ANSWER FOR FOX INDUSTRIES (JUNE 2013)

REPORT TO THE MANAGEMENT

Board of directors

Fox industries

Address line-1

Address line-2

1stmay 2003

Dear directors,

Audit of Fox industries for the year ended 30thapril 2003

Please find the enclosed report on the deficiencies in the purchase and payment system including the
implications due to the deficiencies and our recommendations to improvise the system.

Please note that this report only include those deficiencies which were identified during our test of
controls if further testing had been performed then more deficiencies may have been reported.

This report is for the sole use of management and should not be reported to any third party without any
written agreement with us as no responsibility is assumed to third party.

If you have any further questions please do not hesitate to contact us.

Yours faithfully,

Audit firm

Appendix

SWIFT CO.

SEP/DEC (2020)

Control deficienciesDIRECT CONTROLS recommendationsTEST OF CONTROLS

No approved listSegregation of suppliers
duties
When raisingThe company has HR department
which is responsible for setting up new joiners
and payroll department who is responsible for
processing of wages and salaries.
Having this segregated role, it is likely to
There should be BOD approved list of suppliers and
to be based on lead time, quality, quantity, prices
and discounts and all the purchase orders to be
placed with the suppliers on the list.
Regular reviews of suppliers list should be done
considering the need to amend it.Review the job
description of HR and payroll department to
confirm the segregated roles and visit them and
reduce the purchase orderchances of fictitious observe their workings.
employees and lost to the clerk
Using the test data facility of CAATs access the
choosecompany. And also undermining the
system and review the past logged trail to ensure
supplier who can dispatchchances the goods
that new joiners were set up by the HR and wages
first, based on lead time.
were process by the payroll department.
This may resultoverstated payroll cost in
purchasing at higher rates or even substandard
quality might be ordered resulting in the
financial loss to the company in terms of
reduced profit.

statement.

Purchase orders are not sequentially
numbered
Purchase orders are not sequentially pre-
numbered and in case any P.O is misplaced
then it would be difficult to trace back and
monitoring on the purchasing may not be
possible. If misplaced any P.O then purchasing
may be late resulting in stock out cost and
customers orders may not be fulfilled o time.
All the purchase orders should be sequentially pre-
numbered and at the end of the day it should be
arranged serial wise so that all the purchasing
requirement can be done on time.
Regular sequence check should be done and
investigation should be done for any missing
purchase order.Using the test data facility of CAATs
enter the dummy employee data into the payroll
system without unique employee number to
ensure it is rejected by the system.

Unique employee number

All new joiners are allotted the unique

employee number from HR department which
is then sent to the payroll department and
unique employee number must be entered for
wages and payroll processing.

Without that number wages and salaries can

not be processed and reducing the chances of
fictitious employees being created and less
possibility of overstated payroll cost reported.

Authorization of purchase orders All the purchase orders should be authorized by

Purchases below $5000 are not authorized but
only above this amount needs authorization.
This is the opportunity for the clerk to come
with fraud as below $5000 clerk may place the
orders for personal needs and thus financial
loss to the company.Exception report
the responsible official and difference range of
amounts (slabs) can be allotted to different ranking
of managers to authorize and it should be signed to
undermine the chances of fraud.Select the sample
of monthly exception report and review the past
logged in trail to confirmed it was accessed and
reviewed by payroll manager and also agree the
On monthly basis an exceptional report is signature of payroll manager as evidence of review.
generated relating to the changes in the payroll
Enter the dummy changes in the payroll standing
standing data and also reviewed by the payroll
data to ensure the generation of exception report
manager.
also discuss with the management their process to
This would ensure whether the changes made investigate and responding the actions in case of
were authorized or not and in case of any any unauthorized changes made.
unauthorized changes it can be investigated to
correct and ensure that payroll data is valid
and accurate.

LackCalculation of IT controls gross and net The purchase ledger clerk should utilize the
pay information processing control like control total,
range check, sequence check and input the
Purchase invoices are input daily by the
invoices in the form of batches this is likely to
purchase ledger clerk and based on his past
ensure that invoices are accurate and
experience he dies not utilized any application
complete.Review the payroll processing in the
control over the input process.
system and past logged in trail to confirm it was
By not utilizing the IT control there are chances accessed and re performed by the payroll
that invoices may be wrongly recorded, supervisor obtain the pay slips and agree the
incomplete and inaccurate and if paid wrong signature of supervisor.
amount based on the records then relation
Discuss with the manager their investigation
with the supplier may be negatively
process in case of any discrepancies identified and
affected.The gross and net pay of workers are
their responding action to resolve.
being calculated automatically by the system
and the supervisor re performs it and also
investigate any discrepancy, signs the pay silps.

