Summary of Control f

1)
Number
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R1k
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(2)
Workpaper
Reference
(3)
Description of Control Deficiency
(4)
Type of
Control
(5)
Type of
Deficiency
(6)
Business
Unit /
Location
(7)
Significant Account
(and Relevant
Assertion) or
Disclosure 1
(8)
Internal Control
Component or
Application 2
(9)
Deficiency
Identified by
(10)
Indicator of
MW?
3
(11)
Control Remediated and
Tested Before Year End?
4
(12)
Evaluation of the
Control
Deficiency
5
(13)
Additional
Documentation
1
Financial
Statements are not
accurate
GLFR15
The Financial Reports and supporting schedules have
a cross checking feature that ensures that the figures
entered into the supporting schedules for the B/S and
I/S agree to the excel B/S and I/S schedules. The
Access departmental budget vs. actual reports are
cross checked with the MAPICS reports via a dynamic
link to ensure that the MAPICS accounts have been
properly mapped to Access.
08 TOC - FSCP (GLFR)
GLFR15
Control is ineffective as the Finance
Manager reviews the trial balance in Excel
balances and ensures that it sums to zero;
however he does not check each account to
determine if the mapping from MAPICS to
the Excel Trial balance is accurate and there
is no evidence of his review by sign-off.
Manual Operation SCI All Accounts Internal Control Charmeen Kadir No
No; however there are
compensating controls-
GLFR4 which ensures that all
Journal Entries are reviewed,
GLFR8 which ensures sub-
ledgers tie to the GL, GLFR11,
GLFR12 & GLFR13 in which
management reviews financial
statements and investigaes
variances
2
Fictitious journal
entries are posted.
GLFR24
Users with access to create GL master records do
not have access to post GL accounts (record amounts
to general ledger accounts)
08 TOC - FSCP (GLFR)
GLFR24
Two users have access to the
functions "create/change GL
Master Records" and "Post to
G/L Accounts" in MAPICS with the
underlying risk being that fictitious journal
entries may be posted to the GL.
Prevent Operation SCI Trial Balance
Application/
User Access
Charmeen Kadir No
No; there is a compensating
Control: GLFR-4 which
mitigates the risk of fictitious
JE's being posted (Journal
Entries are approved by the
Finance Manager or
Accounting Supervisor prior
to entry into MAPICS. Journal
Entries are substantiated with
supporting documentation or
appropriate explanation is
provided)
3
Fictitious journal
entries are posted.
GLFR25
Users with access to post GL accounts (record
amounts to GL) do not have access to open/close
accounting periods
08 TOC - FSCP (GLFR)
GLFR25
There were 16 users who had
access to the functions "post to
the GL" & "open/close accounting
periods" in MAPICS with the
underlying risk being that
fictitious journal entries may
be posted to the GL..
Prevent Operation SCI Trial Balance
Application/
User Access
Charmeen Kadir No
No; there is a compensating
Control: GLFR-4 which
mitigates the risk of fictitious
JE's being posted (Journal
Entries are approved by the
Finance Manager or
Accounting Supervisor prior
to entry into MAPICS. Journal
Entries are substantiated with
supporting documentation or
appropriate explanation is
provided)
4
Receipts are
inaccurately
recorded
REC03
On a monthly basis, Accounts Payable compares
the Packing Lists and invoices to the Goods Received
Not Invoiced Report (GRNI). The Report is initialed as
evidence.
08 TOC - Inventory
Receving
REC03
Control not being performed: GRNI not
being reconciled to Packing slips & invoices.
Prevent Operation SCI
AP (GRNI),
Inventory
(Assetion:
Valuation &
Completeness)
Internal Control. Charmeen Kadir No
No;there are compensating
controls: REC01(A), REC02,
REC06, AP01, AP14 which
cover inventory
existence,valuation,
completeness and test that
Inventory reciepts are
reconciled to packing slips &
invoices. Based on TOC,
compensating controls are
effective.
