or low, resulting in review them regularly.
irrecoverable debts or lost sales.

Customer master data not reviewed
Incorrectly setting up customers could
lead to lost goodwill and sales revenue.
Receivables ledger clerks should not be
able to access master data file for
customer additions/ amendments. Only
supervisors or higher should be able to
make changes.

Credit controller not replaced Finance department member should be

trained in credit control role and assigned
This could result in an increased risk of responsibility for reviewing aged
irrecoverable debts and lead to customers receivables and following up on overdue
not paying their outstanding balances on customers during secondment.
time, or at all, leading to reduced cash
flows. Lack of monitoring may increase
risk of irrecoverable debts and reduce
timely payment or payment at all,
impacting cash flows.

GDNs not sequentially numbered Number GDNs sequentially and check for
missing notes regularly.
Lack of sequential numbers on GDNs
makes it hard to identify missing ones,
which may cause a loss of revenue if
invoices not raised in a timely manner.

Insufficient copies of GDN GDN should have at least four parts, with
 one copy going to sales order
Sales order department needs GDNs to department.
monitor timely order fulfillment and avoid
revenue and customer goodwill loss.

Sales invoice processing Only sales clerks should raise invoices.

Consider hiring and training more
Increased risk of mistakes in sales permanent sales clerks to handle
invoices due to less experienced staff. invoicing as company grows.

Manual recording of discounts Update authorized sales prices during

special offers, review for errors and
Unauthorized sales discounts may be document review.
given without proper authorization.
Manual discount entry by clerks may
result in incorrect invoices and loss of
customer goodwill.

Customer statements not generated Amberjack Co should produce and send

monthly customer statements promptly.
Irregular statements increase risk of
errors and unresolved disputed invoices,
leading to cash flow issues.

Control account only reconciled Reconcile the receivables ledger control

annually
Annual reconciliation of receivables
ledger carries risk of undiscovered errors
and misstated receivables.
account monthly to identify and correct
errors. Review and document
reconciliation by a responsible official.

223 Camomile (cash)

Deficiency Recommendation

Petty cash differences Maintain petty cash log to record sundry

item purchases, including sum borrowed,
Lack of receipts or vouchers may indicate date, and employee.
misappropriation of cash or spending on
non-business items.

Access to tills Provide employees with unique log on


Lack of till tracking may allow for
misappropriation of cash and make it
difficult to identify responsible employees.
Tills reconciled in total
Lack of till tracking makes it difficult to
identify source of discrepancies and may
indicate need for additional training or
fraudulent transactions.
Lack of segregation of duties
Manager could remove cash and record
exception on daily sales list, creating
fraud risk.
Risk of incomplete sales sheets
Misplacement of sales sheets by
restaurant manager may result in
incomplete sales and cash receipt data
being recorded.
Security of cash
Daily banking may not prevent significant
onsite cash losses due to theft if safe key
access is not properly controlled.
Cashier duties
Lack of segregation of duties leads to
untimely error identification.
Credit card statements not reconciled
Risk of untimely identification of omitted
credit card cash receipts due to
bi-monthly bank reconciliation.
Infrequent bank reconciliations
Regular bank reconciliation is a control to
reduce fraud risk and identify errors. Lack
codes to use when accessing tills.
Reconcile tills individually and promptly
investigate any discrepancies.
Two individuals, such as an assistant
manager and restaurant manager, should
conduct the cashing up process with one
counting cash and the other recording it.
Number daily sales sheets sequentially
and send them to head office daily.
Regularly check for missing sheets and
investigate any gaps.
Replace key lock safe with one requiring
digital code and limit code access to
authorized personnel. Update code
regularly.
Split key finance roles among team
members, with bank reconciliations
ideally being handled by some other
responsible person.
Review bank reconciliation by responsible
official and document with signature.
Perform bank reconciliation monthly and
have financial controller review and
document with signature.
of regular reconciliation may fail to timely
identify fraud and errors.

Detail of payment list not reviewed Finance director should review entire
payments list before authorizing.
Risk of paying incorrect amounts or to
fictitious suppliers without reviewing
payment details and supporting
documentation. This causes loss for the
company.

224 Raspberry (Payroll)

Deficiency Recommendation

Production bonus set by supervisor Bonus should be determined by

responsible official based on written
Production supervisors may pay extra policy, and potentially approved by board
bonuses to friends or family, increasing of directors if significant.
payroll costs.

