PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES

When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

INDEX

1. PROVISION FOR DOUBTFUL DEBTS ONLY MADE ANNUALLY.................................

2. NO POLICY FOR DETERMINING PROVISIONS FOR DOUBTFUL DEBTS - 1.............

3. NO POLICY FOR DETERMINING PROVISIONS FOR DOUBTFUL DEBTS - 2.............

4. INADEQUATE PROVISION FOR DOUBTFUL DEBTORS - 1.........................................

5. INADEQUATE PROVISION FOR DOUBTFUL DEBTORS - 2.........................................

6. GENERAL PROVISION FOR DOUBTFUL DEBTS........................................................

7. ABSENCE OF PROPER CREDIT LIMITS FOR CUSTOMERS........................................

8. NO ESTABLISHMENT AND MONITORING OF CREDIT LIMITS FOR DEBTORS.........

9. NEED FOR REALISTIC CREDIT LIMITS FOR CUSTOMERS.......................................

10. UNALLOCATED CREDITS IN AGED ACCOUNTS DEBTORS LISTING......................

11. AGED DEBTORS ANALYSIS NOT PREPARED..........................................................

12. NO AGED DEBTORS ANALYSIS FOR OVER 4 MONTH OLD BALANCES..................

13. POOR MAINTENANCE OF AGED DEBTORS RECORDS............................................

14. INCREASE IN AVERAGE AGE OF RECEIVABLES...................................................

15. NO PHYSICAL VERIFICATION OF DISHONORED CHEQUES..................................

16. INADEQUATE RECORDS FOR LEGAL CLAIMS OF DISHONOURED CHEQUES.........

17. POOR MANAGEMENT OF DEFAULTING POST DATED CHEQUE (PDC)

CUSTOMERS.............................................................................................................

18. ACCEPTING POST DATED CHEQUES (PDC) FROM AFFILIATE COMPANIES.........

19. UNMATCHED RECEIPTS AGAINST DEBTORS.........................................................

20. DIFFERENCE BETWEEN DEBTORS SUB LEDGER AND GENERAL LEDGER............

21. LONG OUTSTANDING RECEIVABLES.....................................................................

22. NO WRITE OFF OF OUTSTANDING RECEIVABLES FROM EX-EMPLOYEES..........

23. ACCOUNTING FOR OLD REFUNDABLE DEPOSITS.................................................

E KNOWLEDGE RESOURCE CENTRE PAGE 1

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

24. NO LOCAL PURCHASE ORDERS (LPO) OBTAINED FROM WHOLESALE

CUSTOMERS.............................................................................................................

25. CREDIT INVOICES ONLY SIGNED BY ONE INDIVIDUAL.........................................

E KNOWLEDGE RESOURCE CENTRE PAGE 2

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

1. PROVISION FOR DOUBTFUL DEBTS ONLY MADE ANNUALLY

Observation

The process for assessing the provision for doubtful debts continues to be
made only once at the year end and provision amount is determined without
identifying and analysing each customer and its recoverability.

Setting a defined criteria for identifying doubtful accounts and making a

provision against such debts on a timely basis will provide a more objective
assessment of the valuation of accounts receivable, as well as enabling
management to monitor the collectability of receivables on a proactive basis.

Recommendation

A written formal policy including defined criteria for provisioning should be

established for identifying doubtful accounts. We also recommend that a
review of accounts receivable is conducted and provision made on a periodic
basis, say quarterly, and not only at the year end which could result in delays
in the finalisation of the Company’s financial statements. In addition Head
Office management should closely monitor all receivable balances and assign
responsibility to management of the Group companies to follow up and submit
a status report on long outstanding receivable balances on a periodic basis.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 3

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

2. NO POLICY FOR DETERMINING PROVISIONS FOR DOUBTFUL DEBTS - 1

Observation

The company do not have a stated policy to provide against overdue accounts
receivable using predetermined percentages for various aged categories. We
have noted certain accounts receivable which were overdue by more than one
year and the recovery of which appeared doubtful to us but were not provided
for.

As the amount of such receivables was not considered material by us for the
company’s financial statements, taken as a whole, we did not insist on their
adjustment in the 200W financial statements.