5
Receipts are
inaccurately
recorded
REC11 There is proper User Access to the OEM Scanner.
08 TOC - Inventory
Receiving
REC11
Control is ineffective as associates from
other departments have access to the OEM
scanner.
Prevent Operation SCI
Inventory
(Valuation/Existence/
Completeness)
Application
(User Access)
Charmeen Kadir No
No: however, there are
appropriate segregation of
duties as tested in REC08
which was effective per Test
of Controls.There are also
compensating
controls: REC01(A), REC02,
REC06, AP01, AP14 which
cover inventory
existence,valuation,
completeness and test that
Inventory reciepts are
reconciled to packing slips &
invoices. Based on TOC,
compensating controls are
effective.
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6
Fictitious vendor
information could be
added.
AP09
A segregation of duties exists in that no single
person adds/updates vendor information in the AP
System and processes Vendor Invoices in the AP
System.
08 TOC - Accounts
Payable
AP09
User Access is ineffective. 10 users were
noted to have access to adds/updates
vendor information in the AP System and
processes Vendor Invoices in the AP
System.
Prevent Operation SCI
AP (Existence,
Right & Obligations)
Internal Control. Charmeen Kadir No
No; however there is
appropriate segregation of
duties.
There are compensating
controls AP01, AP04, AP05 &
AP08 which match invoices to
purchase orders prior to being
processed and paid, have
management review prior to
payments and have approval
of purchase orders. These
controls were effective per
TOC.
7
Invalid or
unauthorized
invoices are paid.
AP11
A segregation of duties exists in that no single
person has the ability to create a purchase order,
receive goods and process vendor invoices.
08 TOC - Accounts
Payable
AP11
User Access is ineffective i.e. users have
access to create purchase order, receive
goods & process invoices.
Prevent Operation SCI Accounts Payable Internal Control. Charmeen Kadir No
No; however there is
appripriate
segregation of duties.
There are compensating
controls AP01, AP04, AP05,
AP08 & REC08 which match
invoices to purchase orders
prior to being processed and
paid, have management
review prior to payments and
have approval of purchase
orders. These controls were
effective per TOC.
8
Invoices reflect
incorrect pricing,
quanities,discounts,t
axes,etc.
SAR02
For mass production, the SCI Accounting enters
unit pricing into the Future 3 system after receiving final
pricing approval from customer. The pricing input is
reviewed by the Sales Manager and evidenced by his
initials on the quote sheet.
08 TOC - Sales & AR
SAR02
Ineffective:SAR02
control weakness is that Sales Dept. does
not initial the Price Quote from the customer
as evidence of review. Tested in TOC for
SAR08.
Prevent Operation SCI
Sales
(Measurement), AR
(Valuation)
Internal Control. Alex Banez NO
No; there is a compensating
control - SAR08 in which EY
tested a sample of 25
verifying that equote matched
the sales price per SCI's sales
invoices and compensating
control is effective.
9
Transactions are
not recorded in the
proper period.
SAR07(A)
Bills of Lading are pre-numbered and matched to
invoices to prevent missing or unrecorded shipments.
08 TOC - Sales & AR
SAR07(A)
Ineffective as BOLs are not
pre-numbered and matched to
invoices to prevent missing or
unrecorded shipments.
Prevent Operation SCI
Sales/AR
(Completeness)
Internal Control. Alex Banez No
No; there is a compensating
controls SAR10 where price
testing was conducted and
SAR12 where cut-off was
tested. Based on Testing of
controls, compensating
controls were effective.
10
Either by error or
for fraudulent
purposes, an
individual could
enter an
unauthorized or
inaccurate sales
price and apply it to
an invoice, thereby
distorting sales.
SAR21
There is proper segregation of duties in that the
AR associate responsible for invoicing customers
does not make changes to invoice pricing.
08 TOC - Sales & AR
SAR21
Ineffective segregation of duties: AR
associate responsible for invoicing has the
ability to change the price.