No calculation checks Senior payroll team member should

recalculate and compare gross to net pay
Lack of payroll error checks may result in for sample employees, with calculations
incorrect wage calculations and additional signed before payment.
cost or loss of employee goodwill.

No monitoring of student loan Payroll department should maintain

deductions schedule of payments made to third
parties, including cumulative balance
Continued payments until employee owed.
notification may go unnoticed by
employees.

Holiday requests not always Employees must complete and have line
authorised manager authorize holiday request form
before taking holiday.
Unauthorized leave may lead to
insufficient number of employees and
production difficulties at power plant.

Lack of segregation of duties Senior payroll manager should not be

able to both process payroll changes and
Lack of segregation of duties as payroll authorize payments.
team processes and senior manager
authorizes payments. Senior manager
may fraudulently increase pay for certain
employees, process payment, and alter
records.

Distribution of pay packets Payroll department should distribute pay

packets to employees upon presentation
Supervisor may adjust pay packets for of clock card and identification.
personal benefit, lacking independence
for wage payment.

Variances not analysed Include analysis of wages and salaries,

broken down by department, in monthly
Unexpected increases in employee management accounts and compare to
numbers or wage payouts may impact budget.
profitability if not monitored by board.

226 Equestrian (Internal Controls)

Deficiency Recommendation

Physical verification of assets Allocate additional resources to physically

verify all assets in register and write off
Regular physical asset verification any that cannot be located.
reduces risk of misappropriation or
misplacement.

Staff shortages in the IA department Senior management should hire more IA

department employees or consider
Internal audit department is important outsourcing the internal audit function.
control to test effectiveness of company
controls. Staff shortages or lack of
experience reduce effectiveness.

Lack of segregation of duties HR director should review workload to

assess re-prioritization and prevent
Lack of segregation of duties as payroll from setting up new joiners.
employees can set up new payroll
accounts and process pay, increasing risk
of fictitious/duplicate employee setup.

Lack of approval for wage increase HR department proposes pay increases

 and board of directors formally agrees.
Board, not just HR director, should make Written notification sent to payroll
decisions to increase payroll expenses. supervisor who enters revised pay rate
and triggers exception.

Access to high value inventory
Many people knowing codes increases
risk of fraud through theft and
misstatement of inventory at nine sites.
Change access codes for all sites,
making each site's code unique and
known to few senior warehouse
employees. Update codes regularly.

Incomplete perpetual counts Review perpetual inventory count

program for omissions and include
Inventory must be counted at least once a missed lines in remaining counts.
year to rely on records for decision
making and financial statements, with
high value/turnover items counted more
frequently. Outstanding counts may result
in uncounted goods and incorrect
records.

Bank reconciliations not always Financial controller should review bank

reviewed reconciliations monthly and provide
evidence of review by signature.
Compensating errors in bank
reconciliations may hide significant errors.

Invoices not paid on time Review policy of making payment after 75

Missing early settlement discounts and
failing to pay according to supplier terms
risks loss of supplier goodwill and refusal
to supply goods.
days. Consider earlier payment if
settlement discounts sufficient, otherwise
pay according to supplier terms.

227 Caterpillar (cash)

Deficiency Recommendation

Incomplete IA checks Caterpillar's IA department should have a

rolling program of visits to all 45 stores,
Franchise stores increase likelihood of with a bias towards large and high risk
control errors and risk of fraud through stores, to ensure all are visited cyclically.
theft in cash business.
No individual log on codes for tills Employees with criminal record checks
can use tills for customer payments.
Allowing all employees access to till Employees should have specific tills and
points increases risk of fraud and error. It logon codes for payment transactions.
would be difficult to identify responsible
employees in event of cash
discrepancies.

Employees can serve friends/family Caterpillar Co should prohibit employees

from serving friends and family at the
Employees may commit fraud by not checkout. They should request a
registering transactions or giving manager or supervisor to do so instead.
unauthorized discounts.

Junior sales clerk sent to bank Caterpillar's head office should specify
float amount and denomination
There is a risk of cash being mismanaged composition for tills. Store managers
or stolen when not properly recorded, and should ensure this policy is followed when
there is a potential for collusion between assigning float in the morning.
junior clerks and till operators.

Lack of segregation of duties Key roles should be split between multiple

individuals, with bank reconciliations
Lack of segregation of duties increases ideally done by another finance team
risk of errors and fraud, and hinders member.
timely identification of errors.