Recommendation

To fairly reflect the amount of accounts receivable in the financial statements,

the company should develop a policy to provide against overdue accounts
receivable using percentages, determined based on historical experience, for
various aged categories.

This will also assist the management in keeping a close track of the overdue
balances leading to better recovery efforts and collection.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 4

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

3. NO POLICY FOR DETERMINING PROVISIONS FOR DOUBTFUL DEBTS - 2

Observation

We noted that, there is no proper management policy for determining provisions for
doubtful debts against long outstanding accounts receivable.

The establishment of an adequate policy will provide clear guidance to management

and ensure consistency and ultimately comparability between years of profits
and accounts receivable balances.

Recommendation

We recommend that a formal policy to be established to recognize doubtful debts in

each category of accounts receivable.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 5

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

4. INADEQUATE PROVISION FOR DOUBTFUL DEBTORS - 1

Observation

We observed cases were no provision has been made for long outstanding
debtors. Examples of this include:

 In AMX W.L.L UD 399,227 is due from Sheikh ABC. This represents a

personal loan given in 1986-87 for which only UD. 100,000 has been
repaid.

 In AWY W.L.L. UD 385,059 is due from Sh. ABX and has been
outstanding for more than twelve years.

 In WER Services UD. 3,717,952, receivable from QPC for variation

claims, has been carried forward from 1996. Our review of
correspondence with QPC indicates that this amount will not be fully
recovered.

Recommendation

We recommend that management follow up these balances on a timely basis

as the longer these balances remain unpaid the higher the risk that they will
not be collectable. If management believe that these balances are not
collectable they should be provided for.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 6

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

5. INADEQUATE PROVISION FOR DOUBTFUL DEBTORS - 2

Observation

The Company has recorded a provision for doubtful debts of UD 225,790

which has been carried forward from 200W. This provision is based on a
specific provision of UD 220,756, for debtors older than 5 years, and a
general provision of UD 5,034.

As can be seen from the following debtors ageing, the Company has a serious
bad debts problem such that the current provision for doubtful debts may not
be adequate:
Total
UD

Prior 199Y 359,552

200W 494,832
200X 66,219
200Y 285,415

We believe that these old debts have accumulated due to poor evaluation of
potential credit customers and an ineffective follow up of slow paying debtors.
As a result it may be difficult to recover the above balances and the Company
may face an inevitable and significant loss.

Recommendation

We recommend that:

 The management of the Company should establish strict control

procedures to closely monitor the old debtors and that slow paying debtors
be followed up on a regular and timely basis.

 A formal credit policy should be implemented with potential credit

customers carefully evaluated by management.

 Management should review old debtors at year end and create an adequate
provision.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 7

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

6. GENERAL PROVISION FOR DOUBTFUL DEBTS

Observation

A general doubtful debts provision has been established by increasing the

provision by UD 150,000 yearly. Calculating a provision this way may result
in a provision that does not reflect the doubtful debts that exist causing the
provision to be either excessive or inadequate.

Recommendation

We recommend that that management adopt a policy for the provision for
doubtful debts that is based on the ageing of the accounts receivable, the
movement of the customer accounts and specifically identified bad debtors.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 8

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

7. ABSENCE OF PROPER CREDIT LIMITS FOR CUSTOMERS

Observation

We noted that management has not precisely established appropriate credit policy
applicable for credit customers. The absence of an appropriate credit company
can lead to sales to un-creditworthy customers and losses to the company.

Recommendation

We recommend that a credit policy be developed by management from accounting

and sales sections.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 9

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

8. NO ESTABLISHMENT AND MONITORING OF CREDIT LIMITS FOR DEBTORS

Observation

Credit limits established for customers are not regularly monitored to ensure
sales are in line with the set limits. Also, there are no formal procedures for
periodic review of the credit limits and approval of sales exceeding the limits,
“excess sales”. Consequently the branch is exposed to a higher risk of bad and
doubtful debts.

