Direct control
Sequence checks
All staff members are issued with sequential a key
card and checks on the sequence and the data
recorded are done by HR supervisor.
This ensures that payroll records are completed,
the employees are paid for the hours worked and
that all hours are calculated.
HR review of clocking in process
The clocking-in process is monitored by a camera
on entry to distribution center and this video
footage is reviewed by HR every week.
This aids in prevention of employees fraudulently
clocking-in for other employees ensuring
employees are only paid for hours worked
ensuring occurrence of payroll.
Control account reconciliations performed
Each month the finance director performs payroll
control account reconciliation and investigates
differences.
This ensures that payroll expense and
employment tax liability is not misstated in the
year end statement.
Segregation of duties
ABC has a separate human resources dept, which
is setting up all new employees.
Having a segregation of roles b/w hr and payroll
dept reduces the risk of fictitious employees
being set up and also being paid which would
result in overstatement of payroll costs.
Recalculation of gross to net pay
The payroll supervisor selects a sample of
payslips and recalculations, compares the results
to the output from payroll system and
investigates any discrepancies.
This reduces the risk that the automated system
Test of control
For a sample of key cards and data recorded in
the clocking-in system, carry out a sequential
check to identify any gaps in the sequence.
Review the details of checks on sequential key
cards and data recorded done by HR supervisor to
identify any sequential gaps. Also check if their
review is evidenced by way of signature.
For a sample of weeks, review the log of
recordings to identify who reviewed that week’s
recording and to ensure that a member of HR has
reviewed it.
Review the log to identify any gaps in the review
of HR and discuss the findings with HR.
For a sample of months, review control account
reconciliation and make enquiries of the finance
director of any errors on control account. Discuss
how they arose and what actions have been
taken to ensure that they do not arise again.
Reperform control account reconciliation for a
sample of months and compare results with
those prepared by finance director. Discuss any
discrepancies with the finance director.
Review the job description of payroll and HR to
confirm split of responsibilities with regards to
setting up new joiners.
Discuss with members of the payroll dept the
process for setting up new joiners and agree new
joiners to documentation initiated by HR.
Review the monthly payslips sampled by the
payroll supervisor for their signature for evidence
the review of calculations has been undertaken.
For a sample of monthly payrolls reperform the
gross to net pay calculation and compare to the
generates errors during the payroll processing.
Any errors would be identified on a timely basis
to prevent wages being over or under paid
Authorization of purchase orders
Purchase orders up to 5000 are authorized by
purchasing manager and above 5000 by the
purchasing director.
This ensures that goods are only purchased which
are required by Swift Co and relate to genuine
business expenses (occurrence of purchases)
Segregation of duties
Having a segregation of roles b/w hr and payroll
dept reduces risk of fictitious employees being
set up and paid. This ensures occurrence of
payroll costs which will lead to overstatement.
Exception reports
Exceptions reports are produced and reviewed by
payroll director on a quarterly basis.
This ensures that any unauthorized amendments
to standing data are identified and resolved on a
timely basis.
This reduces the risk of over or understatement
of payroll costs.
Credit checks and credit limits set and reviewed
regularly
All new customers are required to undergo a full
credit check and credit limits are set with
appropriate authorization by sales director.
Credit limits are reviewed on a regular basis and
an authorized form is required to make any
changes to the limit. This means sales are only
made to customers that are likely to pay in full
and on time reducing the risk of irrecoverable
debts and overstatement of receivables.
Authorization of sales discounts
Discounts must be requested by a sales manager
and authorized by the sales director.
This reduces the risk of fraud which will result in
misstatement of revenue.
payroll system, discuss any discrepancies with the
payroll supervisor.
Select a sample of purchase orders and review for
evidence of authorization in accordance with
authorization limits. Agree this to he appropriate
signature o the approved signatories list.
Review the JD of payroll and HR to confirm spit of
responsibilities regarding setting up of new
joiners.
Discuss the process of setting up new joiners with
members of payroll dept and confirm if its
initiated by HR.
Select a sample of quarterly exception reports
and review and follow up of any unexpected
changes by payroll director.
Inspect a sample of customer files to ensure
credit check has been obtained and review the
date it was performed to ensure it is up to date.
Inspect the customer’s account within the system
to ensure credit limits have been put in place and
inspect the email authorization by SD to confirm
the correct limit has been entered into the
system.
Inspect evidence of credit limit review performed
by the sales managers during the year.
With ABC’s permission, attempt to process an
invoice with a sales discount that has not been
authorized by the sales director. The system
should reject the invoice.
Inspect a sample or sales orders with discounts
given for evidence of sales director’s signature

Segregation of duties
Payments are made by the cashier’s office and
recorded by the purchase ledger team.
This segregation prevents fraud and error as one
person is not responsible for the physical cash
and updating the ledger which would enable
someone to conceal the fraud.
This reduces the risk of misstatement of payables
and cash balances.
authorizing the discount and confirm the discount
given is within approved range.
Observe the process of payments from the
cashier's office to ensure segregation of duties is
in place. inspect the accounts team organization
chart to ensure appropriate segregation of duties
between the cashier’s office and purchase ledger
team

Control deficiency Control Recommendation Test of Control

Credit Limit
Customers credit limit is set by
sales clerk.
Sales clerk are not sufficiently
senior to be setting credit limits.
It could lead to credit limits
being too high, resulting in
irrecoverable debts, or too low,
resulting in loss of sales.
The credit limit should be set by
a senior member of the sales
department. Credit limit should
be reviewed regularly by a
responsible official.
For a sample of new customers
added in the year, review
authorization of the credit limit,
and ensure that it was
performed by a senior member.
Enquire of sales ledger clerk as
to who can set the credit limits.