Bank reconciliations not always Financial controller should review bank

reviewed reconciliations monthly, even if there are
no exceptions, and provide signature as
Errors in bank reconciliation may go evidence of review.
undetected if they are compensated by
other errors, leading to inaccurate
reconciliation.

228 Heraklion (sales)

Deficiency Recommendation

Creditworthiness assessed by sales New customers should complete a credit

staff application, which should be checked
through a credit agency with a credit limit
Sales staff with targets may suggest set. Sales director should authorize this,
creditworthy customers to meet targets, and credit controller should enter the limit
leading to sales to poor credit risks. into the system.

Sales staff have discretion to give Discounts should be authorized in

discounts advance by responsible official (e.g. sales
director) or, if not practical, by supervisor
Unrealistic discounts given to meet sales of sales staff.
targets could result in lost revenue, and
unauthorised discounts may be allowed
due to lack of review.

Sales staff make changes to master
data
file
Incorrect amendments could result in lost
sales revenue or overcharging customers,
and giving sales staff access to changing
master file data increases risk of fraud.
Sales staff should not be able to access
the master data file to make
amendments. Only supervisors and
higher should be able to make changes to
master file data.

Inventory availability not checked Inventory system should be checked

before finalizing order to accurately inform
Risk of unfulfilled orders and customer customers about availability of goods.
dissatisfaction due to lack of
communication about unavailable goods,
potentially damaging company reputation.

Insufficient copies of order forms Order form should be amended to have at

Lack of centralized order tracking in sales
department could result in lost revenue
and customer goodwill due to untimely
fulfillment.
least four parts, with third part sent to
warehouse department and fourth part
sent to finance department.

Order forms not sequentially Sales orders should be sequentially

numbered numbered, and regular sequence checks
should be done to identify missing orders.
Lack of sequential numbering makes it
difficult to identify missing orders and
track timely dispatch, potentially leading
to lost customer goodwill.

Orders not sent to warehouse The third part of the sales order should be
sent directly to the warehouse
Incorrect or insufficient salesperson department.
details could lead to incorrect orders, late
orders, or no orders, resulting in lost
customer goodwill and revenue.
GDN not sent to finance department
Lack of finance department copy of GDN
may prevent timely invoicing, leading to
lost revenue due to uninvoiceable goods.
Upon dispatch of goods, a four-part GDN
should be completed, with copies to the
customer, warehouse department, sales
department, and finance department.

Unpaid invoices only chased after A credit controller should be appointed to

90 days chase outstanding sales invoices over 30
days old, rather than salespeople.
Salespeople with targets may prioritize
generating sales orders over payment
collection, leading to increased
irrecoverable debts and reduced profit
and cash flow.

231 Fox Industries (Purchase & Payments)

Deficiency Recommendation

No approves supplier list An approved supplier list should consider

price, quality, and delivery speed.
Consideration of only delivery speed may
lead to higher price or lower quality goods
orders, reducing profit.

Orders not sequentially numbered Purchase orders should be sequentially

numbered, and regular sequence checks
Lack of order fulfillment tracking could of unfulfilled orders should be performed.
lead to stock outs, disrupting operations
and causing customer dissatisfaction.

Authorisation of purchase orders All purchase orders should be authorized

by a responsible official, with varying
Unnecessary purchases and increased levels of authorisation for signatories.
fraud risk (e.g. personal goods orders up
to $5,000) could result in financial loss for
the company.

Lack of information processing Purchase ledger clerk should input

controls
Lack of information processing controls
could result in incorrect or missed
invoices, leading to incorrect or missed
invoices in batches and use information
processing controls (e.g. batch totals) to
ensure accuracy and completeness.
supplier payments and lost supplier
goodwill.
Manual posting to general ledger
Manual posting of amounts to general
ledger increases risk of errors, potentially
leading to under- or overstated payables
balance in financial statements.
Bank account reconciliations
Periodic reconciliation increases risk of
undetected errors and employee fraud,
potentially leading to financial loss for the
company.
Payments to suppliers delayed
Maximizing bank balance by delaying
payment may result in missed early
settlement discounts, lost supplier
goodwill, and refused goods supply.
Detail of payments list not reviewed
Lack of payment list and documentation
review increases risk of incorrect supplier
payment or payments to fictitious
suppliers.
232 Lily Window Glass (Inventory)
Deficiency
Warehouse manager supervises the
count
Inventory manager may lack
independence in review due to overall
responsibility, potentially leading to hiding
of inefficiencies or issues.
No division of responsibilities
Regular automatic updates from purchase
ledger to general ledger should be
implemented, and a responsible official
should confirm accuracy through control
account reconciliations.
Bank accounts should be regularly
reconciled, at least monthly, to identify
unusual or missing items. Reconciliations
should be reviewed by a responsible
official and evidenced.
Cash flow forecasting and budgeting
should be used to maximize bank
balances, and payment delays should be
reviewed to maintain supplier goodwill.
The finance director should review the
entire payments list before authorizing.
Recommendation
An alternative supervisor (e.g. internal
audit manager) who is not normally
involved with inventory should supervise
the count, with warehouse manager and
team excluded.
Each team should be told to count

