Purchases

Control deficiency Control recommendation Reference

All members have access to master The monthly exception report of 222, 225
file and exception report is not changes to master file data should be 228
reviewed reviewed by responsible official, who (payroll)
All members of purchasing should evidence this for review. Any
department could amend data unauthorized or unexpected changes
and ,potentially, add new supplier to should be investigated and
the payable system, and the appropriate action taken.
exception report is not reviewed, it’s
unlikely that this would be identified. The ability to make amendments to
This leads to an increased risk of master file data should be restricted to
fraud as clerk could add fictitious those required and authorized to make
supplier and then place fraudulent changes to this
orders without detection
Purchase invoices not agreed to All purchase invoice should be 225
GRNs matched to both the purchase order
This could result in invoices being and GRN. The details should be agreed
paid for goods which weren’t prior the invoice being authorized and
received, resulting in increased costs. logged in the payables system
No GRN is sent to finance A copy of GRN should be provided to 222
department. finance department on a timely basis.
Therefore, on receipt of purchase On receipt of goods all purchase
invoices, they aren’t being agreed to invoices should be agreed to the
the relevant GRNs and orders prior to relevant GRN and purchase order and
input in payable ledger. this should be undertaken prior
This could result in invoices being invoice being logged in payable ledger.
paid for goods which weren’t
received or ordered
Only document control is utilized The payables ledger clerk should 222
Document count controls can confirm instead input the invoices in batches
the completeness of input. However, and apply information processing
they do not verify the accuracy or controls, such as control totals, rather
validity of input. If the invoices are than just completeness checks to
not input correctly, suppliers may not ensure both completeness and
be paid on time or may be paid accuracy over the input of purchase
incorrect amounts. This could lead to invoices.
a loss of supplier goodwill or
suppliers withdrawing credit facilities. In addition, sequence checks should
be built into the system to ensure
completeness of input.
Warehouse manger supervise the Inventory counts should be supervised 225
count by an independent person, such as
 The warehouse manager may wish to member of Pomeranian Co’s IA
hide inefficiencies and inventory department.
discrepancies so that their
departments are not criticized. This
could result in inventory count
records being inaccurate as well as
increase in inventory fraud.

Sales

Control deficiency Control recommendation Reference

Credit limits aren’t reviewed Credit limits should continue to be set 222,225,228
If credit limits aren’t reviewed by the finance director, however,
regularly, they could be out of date, these limits should be reviewed on a
resulting in limits being too high and regular basis and amended as
therefore sales being made for poor appropriate by a responsible official.
credit risk, or too low resulting at loss
on potential revenue.
No sales order is sent to sales The sales order form should be 222,229
department amended to become four-part, with
they wouldn’t be able to monitor if the fourth copy being sent to the sales
orders are being fulfilled on a timely department. Upon dispatch, the goods
basis. dispatch note should be matched to
This would reduce customer goodwill the order. A regular review of
unmatched orders should be
undertaken by the sales department
to identify any unfulfilled orders.
Discount not reviewed All discounts to be granted to 222
This could result in unauthorized customers should be authorized in
discounts in excess of 8% being advance by a responsible official, such
allowed and a loss of revenue as they as the sales director. If this is not
may award unrealistic discounts practical, then the supervisor of the
simply to meet sales targets. sales staff should undertake this role.
A copy of the authorization should be
sent to the sales department and the
customer’s master file data amended
for discounts allowed by a responsible
official.

The master file data system should be

 amended to prohibit discounts in
excess of 8% being entered.