This would assure that payroll cost are

over/under stated as any error is likely to be
identified and resolved on timely basis and
payroll records would be accurate and valid.

Authorization of purchases Select the sample of purchase of both less than and
above $5000 and agree all are authorized.
Purchase orders up to $5000 are authorized by
the purchasing manager and above that Agree the signature of purchasing manager on
amount it is authorized by purchasing director. orders up to $5000 and signature of purchasing
director for all the orders above $5000.
This would ensure the monitoring on every
expenditure and ensure purchases are being
made only for genuine business need and
undermines the possibility of
fraud/unnecessary expenditure and also
maintaining the accurate and complete record
keeping.

Goods receives note Visit the warehouse and observe the goods
receiving process to confirm the quality and
The warehouse team agrees the goods receives
quantity id being checked and goods are agreed
with the purchase order and also checks the
back with the purchase orders and also agree the
quality and quantity and one copy is sent to the
signature of warehouse manager on it.
finance department.
Also agree the process GRN in the finance
This would ensure that only those goods will be
department to ensure correct liability is recorded.
accepted which were actually ordered and also
recording the liability for the correct goods.

Manual posting to general ledger
The purchase day book automatically updates
the purchase ledger, the purchase ledger is
then posted manually to the general ledger by
the clerk.
Manual posting may result in errors in the
records like fail to post, double post, and
payable balance may be over/understated and
chances of paying incorrect amount to supplier
leading to goodwill being undermined.
Control total
The process of recording purchase from day book
to PL and GL should be integrated that is all should
be automatically update on regular basis this
would assure the complete and accurate check
record of purchases and liability and paying
supplier the correct amount.Obtain the batch
control sheet and agree the signature of clerk as
evidence to checks undertaken.
Using the test data facility of CAATs enter the
dummy invoices into the system in the batches of
20 to confirm purchases and payables records are
complete and accurately recorded.

Purchase invoices are logged into the system in

the batches of 20 utilizing the control total
clerk also signs the batch control sheet to
confirm checks undertaken

So this is likely to assure that complete and

accurate invoices are log in and maintaining
the accurate and valid record of purchase and
liability and paying the supplier the correct
amount.

Bank accountSupplier statement All bank accounts should be regularly reconciled

reconciliation
The saving (deposit) accountsSupplier
statement reconciliation are reconciled after
every two monthsbeing prepared on monthly
basis which is also reviewed by the financial
controller and differences are fully
like at least on monthly basis so that proper
monitoring in records can be ensured.
This may also allowReview the management to
identified the missing and unusual items.
sample of supplier statement reconciliation should
beand agree that it is reviewed by the senior
investigated.
This would ensure that any errors may not are
likely to be identified leading to inaccurate
recordrectified on time and maintaining the
complete records of bankpurchases and
payables and paying suppliers the correct
amount.
This may also result in fraud that is employees
may use the amount for personal use if they
are aware that accounts are not regularly
reviewed thus financial loss to the company.
Late payments to the suppliers
In order to maximize the cash flow the company
made a policy to delay the payment of supplier as and the policy of delaying supplier payment
much as possible.
This may result in negative impact on the
relationship with the supplier and in future
supplier may refuse to give material on credit.
And thus credit rating may be lower down early
settlement discount may also be lost.
Fd not reviewing payment in detail
The financeFinance director is having the total
amount of payment list which he authorize and
processthe bank transfer list
The FD authorizes the bank payments.
Thetransfer list is not been reviewing and may identified, investigated and resolved.
includefor the overstated or any supplier after
agreeing with the supporting document and
also review for the duplicate payments.
This would reduce the chances of fictitious
amountpayment to suppliers or any incorrect
amount and also ensuring the accurate and if
processed then financial loss to the
companyvalid record keeping of payments.
responsible official and should be sign asfinancial
controller by looking at his signatory evidence of
review..
On sample basis re perform the supplier statement
reconciliation to ensure that it is appropriately
made.
Also discuss with the financial controller the
investigation process in case of discrepancies
identified.
The company should make the proper cash flow
budget and supplier should be paid on the time
should be revisited.
In case of any delay in payment it should be
agreed with the supplier and thus maintaining
the trust level.
Each and every supplier payment should be
confirmed with their respective invoices and the
financial manager should undertake the review of
this and finance director should undertake the
second review and then authorize for the bank
transfer so that supplier should be paid the correct
amount and any disputed amounts can be
Manager and director should sign fo the evidence
of review and authorization.Review the bank
transfer payment list for suppliers and agree the
signature of FD as evidence of review.
Discuss with the FD and ask about the supporting
document.
And on sample basis agree the payment made to
supplier with supporting documents.