Recommendation

Management should establish formal procedures for periodic review of credit

limits and approval of excess sales over limits set.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 10

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

9. NEED FOR REALISTIC CREDIT LIMITS FOR CUSTOMERS

Observation

Management’s credit policy, has, among other things, fixed credit limits for
specific customers. However, in several cases credit limits had been exceeded
by significant amounts. For instance: (list examples)

It is possible that the credit limits have not been set at realistic levels. As a
result they are being exceeded.

The absence of realistic credit limits could adversely affect relations with
customers which in turn would harm the company’s performance.

Avoidable administrative time could be spent in following up large customers

for whom credit limits are set at unrealistically low levels.

Recommendation

The present credit limits should be reviewed as soon as possible in

consultation with divisional heads. The limits should be set at the most
appropriate levels based on:

 the normal volume of business with the customer

 past experience with debt collection
 financial position of the customer
 strength of relationship with relevant employees in the customer’s
organisation

The limits should be periodically reviewed, for instance at the monthly

debtors meeting, to account for changes in any of the factors noted above.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 11

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

10. UNALLOCATED CREDITS IN AGED ACCOUNTS DEBTORS LISTING

Observation

The aged accounts debtors listing contains some unallocated credit balances.
These are credit transactions that should have been allocated to specific
invoices. A possible reason for such credits are lump sum payments from
customers which do not specify any details. These unallocated credits, which
amounted to (XXXX) at year end, increase the risk that potential doubtful
debts, or disputed invoices, may not be identified as it is not possible to see
which individual invoices are unpaid at any one time.

Recommendation

Necessary amendments should be made in the computer system so that all

credit entries in an account receivable balance will be allocated to specific
invoices as far as possible. In the meantime, certain stopgap procedures could
be introduced to reduce the level of unallocated credits. Customers making
unspecified, or lump sum payments, should be contacted in an attempt to
identify the invoices being paid. Once identified, the payment should be
allocated against those specific invoices. If the payment is a lump sum
payment, it should be allocated to the oldest outstanding invoices.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 12

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

11. AGED DEBTORS ANALYSIS NOT PREPARED

Observation

We noted that the company does not prepare an aged analysis for debtors.

The absence of a debtors ageing analysis has contributed to overdue debts not being
identified and pursued for payment.

Additionally, the company has not been able to produce an accurate provision for bad
debts on a regular basis with the result that the management accounts have
consistently understated the provision throughout the accounting period.

Recommendation

We recommend that an aged analysis of debtors be prepared on a monthly or

quarterly basis as soon as possible after the period end. This analysis should
then be reviewed for long-outstanding balances, and the appropriate action
should then be taken to recover such debts. The bad debt provision need only
be updated annually.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 13

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

12. NO AGED DEBTORS ANALYSIS FOR OVER 4 MONTH OLD BALANCES

Observation

The ageing report of accounts receivable classifies the outstanding balances

into four categories i.e. 1 month, 2 months, 3 months and 4 months and over.

In the absence of further classification for balances more than 4 months old,
certain long outstanding balances may not receive the required attention.

Recommendation

We suggest that ageing report of accounts receivable should include additional

classification to cover balances outstanding for 6-12 months, and over 1 year.
This will help the management to have a better focus on long outstanding
accounts receivable balances and minimise risk of bad and doubtful debts.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 14

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

13. POOR MAINTENANCE OF AGED DEBTORS RECORDS

Observation

At 31 December 200X there were retail customer debtors with a total balance
UD 669,683 which have been outstanding for more than 90 days. The
accountant was unable to provide us with a detailed list or the age of these
debtors when we were performing our final audit in March 200Y. We are
concerned that no follow up is being performed for these accounts to ensure
payment and that they may need to be provided for.

The Company has no policy for providing for doubtful debts and has recorded
no provision for the year ended 31 December 200X. The debtors ageing report
allocates debtors based on the following:

 Less than 30 days

 31 to 60 days
 61 to 90 days
 Over 90 days

It is difficult to use this report to calculate the provision for doubtful debts as
it does not allocate the age of the debtors over a long enough time period. As a
result the “over 90 days” category (UD 1,613,797) represents a significant
proportion of the total debtors balance at 31 December 200X.