On a regular basis, the sales director

should undertake a review of discount
levels granted on sales orders and
ensure they are in line with authorized
levels.
No GDNs are sent to finance The copies of GDNs should be sent to 225
department the finance department on more
If GDNs are not sent promptly to frequent basis, such as daily.
finance department, this could result
at goods being dispatched but being The finance department should
invoiced late. This could result at cut- undertake sequence check of GDNs to
off issues and understated ensure none are missing for
receivables processing.
Reconciliations are only reviewed if The reconciliation should be reviewed 225
there’s difference by financial controller on a monthly
The reconciliation could reconcile but basis, even if there’s no exceptions,
contain significant errors as there and the review should be evidenced
could be compensating errors which by way of signature on the
cancel each other out or they may reconciliation.
have been incorrectly prepared or
manipulated, and this wouldn’t be
identified.
If reconciliation is not reviewed, then
this significantly reduces its
effectiveness.
There’s no credit controller During this period, an alternative 225,229
During this period, it doesn’t appear member of the finance department
that anyone else has been should be trained in the credit control
responsible for monitoring ageing role and assigned responsibility for
receivables. reviewing the aged receivables listing
This could result in an increased risk and following up on any overdue
of irrecoverable debts and lead to customers`
customers not paying their
outstanding balances on time, or at
all, leading to reduced cash flow.
Invoices only chased after 90 days A credit controller should be 228
This is considerably in excess of the appointed, and it should be their role,
company’s credit terms of 30 days rather than the client services
which will lead to poor cash flow. managers, to chase any outstanding
Further, client services managers are sales invoices which are more than 30
more likely to focus on customer days old.
relationships and generating further
revenues rather than chasing
payments. This could result in an
increase in irrecoverable balances
and reduced profit and cash flows.
Credit limits are set by receivables Credit limits should be set by a senior 229
clerks member of receivables ledger
Receivables clerks aren’t sufficiently department and not by receivables
senior and so may set limits too high clerks. These limits should be regularly
resulting in irrecoverable debts or too reviewed by a responsible official.
low resulting in loss of sales.
Receivables clerk amends customer Receivables ledger clerks shouldn’t be 229
master file able to access the master file data to
There’s risk that customers could be add new customers or make
set up incorrectly resulting in a loss of amendments. Any such
customer goodwill and sales revenue. addition/amendments to master file
In addition, the receivables ledger data should be restricted so that only
clerks aren’t senior enough to be supervisor and above can make
given access to make changes to changes.
master file data as this could increase
risk of fraud. An exception report of changes made
should be generated and reviewed by
a responsible official
GDN are given the same number as GDNs should be sequentially 229
sales order numbered using a sequence which is
The sales order are only raised on different to the order number. On
receipt of GDN, and without separate regular basis, a sequence check of
sequential number, it’s difficult to GDNs should by undertaken to identify
identify if any GDNs are missing as any gaps.
they aren’t likely to be raised in the
same sequence as sales order.
If GDNs are missing and the company
fails to raise invoices in a timely
manner, this could lead to a loss of
revenue
temporary staff have been appointed Only the sales clerks should be able to 229
in sales raise sales invoices. As Amberjack Co
As the extra staff will not be as is expanding, consideration should be
experienced as the sales clerks, given to recruiting and training more
there’s an increased risk of permanent sales clerks who can
misstatement being made in the produce sales invoices.
sales invoices.
This could result in customer being
under/overcharged leading to
 misstated revenue and loss of
customer goodwill.
Manual recording of discounts During the period of 10% off weekend, 229
This could result in unauthorized the authorized sales price file should
sales discount being given as there be updated by responsible official.
doesn’t seem to be any authorization These changes should be reviewed for
required. any input errors, this review should be
In addition, the clerk could forget to evidenced.
manually enter the discount or enter
incorrect level of discount for a The invoicing system should confirm
customer, leading to the sales orders were placed during the
invoices being overstated and loss of discount weekend. Hence the sales
customer goodwill. invoices for these periods should
Unauthorized discounts in excess of automatically contain a reduced price.
10% would result in loss of revenue,
either due to error or fraud. The invoicing system should be
amended to prevent sales clerks from
being able to manually enter sales
invoices onto invoices.
No customer statement Amberjack Co should produce 229
If statement aren’t sent regularly, this monthly customer statements for all
increases the likelihood of errors and customers and sent them out
any disputed invoices not being promptly
quickly identified and resolved by
Amberjack Co.
This could lead to cash flow issues.
Annually reconciliations The trade receivables account should 229
If the receivables account is only be reconciled on a monthly basis to
reconciled annually, there’s a risk that identify errors which should be
errors will not be spotted promptly. investigated and corrected. The
Receivables may be misstated. reconciliations should be reviewed by
responsible official and they should be
evidenced their review by way of
signature.