Lack of clear division of responsibilities
within team could lead to both members
counting together rather than checking
each other, resulting in undetected errors.
assigned inventory separately, with one
member counting and the other checking
for accuracy.

IA teams performing counts Internal audit counters should sample

Internal audit should review controls and
perform sample test counts to confirm
accurate and effective count, otherwise
issues may go undetected.
check counting by ten teams to provide
additional control over count accuracy
and completeness.

Counted areas not flagged All aisles should be flagged as completed

after inventory count, and internal audit or
Risk of under- or overstated inventory count supervisor should check that all 20
quantities due to double counting or aisles were flagged at end of count.
missed areas in warehouse.

Additional sheets not sequentially Teams should be given blank sequentially

Numbered
Lack of supervision may result in
incomplete inventory sheets and
underestimated inventory.
numbered sheets for entering off-sheet
inventory counts, with unused sheets
returned at end of count. Supervisor
should check sequence of all sheets at
end of count.

Inventory sheets not signed Inventory sheets should be signed by

relevant team upon aisle completion, and
Lack of counting team identification supervisor should check that they were
makes it difficult to follow up on any aisle signed upon return.
counting issues.

Damaged goods not separated Senior finance team member should

inspect damaged goods to assess write
Lack of visibility of damaged goods may down or allowance level.
result in inappropriate inventory value for
write down decision by finance team.

Inventory movements during the count To ensure accurate inventory count, raw
materials needed for December 31 should
Warehouse movements may result in be estimated and set aside as
missed or double counted goods, leading work-in-progress rather than included as
to under- or overstated inventory records. raw materials.

Competence of warehouse manager to Specialist should be used to assess

assess WIP work-in-progress and raw material
quantities.
Lack of warehouse manager's experience
in assessing work-in-progress and
potential quantity estimation mistakes by
warehouse manager may lead to
materially misstated inventory.

Third party inventory included in count Third-party inventories should be moved

to one location, clearly marked, and
Risk of incorrect removal of goods from excluded from counting process.
inventory count sheets, leading to
overstated inventory.

233 Pear Internationals (Internal Controls)

Deficiency Recommendation

Website and inventory system not Website should include interface to

integrated
Accepting customer orders for
unavailable goods may result in lost sales
and customer goodwill.
inventory system and only process orders
with adequate inventory. Out of stock
items should appear on website with
approximate waiting time.

Customer signatures not obtained To prevent false claims, Pear should

Customers may falsely claim non-receipt
of goods, resulting in potential loss for
company if goods are resent or inability to
prove delivery.
require couriers to obtain customer
signatures as proof of delivery and not
pay for missing signature deliveries.

Unfulfilled sales orders To improve delivery times, Pear should

review the delivery routes and schedules,
Inconsistent delivery times may lead to and consider using multiple couriers to
loss of customer goodwill and damage ensure timely delivery.
Pear's reputation as a reliable supplier.

Sales discounts set by sales team To prevent excessive discounts, sales

team should only be authorized to grant
Sales team setting high discounts may discounts up to a set limit and higher
lead to loss of revenue and profit for discounts should be approved by sales
company. area managers or sales director.

Supplier statement reconciliations Supplier statement reconciliations should

be reviewed monthly by a responsible
Errors in recording purchases and official.
payables may cause late or incorrect
payments, leading to loss of supplier
goodwill.

Changes to master file Payables ledger supervisors should

control master file data changes through
Accidental amendments or fictitious passwords.
suppliers increase fraud and loss risk.