We also noted that no provision had been recorded for NMG Contracting
(outstanding debtor balance UD 70,410) for which a legal case has been filed.

Recommendation

We recommend that:

 A detailed list be maintained for the retail customer debtors and that this
be aged to allow the accountant and debt collector to follow up any
overdue balances.

 The ageing report be modified to show debtors older than one and two
years. This will help to identify very old debtors for which a provision is
required.

 Management should develop a policy for providing for doubtful debts that
is followed consistently from year to year.

 Management should review long outstanding debtors on a regular basis

and create an appropriate doubtful debts provision.

E KNOWLEDGE RESOURCE CENTRE PAGE 15

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 16

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

14. INCREASE IN AVERAGE AGE OF RECEIVABLES

Observation

The average age of receivables has deteriorated from XX days to YY days as

at the end of the financial years.

In addition, receivables greater than 120 days have increased from UD XX to

UD YY.

As a result, working capital is tied up in receivables and the company is

financing this with bank borrowings. This also increases the company’s risk
of increased doubtful debts.

Recommendation

Management should reconsider the policy for granting credit; which at present
is fixed solely on monetary amounts and allows debtors to continue to receive
goods on credit, even though the debtor has amounts outstanding outside of
their agreed period of credit.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 17

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

15. NO PHYSICAL VERIFICATION OF DISHONORED CHEQUES

Observation

We noted that no physical verification has been carried for dishonored cheques either
at year end or at an interim date. Furthermore, physical existence and value of
this asset has not verified even after the change of partners of the business in
1997. Therefore, the actual existence and value of this asset is not reliable.

Recommendation

We recommend that a complete physical verification be performed by an independent

official to ensure the physical existence and valuation of cheques dishonored.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 18

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

16. INADEQUATE RECORDS FOR LEGAL CLAIMS OF DISHONOURED CHEQUES

Observation

We noted that there were no proper records maintained for cases filed in courts
against the customers in relation to the dishonored cheques.

Recommendation

We recommend that a proper register be established and maintained with appropriate

details for all cases filed in the courts. This register should be updated in case
to case basis and reviewed by the head of the department.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 19

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

17. POOR MANAGEMENT OF DEFAULTING POST DATED CHEQUE (PDC)

CUSTOMERS

Observation

We noted a significant amount of long outstanding debtor balances and customers

who have defaulted on post dated cheques (PDC) payments. We believe this is
a result of the lack of effort & coordination between the accounts department
the debt collectors, who have not been effective in the control, monitoring and
follow up slow paying customers and PDC defaults on a timely basis.

We noted that no evaluation of this provision was performed by management for the
year ended 31 December 200X.

Recommendation

We recommend that the following initiatives be implemented:

 A formal credit policy should be implemented with potential credit

customers carefully evaluated by management.

 The management should establish strict control procedures to closely

monitor the old debtors and default PDC customers. A list of defaulting
PDC customers and old debtors should be supplied to the debt collector on
a regular and timely basis to allow immediate follow up. Ultimately,
where the debt concerns a vehicle sold under the instalment plan, the
vehicle should be repossessed and sold to maximise the Company’s
recoupment of the principal outstanding.

 Management should review old and default PDC customers at year end
and create an adequate provision.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 20

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

18. ACCEPTING POST DATED CHEQUES (PDC) FROM AFFILIATE COMPANIES

Observation

We noted related party transactions which were not made on an arms length
basis. An example of this is where post dated cheques (PDC) have been
collected from various affiliates in favour of ABC W.L.L. These PDCs have
then been discounted with various banks and the interest expense allocated
between the affiliates.

In effect this amounts to interest free loan to ABC W.L.L at the expense of the
affiliates.

These transactions undermine the assessment of the true performance of each

individual Group entity and results in successful entities supporting the poor
performing entities. This in turn hides operational problems, increasing the
chances these entities will fail.