Prevent Operation SCI
AR
(Valuation)
Internal Control Alex Banez No
No; compensating controls
to mitigate this risk are SAR01
& SAR10 and these controls
are effective as per TOC.
11
Physical Inventory
counts are
inaccurately counted
PHY02
Physical Inventory Tag Request Forms are signed by
the Tag Controller and Project Leader in both the tag
issue and tag receipt area verifying that all tags were
accounted for properly
Kaizer's TOC
Ineffective as three boxes in the tag receipt
section were not singed by area project
leader
Prevent Operation SCI
Inventory
(Valuation/Existence/
Completeness)
Internal Control Kaizer No
No; there is a compensating
control PHY11 where the
production Control Team runs
two reports "Missing Tag
Report" and the "Tag File
Audit Report" to verify if there
are any missing tags and to
ensure that all inventory items
with quantities on hand before
the count but had no count
have been accounted for. EY
concluded that PHY11 is
operating effectively.
12
Users are granted
appropriate access
during inventory in
order to ensure an
accurate count PHY20
For MRO and OEM, the production control team has
access to modify the quantities entered by Accounting
based on the investigation Accounting does not have
access to make modification to the quantities entered.
08 J - WT Physical
Inventory
There is no supporting documents to verify
that the Accounting did not have access to
modify the initial quantities
Prevent Design
SCI
Inventory
Application Rie Kojima No
No; there is a compensating
control PHY13 where the
investigation of variance is
performed by production
control and the adjustments
are recorded based on the
investigation
13
A proper
segregation of
duties exist among
the physical
inventory team to
ensure an accurate
physical count. PHY21
Production Control Manager reviews the inventory
spreadsheet to ensure that the final quantities as well
as costs, which are manually updated by MRO
purchasing associate, are accurate.
08 TOC Physical
Inventory
There are discrapancies between the
quantities per second count sheet and the
final MRO inventory listing due to data entry
errors.
Prevent Operation
SCI
Inventory
Internal Control Rie Kojima No
No
The impact was 27K,
which was less than
reporting SAD
14
All existing inventory
is completely
accounted for PHY18
The final report is prepared by an MRO specialist and
reviewed by Purchasing Manager.
08 TOC Physical
Inventory
There are discrapancies between the
quantities per second count sheet and the
final MRO inventory listing due to data entry
errors.
Prevent Operation
SCI
Inventory
Internal Control Rie Kojima No
No
The impact was 27K,
which was less than
reporting SAD
CONTROLS WHICH WERE INEFFECTIVE AS TESTING OF CONTROLS WAS INCOMPLETE DUE TO INSUFFIECIENT DOCUMENTATION /TESTING SAMPLE
15
Subledger amounts
are not reconciled
with their
corresponding
general ledger
accounts. GLFR8
All major balance sheet accounts are reconciled
on a monthly or quarterly basis by the Accounting
Department to ensure the balances in the sub ledgers
or spreadsheets agree to the general ledger.
Reconciliations are signed by the preparer and
reviewed and signed by the Finance Manager or
Accounting Supervisor.
08 TOC FSCP (GLFR)
GLFR8
Need sample of reconciliations for
month of Jan 2009 (monthly control)
Detect Operation
SCI Trial Balance Internal Control. Charmeen Kadir No
Yes; control remediated as
at 31/12/08; we do not have
a second sample to test.
16
Budget to actual
results are not
reviewed for
reasonableness on
a timely basis.
Variances are not
reported and
analyzed regularly.
Financial
Statements are not
prepared and
analyazed regularly. GLFR11
Preliminary Monthly Financial Reports (usually
generated on the 4th business day of the month) are
reviewed for completeness and accuracy and any
significant and/or unusual variances are further
investigated by the Finance Manager and Accounting
Supervisor. Meeting notes are kept and signed by the
Accounting Supervisor, Finance Manager, and SSA to
evidence preliminary Financial Statement review.