Authorisation of purchase requisitions Establish capital expenditure

authorization levels. Production
Production supervisors are not authorized supervisors can only authorize low value
to approve capital expenditure. items, board must authorize high value
Uncontrolled capital expenditure could items.
lead to unnecessary costs.

Direct Controls & Test Of Controls

218 Castle Courier (Payroll)

Control Test Of Control

Sequence checks Carry out a sequence check to identify if

there are any gaps in the sequence.
All staff members are issued with a check they have evidenced their review
sequentially numbered key card. payroll by way of signature.
records are complete, that employees are
paid for hours worked and that all hours
are recorded.

HR review of clocking in process Review the log for any gaps in the review
process and discuss these findings with
Prevent staff members fraudulently HR.
clocking-in for other employees and
hence employees will only be paid for
actual hours worked ensuring occurrence
of payroll.

Payroll calculations reperformed For a sample of months review gross to

net pay calculations for evidence of
Automated payroll processing reduces accuracy and payroll supervisor's
errors and prevents over or signature. Investigate and resolve any
underpayment of salaries. anomalies.

Password updated monthly Test that the payroll system blocks access
with an outdated password.
Reduces fraud risk by preventing
unauthorized access to payroll data and
changes to standing data.

Control account reconciliations Review control account reconciliations for

performed errors, investigate their cause, and
Ensure payroll expenses and tax liability prevent future occurrences.
are accurately reflected in financial
statements.

Tax liability calculation reviewed Review sample of monthly employment

tax liability calculations for accuracy and
Correct tax payments and segregation of financial controller's approval.
duties reduce risk of error in payroll
liability calculation.

219 Swift

Control Test Of Control

Segregation of duties Review payroll and HR job descriptions to

confirm responsibilities for setting up new
Segregation of HR and payroll duties employees.
reduces risk of fictitious employee
creation and overstated payroll costs.

Unique employee number Test that payroll system blocks new hires
without unique employee numbers.
Requiring employee number from new
hire form prevents payroll from creating
fictitious employees and incurring
unnecessary costs.

Review of exception report Review sample of monthly exception

reports for evidence of payroll manager
Regularly checking standing data ensures review and follow-up of unexpected
accuracy and timely identification and changes.
investigation of unauthorized changes.

Recalculation of gross to net pay Review sampled monthly payslips for

payroll supervisor's signature as evidence
Automated payroll processing reduces of calculation review.
errors and prevents over or
underpayment of wages.

Authorisation of purchase orders Review sample of purchase orders for

authorization within limits and matching
Ensuring purchases are necessary and signature on approved signatories list.
related to genuine business expenses.

Goods received checked Observe warehouse during interim audit

to understand checks on received goods.
Ensuring that recorded liabilities are for
high-quality goods and goods actually
ordered.

Control totals on purchase invoices Review sample of control total sheets for
use of control totals and clerk's signature.
Using control totals ensures
completeness and accuracy of purchase
invoice input to prevent misstated
payables.

Supplier statement reconciliations Review reconciliation file to ensure

regular performance and review by
Regular reconciliation ensures timely responsible official.
identification and correction of errors in
payables recording, ensuring accuracy.

Authorisation of bank transfer list Review payments list for finance

director's review and inquire about
Ensuring correct supplier payments and supporting documentation requests
avoiding payment to fictitious suppliers during review.
prevents misstatement of payables.

220 Snowdown

Control Test Of Control

Capex classification checks Review sample of capital expenditure
purchase orders for classification notes
Finance department guidelines and and compare to finance director's
sample checks by finance director reduce guidelines to assess accuracy.
risk of incorrect assessment and
misstated profits, assets, and
depreciation charges.

Segregation of duties Review payroll and HR job descriptions to

confirm responsibilities for setting up new
Segregation of HR and payroll duties employees.
reduces risk of fictitious employee
creation and overstated payroll costs.

Pre-printed new joiner forms Review sample of new employee forms

Requiring employee forms and numbers
prevents payroll from creating fictitious
employees and incurring unnecessary
costs.
for completeness and unique employee
number allocation before payroll system
entry.

Bank reconciliations Confirm monthly bank reconciliation file

Monthly bank reconciliation review and
investigation reduce fraud and error risk,
ensuring accurate bank and cash
balance.
completeness and review sample for
financial controller investigation and
review.

224 Raspberry

Control Test Of Control

Segregation of duties Review payroll and HR job descriptions to

confirm responsibilities for setting up new
Segregation of HR and payroll duties employees.
reduces risk of fictitious employee
creation and overstated payroll costs.