Sales orders Sales order should be in a Reperform the control by

Sales orders are given a number sequence. On a regular basis, undertaking a sequential check
based on the sales person’s own sequential checks should be of the sales orders. Discuss any
identification number. undertaken to identify any gaps in the sequence with the
missing orders. sales order staff.
These numbers are not in a
sequence. If sales orders are not
sequential order, it will be
difficult for ABC to identify
missing order or if order are
being dispatched on a timely
basis.

If orders are not dispatched on

time, it could lead to loss of
customer goodwill.

Segregation of duties The key roles of posting the Review the completed bank
Lily Shah, a finance clerk, is bank receipts, updating sales reconciliations to identify who
responsible for several elements ledger and performing bank prepared them.
of the cash as she posts the reconciliation should be split
bank transfer receipts from
bank statements to the cash
book, updates the sales ledger
and performs the bank
reconciliations.
There is a lack of segregation of
duties.
Errors will not be identified on
timely basis and there is also an
increased risk of fraud.
Out of date standards costs
The company values its
inventory at standards cost
which are being kept out of
date.
The review of standard costs
was undertaken 18 months ago,
this could lead to misstated
costs as changes in raw
material, wages inflation has
not been adjusted for. This
could result in inventory being
under or overvalued and profits
being misstated.
According to IAS 2 Inventories,
inventories are only allowed to
be valued at standard costs if
they are a close approximation
of actual costs, which is unlikely
if the standard costs remain
unchanged for a long period
time. Inventory valuation may
not be in accordance with IAS 2.
Overtime not paid
Overtime is not authorized prior
to being paid.
The info per employee is
collated and submitted to
payroll by a production clerk,
but not authorized. The
between different individuals. If
that is not practical, then as a
minimum, bank reconciliation
should be performed by a
member of the finance team.
A review of standard costs
currently in use should be
undertaken by a senior manager
in production department.
Actual costs of material, labor
and overheads should be
ascertained and compared to
the proposed standard costs to
ensure they are a close
approximation.
A review of revised standard
costs should be undertaken by
production director and should
also evidence the review.
Additionally, a review of
standard costs should be taken
annually to ensure they are up
to date.
All overtime should be
authorized by a responsible
official prior to processing by
payroll dept. Written
authorization should be
provided.
Review the log of individual IDs
who have posted the bank
receipts and updated sales
ledger to ensure that they have
been done by different
individuals.
Discuss with financial controller
which member of the staff is in
charge of processing of bank
receipts, updating the cash
books and sales ledger.
Obtain a copy of standards cost
used for inventory valuation and
assess when the review was last
taken and inspect for evidence
of the review undertaken by
production director.
Obtain overtime report and
review for evidence of
authorization and check the
date on which this was
authorized to ensure that it was
undertaken prior to processing
by payroll dept.
production director is only
informed about overtime levels
via quarterly reports.
These reports are reviewed
sometime after the payment
has been done. This would
result in unauthorized overtime
or amounts being paid
incorrectly which would lead to
ABC’s payroll cost increase
GRNS not processed regularly
GRNS are sent to accounts dept
every two weeks
This could result in delays in
supplier being paid as the
purchase invoices could not be
agreed to a GRN and also
recorded liabilities being
understated.
Additionally, any prompt
payment discounts offered by
suppliers may be missed due to
delayed payment
Insufficient parts to GRN
GRNs are only sent to the
accounts dept.
Failing to send a copy to the
ordering dept could result in
significant level of unfulfilled
orders leading to a loss of sales
and stock outs
Supplier statement
reconciliations
Supplier statement are no
longer performed.
This may result in errors in the
recording of purchases and
payables not being identified in
a timely manner.
A copy of GRNs should be sent
to the accounts dept on a more
regular basis, such as daily.
The accounts dept should
undertake a sequence check of
the GRNs to ensure none are
missing for processing.
The GRNs should be created in
three parts and a copy of GRN
should be sent to purchase
order clerk who should agree
this to the order and change the
order status to complete. On a
regular basis he should then
review for all unfulfilled orders
and chase these with relevant
suppliers.
Supplier statement
reconciliation should be
performed on a monthly basis
for all suppliers and these
should be reviewed by a
responsible official.
Enquire of the accounts clerk as
to the frequency of when GRNs
are received to assess if they are
being sent promptly.
Undertake a sequence check of
GRNs held by the accounts dept
and discuss any missing items
with the accounts clerk.
Review the file of copy GRNs
held by the purchase ordering
clerk and review for evidence
that these are matched to
orders and flagged as complete.
Review the file of unfulfilled
purchase orders for any overdue
items and discuss their status
with the purchase ordering
clerk.
Review the file of reconciliations
to ensure that they are being
performed on a regular basis
and that they have been
reviewed by a responsible
official.
Re-perform a sample of the
reconciliations to ensure that
they have been carried out
appropriately.