Payroll

Control deficiency Control recommendation Reference

Payroll Manager Able to Review and The senior manager shouldn’t be able 220
Amend Payroll Records to process changes to the payroll
There’s lack of segregation of duties. system as well as authorize payment.
The senior payroll manager could The authorization of the bank transfer
fraudulently increase the amount to listing should be undertaken by an
be paid to certain employees, individual outside the payroll
process this payment. department, such as the finance
director.
Automated Payroll Calculations Not A senior member of payroll team 220,223,224
Reviewed should recalculate the gross to net pay 232,237
While an automate system is an working for a sample of employees and
effective way of reducing errors, compare the results to output from
there’s possibility that system errors payroll system.
occur during payroll processing These calculations should be signed as
which would not be identified. approved by the finance director
This could result at payroll being before payment is made
over/under calculated, leading to an
additional cost or loss at employee
goodwill.
Edit report not reviewed The edit report should be reviewed on 223
The payroll clerk could make errors a weekly basis by senior official from
when making the amendments or payroll department before payroll is
could fraudulently revise payroll data finalized and any payment made.
to inflate the pay of friends or family. Any unusual amendments should be
This could result in incorrect investigated.
payments being made to employees This review should be evidenced, by
and incorrect deductions being made the way of signature, and the results of
resulting in loss of employee any investigation should be recorded
goodwill and misstated payroll
expenses.
Edit report not reviewed The payroll supervisor should review 226
(joiners/leavers) all edit reports and agree changes
The payroll clerk could make errors made to the details on the
when updating the system which will joiners/leavers forms. Any
not be identified promptly. This may discrepancies should be investigated
result in new employee not being promptly and the payroll system
paid at all, errors being made in updated for any errors or omissions.
payment of new employees or
leavers being paid after leaving the The payroll supervisor should evidence
company. This would lead to loss in their review on the edit report with
employee goodwill or incurring their signature.
additional costs.
It could also lead to an increased risk
of fraud as fictious employees can be
added by the payroll clerk
No joiner forms A joiner form should be completed for 224,226
The production supervisor may not all new employees, whether temporary
include all relevant details in the or permanent. The authorized joiner
email to payroll. This could result in form should be then sent to the payroll
temporary employees not receiving on the day the employee commences
the correct pay or not being paid on employment. Payroll should then sign
time, resulting in a loss in employee the form as being actioned.
goodwill.
The addition of new employees to Payroll shouldn’t set up new employee
the payroll without authorization of without authorized joiners form
HR, increases the risk of fictious
employee being added.
New joiners are set by production All new joiners 236
supervisor (permanent/temporary) should be set
The supervisor could appoint by the HR department.
unsuitable employees and may not
carry out required procedures for
new joiners.
This could result in temporary
employees not receiving their
correct pay causing employees
dissatisfaction.
Overtime reviewed quarterly Overtime reports should be authorized 224,236
These reports are reviewed after by a responsible official prior to the
payment is made. payment being processed by the
This could result in unauthorized payroll. This authorization should be
overtime, or amount being paid evidenced in writing.
incorrectly, resulting in increased
payroll costs.
Only overtime > 5 hours authorized All overtime, including that below five 226,237
This means that employees could hours, should be authorized by
claim working up to five hours responsible official before being
overtime without authorization processed in payroll. This authorization
resulting in payments being made to should be evidenced by way of
employees for hours not worked and signature.
additional payroll costs.
Bonus based on HR manager’s view The bonus payments should be 224,226
There’re no approved parameters for determined in line with specific and
the bonus level so it’s purely based documented criteria and approved by
on the discretion of one individual the board.
who could pay bonuses The HR director or any responsible
inappropriately, resulting at extra official should provide payroll with a
costs or loss of employee goodwill. list detailing approved bonuses per
employee. Payroll department should
be informed only to action payment or
any other change on receipts of
written authorization by the board.
Production supervisor determine the The bonus should be determined by a 232,236
bonus more senior individual, such as the
Production supervisor is not senior production director. If significant in
enough to determine the bonuses. value, the bonus should be formally
They could pay extra bonuses to agreed by the board of directors. This
friends or family members, causing should be communicated in writing to
increased costs to Bronze Co. the payroll department.