08 TOC FSCP (GLFR)
GLFR11
Need sample of Monthly meeting
analysis for month of Jan 2009
(monthly control)
Detect Operation
SCI Trial Balance Internal Control. Charmeen Kadir No
Yes; control remediated as
at 31/12/08; we do not have
a second sample to test.
17
Budget to actual
results are not
reviewed for
reasonableness on
a timely basis.
Variances are not
reported and
analyzed regularly.
Financial
Statements are not
prepared and
analyazed regularly. GLFR12
Monthly Financial Reports for Income Statement
accounts only are presented at the Monthly
Management Meeting (Canadian Management Team
only including President). Meeting minutes are kept
and signed by the Finance Manager and/or Senior
Staff Administrator to evidence review.
08 TOC FSCP (GLFR)
GLFR12
Need sample of Monthly Mgmt Meeting
Minutes
analysis for month of Feb 2009
(monthly control)
Detect Operation
SCI Trial Balance Internal Control. Charmeen Kadir No
Yes; control remediated as
at 31/01/09; we do not have
a second sample to test.
18
Receiveables are
not accurately
stated. SAR16
Accounting specialist, reviews the Accounts
Receivable Aging Report for invoices over 60 days
old, downloads open invoices to an Excel spreadsheet
and follows up with the customer to resolve any
unapplied cash or past due balances. The spreadsheet
is reviewed by the Finance Manager or Accounting
Supervisor and initialed evidencing review.
08 TOC - Sales & AR
SAR16
weakness in control in that January
sample for testing is not available as client
has not completed preparation.
Detect Operation
SCI
AR
(Valuation)
Internal Control. Alex Banez No
Yes; control remediated at
31/12/08; as this is a monthly
control, EY needs a sample of
two months. Due to January
2009 Aging Report Analysis
not complete, TOC is
incomplete.
CONTROLS THAT WERE REMEDIATED DURING THE J-SOX PROJECT
19
AP accrual is
inaccurately
calculated, recorded
and reported.
AP06
At month-end, the AP Accounting Specialist
calculates and prepares a schedule of all Accounts
Payable items needing an accrual. The accrual
schedule is forwarded to the Accounting Specialist for
journal entry preparation and recording. The entry is
posted by the Accounting Specialist to the General
Ledger and is reviewed and signed off by an
appropriate party.
08 TOC - Accounts
Payable
AP06
Missing sign-off on accrual
schedule
Detect Operation SCI Accounts Payable Internal Control Charmeen Kadir No
yes; TOC is effective.
Remediated for sign-offs as
of 30/11/08
20
The AP Sub ledger
is not properly and
accurately posted to
the General Ledger
AP07
On a monthly basis, a reconciliation of the Accounts
Payable Subledger to the General Ledger is performed
by the AR Accounting Specialist. Any differences are
investigated and the GL is adjusted to the AP Sub
Ledger balance if needed (rare).
08 TOC - Accounts
Payable
AP07
Missing sign-off on reconciliation of
Subledger to General Ledger
Detect Operation SCI Accounts Payable Internal Control Charmeen Kadir No
yes; TOC is effective.
Remediated for sign-offs as
of 31/10/08
21
Unauthorized users
have access to
modify vendor
information or have
the ability to add
fictitious vendors.
AP13
Access to where New Vendors are added/modified
in the MAPICS is restricted to authorized users.
08 TOC - Accounts
Payable
AP13
User access was not limited to
authorised users
Prevent Operation SCI Accounts Payable Application Charmeen Kadir No
yes; TOC is effective.
Remediated User Access
Feb/2009
22
The AP Sub ledger
is not properly and
accurately posted to
the General Ledger
AP14
On a monthly basis, a reconciliation of Goods
Received not Invoiced (GRNI) is performed. The
reconciliation is reviewed and approved by the
appropriate level of management.
08 TOC - Accounts
Payable
AP14
GRNI reconciliation was not being
performed on a monthly basis.
Detect Operation SCI Accounts Payable Internal Control Charmeen Kadir No
yes; TOC is effective.
