Internal control question Amberjack

Includes a covering letter

Board of directors
Amberjack co
Address line 1
Address line 2
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1 july 20x5

Dear sirs,

Audit of Amberjack co

Please find the enclosed report to management on deficiencies in internal control

system identified during the conduct of audit. Please note that this report only
addreess the deficience found during the audit if more worked was perfomed there
may be more deficiency identified. This report is solely for the management and
please do not hesitate to contact us.

Yours faithfully
Audit firm .

Control Deficiency Control recommendation

The credit limits are set by the recivable The credit limit should be set by a
clerk it is a deficiency as increase the risk responsible senior which will reduce the
the the credit limit is set to high which risk of increase in bad debt and losing of
will increase the bad debts and to low customer
which will result in losing customer
The receivable clerk also set the new The amberjack co should appoint
customer details,assign a unique another clerk to segregate the work or
customer number it is a weak control as appoint a senior clerk to review the work
there is no segregation of duty which which will ensure that any error or fraud
increase the risk of error and fraud as to is identify and rectified timely
much power is given to one person
Company credit controller is currently
The co should temporary appoint on the
on secondment and there is none in place of credit controller until the
placed of it. It is a deficiency as it
permanent placed has not be found the
increased the risk that the bad debts and
finance director or someone with
customer outstanding invoices are not
relevant expertise should be appointed
been chased. temporary to reduce the risk of increase
in bad debts etc.
Three parts good dispatched note is Four part of good dispatched note
completed one sent to finance should be created and one should also
department when copy remained at sent to the sales ordering dept so they
warehouse and one is sent with goods are well aware of the order that it has
this is a weak control that the gdn is not been dispatched or not
sent to the sales ordering team as they
will not have information that whether
the goods has been dispatched which
create conflict between customer and
the dept.
The sales invoices are prepared using The sales invoice should be also traced
quantities from the GDNs and prices with purchase order to confirm the right
from the authorised sales prices list quantity and quality has been dispatched
there is arisk that the wrong quantity has to the customer.
been dispatched to the customer which
will result in wrong invoice being created
and can result in bad reputaion of
against the customer
discount has been given, this has to be The co should linked the sales system so
manually it can be created automatically or should
entered by the sales clerks onto the be review by the senior clerk to confirm
sequentially numbered invoice it is a any error has been identified and
weak control as there is an increased risk rectified and should be sign by a clerk as
of human error which can cause wrong an evidence that it has been reviewed.
payment made by the customer.
The company only The receivable ledger control account
reconciles the receivables ledger control should be reconciled monthly so any
account at the end of April in order to difference can be identify and resolved
verify the between the customer and co balance
year‐end balance. This a weak control as and ensure the balance is accurate and
there is an increase risk that there is a complete
difference between the customer
balance and co balance which can result
in under or over payment by the
customer.
Freesia co

Control deficiency Control Recommendation Test of control

Sales ledger clerks set the The credit limit should be Review the list of new
credit limit which is a set by the senior customer to confirm there
deficiency as the clerk is employee to reduce the credit limit is set according
not the right individual to risk of increase in bad to there credit ratings and
set the credit limit as debt and loss of customer is set by a senior
there is risk that the limit and revenue employee to ensure its
is set to high which will accuracy
increase the bad debt or
too low which can result in
loss of customer and
revenue.
A finance clerk post the There should be another Obtain a list of signature
bank transfer receipts and senior clerk appointed to to confirm it has been
also perform the bank review the work to signed by a senior clerk or
reconciliation there is a identify any error or fraud any error or fraud is
deficiency as there is a self so it can be rectify identify and rectified.
review threat as a finance [Link] should also be
clerk will be reluctant to signed by a senior clerk as
rectify the mistake and an evidence that it is
there is no segregation of reviewed
duty which can result in
error or fraud
The basis of standard cost The co should recalculate Recalculate the standard
was reviewed 18months the basis of standard cost basis and confirm that
ago there is a risk that the to confirm that the inventory is approximately
inventory is been under or inventory is not over or valued correctly and
overstated as the basis of undervalued and is recorded at lower of nrv
standard cost may have recorded lower of cost or and cost
become obsolete. nrv.
The overtime worked per This task should be Observe the process of
employee is colluted and performed by a employee overtime being calculated
submitted by a production who does not imposes the and recalculate it to
clerk this is a weaker threat to objectivity to confirm its accuracy and
control as there is a lack of ensure the employees are reasonableness
independence which only pay for the overtime
create the risk of fraud as they are worked.
the production clerk
personally knows the
worker and can increase
the overtime which will
result in payment to
employee for the hours
he/she has not worked.
The finance director The finance director Should obtain a
reviews total to be paid should obtain the attendance register and
this a deficiency as there is breakdown of the total confirm it with the total
a risk that total include the cost and confirm it with employees been set for
error or fraud by including attendance register to the payment to confirm
the fictatious employee. ensure any fictatious the total is accurate and
employee is not set up. It complete
should be signed as an Review the signature list
evidence that it has been to confirm it has been
reviewed reviewed by the finance
director
Customer orders are given Sales order should be Reperform the control by
a number based on the sequentially numbered so undertaking a sequence
sales person own any missings order can be check of sales order.
identification number. indentify and can be Discuss any gaps in the
These number are not monitor that it has been sequence with sales
sequential without it will dispatched timely or not ordering staff
be difficult to to identify
any missing missing orders
and to monitor whether it
was dispatched timely or
not