Payroll clerk update standing data The annual wages increase should be 237
The payroll clerk is not sufficiently made by a senior member of payroll
senior to make changes to the department, and this should be
standing data as they could make checked by another responsible official
mistakes. for errors.
This could lead to incorrect payment
of wages leading to loss of employee
goodwill or extra payroll costs.
In addition, if they can access the
data they can make unauthorized
changes to the data.
Holiday requests not authorized Employees should receive written 226,232
This could result in employees taking confirmation when their holiday has
unauthorized leave, which could lead been approved and should be
to operational difficulties if there are informed that they will not be able to
shortages of staff at critical periods. take holiday without this notification.
In addition, payment for untaken
holiday could be made in error as Any payment for unused holiday
holiday records may be incorrect. should be authorized by department
manager prior to payment.
FC prepares & authorizes the bank Once the bank transfer has been 226,232,236
transfer prepared by the financial controller, it
There’s lack of segregation of duties should be passed to the finance
increases the risk of fraud/errors as director to be reviewed and authorized
financial controller could pay for payment. The review and
themselves or certain employees authorization should be evidenced by
more than they are due without this the finance director.
being detected.
Cash wages collected with out ID The payroll clerk should be informed 226,236
Payments of wages without proof of that all cash payment should be paid
identity or signature increase risk upon sight of employee’s clock card
that wages could be paid to incorrect and photographic identification as this
employees either in error or due to confirms proof of identity
fraud resulting in loss of cash.
No monitoring of student loan The payroll department should 232
deductions maintain a schedule, by employee, of
As the payment continue until the payments made to the central
employee notifies HR, and government as well as the cumulative
employees are unlikely to be closely balance owing.
monitoring payments. On a regular basis, at least annually,
There’s risk that overstatement may this statement should be reconciled to
be made, which then they need to the loan statement received by the
be reclaimed, leading to employee government and sent to the
dissatisfaction. employees for agreement.
In case of underpayments, Raspberry In accordance with the schedule,
Co has an obligation to remit funds payment which are due to cease
on time and to reconcile to annual should be confirmed in writing with
loan statements. the third party, prior to stopping.
If company doesn’t make payments
in full and on time, this could result
in compliance by both company and
employee, which could result in fines
or penalties.
Production supervisor distributes pay All pay packets should be distributed 232
packets by the payroll department, directly to
The production supervisor is not employees upon sight of the
sufficiently independent to pay employees’ clock card and
wages out. They could adjust pay photographic identification as this
packets to increase those of close confirms proof of identity
friends whilst reducing others.
In addition, although the production
supervisor know their team
members, payment of wages without
proof of identity increases the risk
that wages could be paid to incorrect
employees.
Variances not analysed The monthly management accounts 232
wages and salaries are a significant should be amended to include an
expense and management needs to analysis of wages and salaries
understand why variances may have compared to budgeted costs. These
arisen. These could occur due to should be broken down to each
extra employees being recruited relevant department and could also
which were not budgeted for, or an include an analysis of headcount
increase in wage pay out rates. The numbers compared to budget.
board would need to monitor the
wages and salaries costs as if they
are too high, then this would impact
the profitability of the company.
Clock in/out process not supervised The process of employees entering 236
This increases the risk of employees factory using clock cards should be
 being paid but not completing their supervised by security staff as well as
required hours. CCTV cameras.
Additionally, there’s risk that one
employee could sign on behalf of
other employees due to lack of
supervision which increases the
payroll costs.
Breaks not monitored Employees should be allocated to set 236
This could result in employees taking breaks times and there should be a
an excessive break which will reduce supervisor present to ensure that
productivity and increase payroll employees take only breaks they are
costs. entitled to.
Payroll set new employees The HR director should review the 234
This lack of segregation of duties as workloads of the department as a
payroll department can set up new matter of urgency to assess whether
employees and process their pay, other tasks can be re-prioritized as
increasing risk of fraud due to payroll should cease to set up new
fictious employees can be added. joiners. This role must immediately
revert back to HR to undertake.
Additionally, a review should be
performed of all new joiners set up set
up by payroll with agreement to
employee files to confirm that all
employees are bona fide