Remediated 31/11/08
23
Budget to actual
results are not
reviewed for
reasonableness on
a timely basis.
Variances are not
reported and
analyzed regularly.
Financial
Statements are not
prepared and
analyazed regularly.
GLFR13
Monthly Financial Reports including the "Monthly
Analysis Report Actual vs. Execution Plan" with
explanatory notes are presented via email to Showa
Japan by Senior Staff Administrator or Finance
Manager. A copy of the email to Showa Japan with
the respective Financial Statement documentation
attachments is kept as evidence of Showa Japan
review. "Monthly Analysis Report Actual vs. Execution
Plan" with explanatory notes is signed by Accounting
Supervisor, Finance Manager and SSA.
08 TOC FSCP (GLFR)
GLFR13
There was no preparer/reviewer
sign off on the Monthly Financial reports.
Detect Operation SCI Trial Balance Internal Control. Charmeen Kadir No
Yes; control remediated as
at 31/10/08. TOC is effective.
24
Foreign currency
translations are not
recorded in the
correct period or
correctly calculated.
GLFR19
Finance Manager sets the policy for foreign
exchange transaction rates. Accounting Supervisor
maintains the Foreign Exchange Rate spreadsheet.
The FX rates are reviewed for reasonability by the
Finance Manager. SCI uses foreign exchange rates for
all transactions that are based on USD, JPY & GBP,
and to revalue sub ledgers, and Balance Sheet
accounts that are based on foreign currencies. SCI
also uses HCM Quarterly FX rates for selling prices
and budget rates for the year.
08 TOC FSCP (GLFR)
GLFR19
FX rates were not reviewed for
reasonability on a monthly basis
Prevent Operation SCI various Internal Control Charmeen Kadir No
yes; TOC is effective.
Remediated as of 30/11/08
25
Additions of new
accounts in the
general ledger are
not authorized.
GLFR21
When a new G/L account is added to MAPICS it is
done by either the Accounting Specialist or AR
Accounting Specialist. For all new accounts added to
the general ledger, an Add/Update Chartfield form is
prepared by the requestor and reviewed and approved
by the Finance Manager or Accounting Supervisor.
08 TOC FSCP (GLFR)
GLFR21
There was no form for approval for
addition of new accounts and appropriate
approvals were not obtained prior to
addition of new accounts.
Prevent Operation SCI All Accounts Internal Control Charmeen Kadir No
Yes; control remediated as
at 31/12/08. TOC is effective.
26
Fictitious journal
entries are posted.
GLFR23
Access to make additions, modifications, and or
deletions to accounts, departments, ledgers and
chartfield combinations is restricted to appropriate
users.
08 TOC FSCP (GLFR)
GLFR23
User access was not limited to
authorised users
Prevent Both SCI Trial Balance Application Charmeen Kadir No
yes; TOC is effective.
User access updated;
remediated as of 31/12/08
27
Customer
shipements are not
recorded in the
proper period.
Sales journals/AR
subledger do not
correctly post the
general ledger
Invoices reflect
incorrect
quanity,pricing,disco
unts,taxes, etc.
SAR10
To confirm that all units sold including service
parts were captured and invoiced at the correct price,
the Accounting Supervisor Lee Gist populates an
excel spreadsheet Sales and RM Actual Sales
Summary. Units sold are obtained from the Future 3
system Monthly Shipping Sales report and sales are
extended at the price obtained from the approved price
in the SCI Cost Tables. Extended sales by part
number are compared on a product category basis and
the grand total, as well as, extended sales by revenue
categories are compared to the respective General
Ledger sales revenue accounts. If sales values in the
excel report agree to the General Ledger accounts,
then correct pricing and quantities are being captured in
MAPICS.
08 TOC - Sales & AR
SAR10
There was no preparer/reviewer
sign off on the Sales reports.
Detect Operation SCI Sales/ AR Internal Control Alex Banez No
yes; TOC is effective.