Pre-printed new joiner forms Review sample of new employee forms

for completeness and verification of
Pre-printed forms ensure relevant accuracy before payroll system entry.
employee information is obtained before
set up, reducing risk of incorrect wage
and tax payments and misstated payroll
costs.

Data processing checks Observe clerk inputting and senior clerk

checking bonus payments during
Automated bonus calculation reduces risk processing.
of input errors and misstated payroll
costs, ensuring accurate bonus payment.

Clock card process monitored Observe use of clock cards, confirm

security team supervision and follow-up of
Tracking employee attendance ensures discrepancies.
accurate payment for work done and
reduces risk of overstated payroll costs.

Automatic transfer of data
Automatic transfer of hours worked to
payroll system reduces input errors and
ensures accurate payroll costs.
Use test data to input dummy clock card
information and verify update in payroll
system.

Exception reports Review sample of quarterly exception

reports for payroll director's review and
Regular checking of standing data follow-up of unexpected changes.
ensures timely identification and
resolution of unauthorized changes,
reducing risk of misstated payroll costs.

Security process over cash
Adequate cash safeguards reduce risk of
misappropriation and misstated cash
balances when paying large number of
employees.
Inquire about cash delivery process for
pay packets and review sample of
security company invoices to Raspberry
Co for cash delivery.

Segregation of duties Observe pay packet preparation with

involvement of two staff and accuracy
Segregation of duties prevents fraud and checks.
errors, ensuring accurate payroll costs.

226 Equestrian

Control Test Of Control

System changes monitored by IA Review internal audit documentation of

 receivables system changeover and
Backups and disaster recovery plans checks for appropriate completion.
reduce risk of errors, data loss, and
incorrect processing leading to misstated
receivables.

Credit checks and credit limits set and Review sample of customer files for credit
reviewed regularly check and ensure check is current.

Regular credit limit review and

authorization form requirement for
changes reduce risk of irrecoverable
debts and overstated receivables.

Use of approved price list Confirm director approval and recent

review of price list, and compare system
Quarterly price list updates ensure prices to approved list.
accurate invoicing and accurate revenue
recording.

Authorisation of sales discounts Test that the system rejects unauthorized

sales discount invoices with Equestrian
Regular customer account review Co's permission.
reduces risk of fraud and misstated
revenue.

Segregation of duties Observe payment process from cashier's

office to ensure segregation of duties.
Segregation of duties in cash handling
and ledger updating prevents fraud and
error, reducing risk of misstated payables
and cash balances.

Invoices marked as paid Ensure paid invoices are kept separate

from unpaid and review for "Paid" stamp.
Duplicate invoice prevention controls
reduce unnecessary cash outflow and
understated payables.

227 Caterpillar (cash)

Control Test Of Control

Daily till reconciliations Review sample of store daily

 reconciliation files to confirm daily end of
Daily cashing up controls cash and day till reconciliation.
reduces fraud risk through theft, ensuring
accurate cash balance.

Cash collected by security company
Safe cash transfer and safeguarding
minimize theft risk and ensure accurate
cash balance.
Inquire about cash transfer process and
review sample of collection company
invoices to confirm daily charges to
Centipede Co.

Data transfer to head office Compare daily store sales readings to

sales and cash receipt records in general
Prompt and accurate record updates ledger, review record update timeliness.
ensure completeness and accuracy of
sales and cash records.

Checks on amounts banked Confirm cash and credit card receipt

reconciliation process with responsible
Double cash receipt transfer process clerk, review their daily reconciliations.
ensures completeness.

233 Pear International

Control Test Of Control

Validation checks Test that the system rejects incorrect

sales orders by inputting one with various
Accurate order processing and delivery incorrect details.
controls reduce risk of incorrect orders
and missing card payments, ensuring
accurate sales.

Credit checks and credit limits Inspect customer files for credit check
and credit limit.
Effective credit control reduces risk of
irrecoverable debts and overstated
receivables.

Invoices raised from GDN Agree invoices with GDN and verify
matching to ensure control.
Inspect customer files to prevent incorrect
invoicing and misstated sales revenue.
Regular customer statements and Inspect monthly statements and evidence
follow of follow up of overdue debts for a sample
up of overdue debts of customers.

Follow up overdue debts to reduce risk of

irrecoverable debts and potential
overstatement of receivables.