Non-current assets

Control deficiency Control recommendation Reference

Inadequate Safekeeping of Property Copies of ownership documents and 220
Ownership and Lease Documents lease agreements which cannot be
Ownership documents provide proof located should be requested from the
that Francisco Co owns sites and company’s lawyers.
lease agreements provide evidence of
right of use. If these are not stored All ownership documents and lease
securely or are misplaced, Francisco agreements should be stored securely,
Co may encounter difficulties when for example, in a fire-proof safe, or
trying to sell a site or may incur could be held offsite with a third party
additional costs to obtain duplicate such as the company’s lawyers or
copies. bankers.
 The company should maintain a log of
all ownership documents/lease
documentation which should be
updated and reconciled on a regular
basis.
Asset Purchases Exceeding Approved The company’s monthly management 220,228
Budgets accounts should include an analysis of
It appears that purchase orders for asset expenditure against budget and
asset expenditure are being placed prior year per cost centre.
without being agreed back to the
annual budget, resulting in significant Each cost centre head should include
overspends. The increased a narrative which explains the
expenditure may be due to increased significant variances to date.
levels of services being provided, or it
could be due to a lack of control over Purchase orders for assets should be
the asset expenditure process, compared to the annual budgets as
resulting in increased costs and part of the authorization process. Any
reduced profits. spend in excess of the budget should
be referred for authorization to the
finance director.
PPE physical verification The board should set policy to ensure 223,225,228
On this basis, IA will take five years to comparisons must be made more 234
complete physical verification in all 11 frequently.
sites.
If non-current assets register not IA should review its program of visits
physically verified on a regular basis, to assess if additional recourses could
there’s an increased risk of assets be devoted to ensure that all 21 sites
being misappropriated as there’s no are visited in a shorter period. This
check on that the asset still exist in could ensure that physical verification
their correct location, in addition of all assets could be made on more
obsolete assets may not be identified regular basis.
on a timely basis
During visits, any assets which cannot
be located should be investigated
fully. If they cannot be located then
they should be written off.
Change to asset policy Significant change at accounting policy 223
This represents a significant change should be discussed and approved at
to an accounting policy which doesn’t board level. A record of any decision
appear to have been discussed or should be recorded at board minutes.
approved at board level.
This threshold is too high, as overtime The capitalization limits should be
this will results in significant amount reduced to more appropriate limit,
of costs which should be capitalized such as $1,000. So that assets and
 written off to profit or loss and profitability are more accurately
understated PPE. reported
Authorization limits too high The authorization limits for 225
0.5m is significant sum and although department heads should be
department heads undertake significantly reduced to more
authorization process, there’s still appropriate level, such as $25,000.
considerable for non-business scope Any sum of excess of this should be
use or surplus assets being purchasedapproved by the board. If this proves
leading to reduced profits and cash too onerous, an asset expenditure
flows. committee of senior employees
should be established for
authorization of assets. This
committee should be reported to the
board.
IA staff shortages Senior management should consider 228,234
Maintaining and IA is an important recruiting additional employees to
control as it enables senior join IA department or outsourcing the
management to test whether controls IA function.
are operating effectively within the
company. If the team has staff In interim, employees from other
shortages, this reduces the departments, such as finance
effectiveness of this monitoring department, could be seconded to IA
control. to assist them with audits. It must be
ensured these reviews don’t cover
control operating in the department in
which employees normally work.

Bank and cash

Control deficiency Control recommendation Reference

Finance director doesn’t review The finance director should review the 223
details whole payment list prior to
Without looking at the details of authorization.
payment list, as well as supporting As part of this the finance director
documentation, there’s risk supplier should agree the payments to the
being paid incorrect amount, or that supporting documentation, as well as
sums are being made to fictious reviewing supplier names to identify
suppliers any duplicates or any unfamiliar
names. This should be evidenced as
singing the supplier payment listing.
No petty cash receipts Employees should be required to 223
This could result at sundry purchases promptly return the excess of cash
being made which for non-business- and receipts for sundry purchases. The
related items or cash being petty cash ledger account should be
misappropriated. updated to record excess cash and the
receipts.
A member of finance department
should reconcile the petty cash on a
weekly basis and if any receipts are
missing, they should be investigated
further with employees who made the
petty cash purchases during the week.
The reconciliation should be
evidenced as reviewed by responsible
official.
Internet banking login details are The interned banking log in details 224
shared to all staff shouldn’t be documented and should
There’s risk that staff fraudulently be known be selected staff with
setting up new payee or making appropriate authorization. Any
withdrawals from the bank, resulting changes to the payees should be
in an increased risk of loss or documented on change report which
misappropriation of fund. is extracted from internet banking
system and reviewed finance director
on regular basis confirm changes are
expected.
Only significant reconciling items are The reconciling items should be 224,235
reviewed reviewed by the financial controller on
The bank reconciliation could contain weekly basis, even if they aren’t
significant errors, but a low overall significant, and they should be
number of reconciling items, as there evidenced as reviewed by way of
could be compensating errors which signature on the bank reconciliation.
cancel each other out. If reconciling
items aren’t reviewed, then this
reduces the effectiveness of the bank
reconciliations
Petty cash differences A petty cash log should be maintained 231
This could result in sundry items being so the purchase of sundry items is
purchased without relevant receipts recorded in the log along with the sum
or voucher being returned. borrowed, date and employee.
There’s possibility that cash being
misappropriated by staff members, or On purchase of items the relevant
being spent on non-business related employee should return the relevant
items receipt or voucher and any funds not
spent. The log should be updated to
 confirm return of funds and receipts.