Recommendation

We recommend that management discontinue the use of non arms length

transactions, such as that noted above, designed to support the poor
performing entities. Management should review the activities of the poor
performing entities and make the necessary structural changes to enable these
operations to become profitable. If the performance of these entities can not
be improved in the short term then management should consider winding up
the entity, otherwise they will continue to act as a financial drain on the
Group’s profitability.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 21

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

19. UNMATCHED RECEIPTS AGAINST DEBTORS

Observation

We have noted a significant number of unmatched receipts are included in the

debtors sub ledger due to problems with matching receipts against invoices.
This could result in an incorrect debtors ageing, reducing the accuracy of
reports used for debtors follow up and allowing fraudulent transactions to be
hidden.

Recommendation

We recommend that:

 An effort be made to ensure unmatched receipts on the debtors ledger are

matched to invoices. If receipts cannot be matched the customer's approval
should be sought to offset the balances on a first in, first out basis.

 A debtors statements of account be sent to customers on a regular basis and

any disputed amounts be investigated and resolved.

This will result in an accurate debtors ageing, which will help in the follow up
of long outstanding balances and in the calculation of the doubtful debts
provision.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 22

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

20. DIFFERENCE BETWEEN DEBTORS SUB LEDGER AND GENERAL LEDGER

Observation

We note an unreconciled difference of UD 214,336 between the debtors sub

ledger control account and the general ledger.

Reconciling differences must be resolved promptly as they could indicate

errors some of which may cause losses to the Company. For example, a
debtors invoice might have been deleted from the debtors sub ledger resulting
in its exclusion from the debtors statements and hence non-collection.

Recommendation

We recommend that management investigate and reconcile this difference on a

timely basis.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 23

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

21. LONG OUTSTANDING RECEIVABLES

Observation

Included under other receivables is UD 1.2 million which was paid in 1978 as
a 50% advance for the purchase of a plot of land in ABC. This transaction
was canceled but the advance was not refunded. Substantial interest income
has been lost due to the delay in the follow up of this advance and it will
become more difficult to recover the longer this is left unattended.

Recommendation

We recommend that this advance be followed up on a timely basis. If it likely

that the advance will not be recovered a provision should be made in the
company’s accounts.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 24

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

22. NO WRITE OFF OF OUTSTANDING RECEIVABLES FROM EX-EMPLOYEES

Observation

We noted that staff receivables includes an amount due from ex-employees.

Further, the policy and procedure applicable for recover of staff advances are
not precisely established.

Recommendation

We recommend that, the company should review all staff advances receivable
and write-off irrecoverable amounts. Furthermore, a company policy should
be established regarding the recovery process and other related matters of staff
advances.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 25

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

23. ACCOUNTING FOR OLD REFUNDABLE DEPOSITS

Observation

We noted that UD 61,637 is recorded as refundable deposits payable at 31

December 200X. This balance represents refundable deposits received from
customers for items rented by them. This balance has accumulated over a
number of years due to customers not returning the items rented.

Recommendation

We recommend that when an item is not returned within a reasonable period

the deposit payable should be recorded as a sale, the item rented removed
from inventory and the deposit payable be reversed.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 26

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

24. NO LOCAL PURCHASE ORDERS (LPO) OBTAINED FROM WHOLESALE

CUSTOMERS

Observation

We note that at present the Company does not have any system of requesting
purchase orders from the wholesale customers, such as, Souqes and
supermarkets. In the absence of purchase orders prices, quantity and quality
of the goods supplied may be disputed. This could result in a loss being
incurred by the Company where the order can not be substantiated with a
purchase order.

Recommendation

We recommend that the Company request purchase orders from all wholesale
customers giving details of materials to be supplied and the prices. This will
act as a documentary evidence in support of any dispute.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 27

 PRO FORMA MANAGEMENT LETTER POINTS - RECEIVABLES
When using these summary pro forma management letter points, great care
should be taken to tailor them to the client’s specific circumstances

25. CREDIT INVOICES ONLY SIGNED BY ONE INDIVIDUAL

Observation

We noted that credit invoices are signed by only one person as evidence of
review and approval.

Recommendation

In order to improve control over credit sales, we recommend that the credit
invoices form be amended to include a space for two employees to sign (e.g.
prepared by and checked by). This procedure reduces the level of errors that
may arise on credit sales.

Management Response

E KNOWLEDGE RESOURCE CENTRE PAGE 28