Inventory levels checked Observe weekly stock check process in

factory locations.
Ensure only necessary goods and
services are procured to reduce risk of
loss and overstatement of inventory.

Requisitions authorised Inspect requisitions for evidence of

authorisation.
Ensure only necessary goods and
services are procured to reduce risk of
loss and overstatement of inventory.

Approved supplier list Agree purchase orders with approved

supplier list and observe system blocking
Inspect supplies to prevent customer unapproved orders.
complaints and returns, which could affect
inventory valuation.

Control Deficiency, Control Recommendation & Test Of Control

222 Freesia

Control Deficiency Control Test Of Control

Recommendation

Credit limits Credit limits should be set Review authorisation of

and reviewed by credit limits for new
Sales ledger clerk limits responsible sales officials. customers and inquire
may lead to irrecoverable about credit limit setters.
debts or loss of sales.

Orders numbers Sales orders should be Re-perform control by

sequentially numbered and checking sales order
Non-sequential order regularly checked for sequence and discussing
numbers make it difficult to missing orders. gaps with staff.
identify missing orders and
monitor timely dispatch,
which could lead to loss of
customer goodwill.
Segregation of duties
Lack of segregation of
duties increases risk of
errors and fraud.
Insufficient copies of
GRN
Not sending copy of orders
to purchasing department
could lead to unfulfilled
orders, stock-outs, and
loss of sales.
Controls over inputting
of
invoices
Document count controls
confirm completeness of
input but do not verify
accuracy or validity.
Out of date standard
costs
If standard costs have not
been reviewed recently,
there is risk of inventory
being under or overvalued
and profits being
misstated.
Overtime not authorised
Production clerk collates
employee information for
payroll but it is not
Split key roles or have Review completed bank
bank reconciliation done by reconciliations and ID log
another finance team to assess segregation of
member to improve duties.
segregation of duties.
GRN should be in three Review copy GRNs in
parts with copies sent to purchase ordering
ordering, warehouse, and department and verify
finance departments. matching to orders.
Purchase ledger clerk Audit team should use test
should input invoices in data procedures to assess
batches and use control use of batch control totals
totals and sequence and sequence checks.
checks to ensure
completeness and
accuracy.
Review all standard costs Obtain standard costs and
by senior production check for review by
manager to ensure they production director.
closely approximate actual
costs.
Overtime should be Review overtime report for
authorised in writing before evidence of authorisation
being processed by before payment.
payroll.
authorised; production
director only informed of
overtime quarterly.

Bank transfer Finance director should Obtain sample of payment

authorisation
Erroneous or fraudulent
payments may be made if
employees are omitted or
fictitious ones added to
payment listing.
sample check HR staff
records and payment list to
confirm payments are
complete and made to
bona fide employees.
lists and review for finance
director signature to
confirm control is operating
correctly.

225 Comet Publishing

Control Deficiency Control Test Of Control

Recommendation

No inter-branch transfers Establish inter-branch During interim audit, visit

transfer system with stores and discuss process
Centralised telephone inventory forms for store for ordering inventory,
orders reduce risk of lost transfers. including inter-branch
sales and allow transfer of orders.
slow-moving goods
between stores to
maximise sales.

Authorisation of orders All purchase orders should Select sample of purchase

Clerk can order up to
$1,000 in personal goods,
increasing risk of
non-business purchases
and fraud.
be authorised by
responsible official with
established signatories and
varying authorisation
levels.
orders and review for
evidence of authorisation,
matching to approved
signatories list.

GRNs not processed Accounts department Inquire about frequency of

regularly should receive copy of GRN receipt to assess
GRNs regularly and promptness.
Lack of GRN matching perform sequence check to
could cause delays in ensure none are missing.
supplier payments,
understated liabilities, and
missed prompt payment
discounts.
Insufficient parts to GRN GRN should be in three Review copy GRNs held
parts with copy sent to by purchase ordering clerk
Not sending copy of orders purchase order clerk for and verify matching to
to ordering department matching and order orders and completion.
could lead to unfulfilled completion.
orders, stock-outs, and
loss of sales.

Lack of segregation of Purchase ordering and Observe staff member

duties processing supplier processing purchase
invoices should be done by invoices to confirm it is not
Lack of segregation of separate staff. the purchase ordering
duties increases risk of clerk.
fraud and non-business
purchases.