On a weekly basis, the restaurant

manager should reconcile the patty
cash and if any receipts are missing,
these should be followed up with the
relevant employee. If it’s cash which is
missing, then this should be
investigated further with the
employees who made petty cash
purchases during that date.
Access to tills Each employee should be provided 231,235
In the case of cash discrepancies with a unique log on code and this is
arising in the tills, it would be difficult required to be entered when using the
to ascertain which employees may be tills.
responsible as there’s no way of
tracking who used which till. In order to facilitate the investigation
This could lead to cash being easily of till differences, employees should
misappropriated. be allocated to specific till point for
their shift.
Any discrepancies which arises should
initially be double checked to ensure
they aren’t arithmetical errors. If still
present the relevant employees who
had access to the till can identified
and further investigations can be
undertaken.
Tills reconciled in total The reconciliations should be 231
This means when exceptions arise, it undertaken on an individual till by till
will be difficult to identify which till basis rather than in aggregate and any
caused the difference. discrepancies noted should be
Therefore, employees may require investigated immediately.
further till training or may have
undertaken fraudulent transactions.
Segregation of duties (cashing up) The cashing up process should be 231
There’s a fraud risk as the manager undertaken by two individuals
could remove some of the cash and together, ideally an assistant manager
then simply record that there was an and the restaurant manager. One
exception on the daily sales list. should count the cash and the other
In addition, there’s no segregation of record it.
duties, the restaurant manager could,
fraudulently or by error, record the Any exceptions to the till reading
total sales as per each till incorrectly should be double checked to confirm
leading to incorrect identification of that they are not simply arithmetical
discrepancies. errors.
If still present, the relevant employees
who had access to the till can be
identified and further investigation
can be undertaken.
Risk of incomplete sales sheets Daily sales sheets for each venue
There’s possibility that some sales should be sequentially numbered and
sheets could be misplaced by the remitted to the head office on a daily
restaurant manager. basis. At head office, sequence check
This will result in incomplete sales and should be performed on a regular
cash receipts data being recorded into basis to identify any missing sheets
accounting system. and gaps should be investigated
further.
Once received the cashier should post
the sales and cash data for all six
venues on a daily basis. Once
processed, they should then be signed
as posted by cashier and filed away
securely.
Security of cash The current key lock should be 231
Although, cash is banked on a daily replaced with a safe with a digital
basis, there could still be a significant code. Only authorized personnel
sum of cash onsite each day. should have the code which should be
There’s risk of significant cash losses updated on a regular basis.
due to theft if access to the safe key is
not carefully controlled.
Several duties for cashier These key roles should be split 231,235
There’s lack of segregation of duties between different members of the
and errors will not be identified on a finance team, with ideally bank
timely basis. reconciliations should be undertaken
by another member of the team.
Credit card statements not reconciled The cashier should reconcile the credit
There’s risk that receipt of cash by card vouchers per restaurant to the
credit card may have been omitted monthly statement received from the
and this would not be identified on a card bank.
timely basis as the bank is only The daily amounts per the statement
reconciled every two months. should be agreed to the bank
This may result in difficulties in statement to ensure that all funds
resolving any discrepancies with the have been received.
credit card company.
This reconciliation should be reviewed
by a responsible official, such as the
financial controller, who should
evidence by signature that the review
 has been undertaken.
Infrequent bank reconciliations The bank reconciliations should be 231
The bank reconciliation is a direct performed on a monthly basis rather
control which reduce the risk of fraud than every two months. The financial
and identifies errors. controller should continue to review
If not performed regularly, it will not the reconciliation and evidence that
be effective at identifying fraud and review by way of signature on the
errors on a timely basis. bank reconciliation.
Detail of payment list not reviewed The finance director should review the 231
Without looking at the detail of the whole payment list prior to
payment list, as well as supporting authorizing.
documentation, there’s risk that
suppliers could be being paid an As part of this, the finance director
incorrect amount, or that sums are should agree amounts to be paid to
being paid to fictious suppliers. supporting documentation, as well as,
This will cause loss for the company. reviewing the supplier names to
identify any duplicates or any
unfamiliar names.
The finance director should evidence
that review by signing the bank
transfer list.
Incomplete IA checks Caterpillar’s IA department should 235
This increases the likelihood of have a rolling programme of visits to
control errors, as these stores may all 45 stores. This programme can
not comply with company have a bias to large and high-risk
procedures. stores, but should ensure that all
As it is a cash business heightens the stores are visited.
chance of frauds through theft
occurring.
Employees can serve friends/family Caterpillar Co should instigate a policy 235
There’s a significant fraud risk as whereby employees are unable to
employees could fail to put the goods serve family members at the till
through the till, but retain cash paid points. They should be required to
by friends or family members. request that a manager or supervisor
Additionally, they could give the put these goods through the till.
goods away for free or undercharge
for goods sold, thereby granting In addition, CCTV cameras could be
unauthorized discounts. placed in the shops, near to the till
points to record the daily till
transactions. This will act as a
deterrent to employees as well as
provide evidence in the case of
fraudulent transactions occurring.
 Junior sales clerk sent to bank Caterpillar’s head office should 235
There is a risk of the cash being stipulate a float amount per till and
misplaced or stolen on the way to the how note denominations should be
bank or collusion between junior clerk comprised. When assigning the cash
and till operator as no record appears float in the morning, the store
to be kept of the money removed manager should ensure that this
from the till in these instances and no policy is adhered to.
confirmation of how much cash is
returned is carried out.

