Audit Report for Customer Confirmation

Date : June 10, 2024

To : CCD
CC : Ciara Mae Co
Prepared by : Internal Audit Department
Area Covered : Ilo-ilo Customers
Audit Period : May 27 to 31, 2024

Audit Objective
The primary objective of this audit is to confirm the accuracy and completeness of the transactions and balances related to Oversea Feeds
Corporation’s Ilo-ilo Customers for the period ended May 26, 2024.

Audit Findings

During our recent audit, we identified a significant control gap in the recognition, classification and recording of outstanding accounts receivable.
This issue poses a risk to the accuracy of our financial statements and the effectiveness of our internal controls. Below are the following relevant
customers from our confirmation:

A. Account Balances

Account Balance per books Confirmed Balance Variance Comments Reference

Panaguiton, P540,800 P224,300 (P316,500) With negative balance in AR (A)
Alfredo Aging.
Tan Yau, Michael P10,908,360 P10,899,920 (P8,440) Two discounts applied. (B)
Ian
Jover, Wilson P101,366 P101,366 - Continue regular collection (C)
efforts.
Iguiz, Leonel P39,017,509.22 P37,093,160.42 (P1,924,348.80 MOA re: 4 bangus cages (D)
)
Moises, Anna P428,500 P407,000 (P21,500) Transaction on other related (E)
Marie account
 Retcem Resources P3,657,167 P3,657,167 - Solicitation offset with AR (F)
Inc.
Johnnel Realty P209,715 P180,325 (P29,390) Cannot claim volume (G)
Development discount
Corp
MRC Fish Dealer P138,950 - (P138,950) No contact number (H)
Koopmans, Myrna P8,300 - (P8,300) For write-off (J)
Total P55,010,667.22 P52,563,238.42 (P2,447,428.80
)

Total Confirmed - 95.55%

Total Unconfirmed - 4.45%

Recommendations

A. Negative balance reflected per aging schedule amounting to P316,500.

CCD to trace these negative balances as to what causes such. Evaluation of such negative balances to be done by CCD and reported to
management for possible take out from AR and could be treated as other income, if there is no other alternative. This is to ensure AR
balance is correct, updated and reliable at any given period of time.

B. Double discount (on bulk orders) applied

Discounts were applied twice (first by the company; second by the client) to two transactions involving 700 bags in one month, which
qualify as bulk orders under the company's discount policy. CCD to establish a standardized procedure for applying discounts, clearly
outlining who is responsible for discount approvals and applications. Additionally, a validation step should be integrated into the process
to ensure that only one discount is applied per transaction.

Due Date Sales Invoice Gross Amount Discount

February 16, 2024 1344 P428,000 P2,440
January 30, 2024 1618 P333,450 P6,000
Total P761,450 P8,440
C. All amounts were acknowledged
CCD to maintain open and transparent communication with customers regarding their outstanding balances and payment obligations.
Regularly send monthly SOA, detailing amounts owed and payment due dates to keep customers informed.

D. Unacknowledged transactions of client

After reconciling with the client, they did not acknowledge two transactions from 2019. Upon follow-up with the Credit and Collection
Department (CCD), it was found that there has been a signed Memorandum of Agreement (MOA) as the company provided 4 bangus
cages to the client amounting to P3,207,248.00 with an amortization per harvest of P641,449.60. The remaining balance on the table
provided.

Reference Number Doc Date Due Date Remaining Balance

5338 June 30, 2019 August 29, 2019 320,724.80
5369 September 2, 2019 November 1, 2019 1,603,624.00
Total 1,924,348.80

CCD to focus on verifying and clarifying the terms of the MOA with the client, maintaining open communication, and considering flexible
payment options if necessary. Additionally, implementing a robust monitoring system and enhancing internal processes will help manage
receivables more effectively and prevent future discrepancies. If all else fails, legal action should be considered to recover the remaining
balance.

E. Transaction reflected on other related account

An account named to the father of the client was included in the AR aging amounting to P21,500 dated October 16, 2023. CCD to ensure
that accounts belonging to individuals unrelated to the client's business are properly segregated from the AR aging report. CCD to
implement controls to prevent merging of accounts in future reports.

F. Customer solicitation are recorded as deduction from OFCs Accounts Receivable

Customer solicitation are recorded as a deduction from OFCs' accounts receivable. CCD to immediately reclassify customer solicitation
 from accounts receivable deductions to operating expenses. This correction ensures accurate representation of expenses and prevents
misinterpretation of accounts receivable balances.

G. Not allowed to claim volume discount;

DTM is the one being in-charge for collecting AR and deposits to own account.
Volume discount is not applicable if not a bulk order of 300 bags per month. CCD to centralize the responsibility for discount calculation
and application within the company. A designated team within CCD to handle all discount calculations to maintain consistency and
accuracy.

CCD to develop and implement clear policies and procedures outlining the proper process for collecting AR. Clearly define roles of
collectors’ responsibilities, specifying who is authorized to collect payments and how collections should be handled.

H. No contact number or incomplete requirements

CCD to not process credit application if there are no or incomplete requirements submitted by customers. CCD to ensure that customers
per credit application should have contact numbers and complete addresses. Those with incomplete data shall also be the basis not to
approve credit application. CCD to require all CI or DTM to have the applicants completely accomplish the form. This is to have a complete
background of client’s information that can be used as a reference during the collection and other transactions. CI or DTMs are responsible
in ensuring that such applications are supported with complete requirements before these are forwarded to CCD for credit investigation or
evaluation.

I. Client already migrated abroad

The client Myrna Koopmans has already migrated abroad. The Credit and Collection Department (CCD) to write off this account, as it has
an immaterial amount relative to the total accounts receivable, upon management’s approval.

INITIAL RECOMMENDATION

1. The CCD to develop a targeted collection strategy for each customer, prioritizing those with higher amounts outstanding.
Regularly communicate with customers to remind them of outstanding balances and to negotiate payment terms, if necessary.

2. The CCD to update and maintain accurate contact information for all customers to prevent future contact issues.
3. If possible hire a new experienced collector for additional man power in collecting AR.