Detail of payments list Finance director should Review payment list for
not review entire payment list evidence of review by
reviewed before authorizing. finance director and inquire
about supporting
Not reviewing payment list documentation review.
and supporting
documentation increases
risk of incorrect supplier
payments or payments to
fictitious suppliers.

Supplier statement Supplier statement Review file of

reconciliations reconciliations should be reconciliations to confirm
performed monthly and they are being performed
Lack of supplier statement reviewed by responsible regularly and reviewed by
reconciliations may result official. responsible official.
in errors in recording
purchases and payables.

229 Bronze

Control Deficiency Control Test Of Control

Recommendation

Clock in/out process not Attendance process should Observe attendance

Supervised be supervised to prevent process and ask
 fraud. supervisor about random
Employee attendance checks.
fraud leads to higher
payroll costs.

Employee breaks not Set break times and Review break schedule
monitored supervision can prevent and monitor break times
excessive breaks. for supervisor presence.
Excessive breaks lead to
lower productivity and
higher payroll.

Temporary staff Hiring should be handled Inspect HR manual to

appointed by HR department. confirm HR department
by factory supervisors handles hiring.

Ineffective hiring
procedures may lead to
unpaid or improperly paid
employees.

Overtime authorised Overtime should be Verify overtime

after authorized and authorization before payroll
payment made documented before payroll processing.
processes it.
Delayed payroll review can
lead to incorrect payment
and higher costs.

Production supervisors Bonuses should be Check bonus

determine bonuses
Lower-level supervisors
paying bonuses can
increase costs.
determined by senior staff communication to payroll
and communicated to from senior official.
payroll.

No input checks on Confirm bonus amounts Observe payroll clerk and

bonuses with written confirmation to confirm bonuses with
prevent errors. written confirmation.
Input errors or fraud could
lead to incorrect bonus
payments and increased
payroll costs.

Lack of segregation of Payroll manager should Inspect payroll bank

duties not process and authorize transfer for authorization
 changes and payments. signature from finance
Lack of segregation of Authorize bank transfer director or other suitable
duties in payroll process. with finance director authority.
instead.

No identity checks on Pay cash wages only with Observe wage collection
cash employee's clock card and process to ensure
payments ID to confirm identity. employees present clock
card and ID.
Identity checks needed to
prevent incorrect payment
to employees and increase
in payroll costs.

230 Trombone

Control Deficiency Control Test Of Control

Recommendation

Payroll calculations not Senior payroll member Review sample gross to

checked should recalculate and net pay calculations for
compare sample employee approval signature.
Lack of checks could result pay to system output
in incorrect wage
calculation and cost or loss
of employee goodwill.

Changes to standing Prevent payroll clerks from Test system's rejection of

data
Prevent payroll clerks from
accessing standing data to
avoid mistakes and
unauthorized changes.
accessing standing data
and have annual wage
increase done by senior
payroll member, checked
for errors by responsible
official.
payroll clerk's attempt to
change standing data.
Review log of standing
data amendments for
senior payroll member
changes.

Authorisation of Overtime should be Review sample of

overtime authorized by department employee overtime sheets
head and documented on for department head
Risk of employees claiming employee's weekly signature.
overtime they did not work, overtime sheet.
leading to increased
payroll costs.
No checks on time off
taken
Unauthorized leave could
result in loss for company.
Review of overtime
Delayed department head
report could result in
incorrect overtime
assumption.
Department head cover
for
authorisation
Late authorization of
overtime sheets will cause
delay in payment and
employee dissatisfaction.
Detail of payments list
not
checked
Incorrect payment listing
could include omitted or
fictitious employees.
Remind payroll clerks of
overtime processing
procedures and have them
sign overtime sheets to
confirm agreement with
relevant overtime report.
Department heads should
confirm accuracy of
overtime report and payroll
should follow up on
non-replies and not make
payments until agreed.
Remind department heads
of annual leave procedures
and coverage
arrangements.
Finance director should
check payroll records and
payment list for
completeness and
authenticity on a sample
basis when authorizing
payments.
Confirm payroll clerk's
check of overtime worked
report with sample of
overtime sheets with time
taken off.
Confirm department head
responses to sample of
overtime reports by
reviewing responses.
Discuss payroll clerk
overtime authorization
process, especially during
annual leave, and compare
to correct process to
identify control exceptions.
Review sample of payment
list for finance director
signature as evidence of
correct control.