Remediated as of 30/11/08
28
Sales are not
completely and
accurately recorded.
SAR13
The Accounting Supervisor compares completed
sales units per the Sales and RM Actual Sales report
(See SAR-10) to the General Ledger. This report does
not include sales adjustment items not related unit
quantities (see GLFR 8). It is signed by the preparer
and reviewer.
08 TOC - Sales & AR
SAR13
There was no preparer/reviewer
sign off on the Sales reports.
Detect Operation SCI Sales/ AR Internal Control Alex Banez No
yes; TOC is effective.
Remediated as of 30/11/08
CONTROL DEFICIENCIES IDENTIFIED FROM SUMMARY OF AUDIT DIFFERENCES
29
AP accrual is
inaccurately
calculated, recorded
and reported. AP06
At month-end, the AP Accounting Specialist calculates
and prepares a schedule of all Accounts Payable items
needing an accrual. The accrual schedule is forwarded
to the Accounting Specialist for journal entry
preparation and recording. The entry is posted by the
Accounting Specialist to the General Ledger and is
reviewed and signed off by an appropriate party.
08 N9 Search for
Unrecorded Liabilities.
SAD #44
During the Substantive Audit Procedures for
Accounts Payable - Open Invoice testing,
EY noted that SCI had not recorded goods
that were in transit from Japan as part of
year end inventory and accounts payable.
Goods from Japan should be recorded
based on FOB shipping point. This resulted
in an error of $949,431 underaccrual for
Accounts Payable and Inventory at year
end. This was a recorded SAD item. Detect
Operation
SCI
Inventory/ Accounts
Payable Internal Control Alex Banez No
Control was remediated at
30/11/08 to include preparer
and reviewer sign-off of
schedule; however the review
was ineffective as SAD item
was noted. $949,431CDN
30
Permanent and
temporary
differences are not
identified. TAX02
The corporate and future tax calculation worksheet is
prepared by the Finance Manager. The resulting
general ledger journal entry is prepared by the Finance
Manager after third party technical review by E&Y -
Tax Group.
08 O Tax Leadsheet
SAD #47
SCI had not booked the future tax expense
and payable into the GL based on their
calculation. The calculation is based on
temporary differences.
SAD entry posted to record the current year
movement in
the future tax liability balance which relates
to the fixed assets.
Typically, SCI prepares tax calculation and
after review by EY Tax, SCI posts the future
tax expense & payable to the GL. Manual
Operation
SCI
Future income Tax
Liability and expense Internal Control EY Tax No N/A $933,587CDN
31
Permanent and
temporary
differences are not
identified. TAX02
The corporate and future tax calculation worksheet is
prepared by the Finance Manager. The resulting
general ledger journal entry is prepared by the Finance
Manager after third party technical review by E&Y -
Tax Group.
08 O Tax Leadsheet
SAD #50
SCI had not booked the current income tax
payable and expense into the GL based on
their calculation. The calculation is based on
temporary differences.
SAD entry posted to true up the current tax
expense to the most updated working
papers. Includes addback of spare parts.
Typically, SCI prepares tax calculation and
after review by EY Tax, SCI posts the
current income tax expense and payable to
the GL. Manual
Operation
SCI
Current Income Tax
liability and expense. Internal Control EY Tax No N/A $830,587CDN
32
The incorrect book
income amount is
used in the tax
accrual.
TAX03
The Finance Manager ties the net income before
taxes (booked income) used in the corporate and
future tax calculation worksheet to the trial balance
(financial statements).
08 TOC - Tax
EY noted an unrecorded SAD as the trial
balance was updated to record audit
adjustments and SCI closing adjustment;
however the final updated net income
amount was not used to re-calculate related
income tax effect of the adjustments. This
resulted in a $15,000 understatement of
income tax expense and income tax payable
which was posted as an unrecorded SAD.
Detect Operation SCI
Income Tax Expense /
Income Tax recoverable
Internal Control Charmeen Kadir No No. $15,000CDN