Inventory

Control deficiency Control recommendation Reference

Warehouse manager supervises the An alternative supervisor who is not 238
count normally involved with the inventory,
The warehouse manager is not such as an internal audit manager,
independent since he has the overall should supervise the inventory count.
responsibility for the inventory. The warehouse manager and
The warehouse manger may want to warehouse team should not be
hide inefficiencies and any issues that involved in the count at all.
arise to avoid criticism of the
department.

No division of responsibilities Each team should be informed that 238

However, there is no clear division of both members are required to count
responsibilities within the team. their assigned inventory separately.
Therefore, both members of staff Therefore, one counts and the second
could count together rather than member checks that the inventory has
checking each other’s count. Errors in been counted correctly.
the count may not be identified.
IA teams performing counts The internal audit counters should 238
Internal audit should review the sample check the counting undertaken
controls and perform sample test by the ten teams to provide an extra
counts to confirm the count is being control over the com
performed accurately and effectively.
Issues with the count may not be
identified resulting in an ineffective
count.
Counted areas not flagged All aisles should be flagged as 238
Some areas of the warehouse could completed, once the inventory has
be double counted or missed out. been counted. In addition, internal
This will increase the risk of the audit or the count supervisor should
inventory quantities being either check at the end of the count that all
under or overstated. 20 aisles have been flagged as
completed.
Additional sheets not sequentially Each team should be given a blank 238
numbered sheet for entering any inventory count
The supervisor will be unable to which is not on their sheets. This blank
ensure the completeness of all sheet should be sequentially
inventory sheets. This could result in numbered, any unused sheets should
understatement of inventory. be returned at the end of the count,
and the supervisor should check the
sequence of all sheets at the end of
the count.
Inventory sheets not signed All inventory sheets should be signed 238
If any issues arise with the counting in by the relevant team upon completion
an aisle, it will be difficult to follow up of an aisle. When the sheets are
as the identity of the counting team returned, the supervisor should check
will not be known. that they have been signed.
Damaged goods not separated Damaged goods should be clearly 238
It will be difficult for the finance team flagged by the counting teams and at
to decide on an appropriate level of the end of the count appropriate
write down if they are not able to see machinery should be used to move all
the damaged goods. The inventory damaged windows to a central
value for the damaged items may not location. This will avoid the risk of
be appropriate. In addition, if these selling these goods. A senior member
goods are left in the aisles, they could of the finance team should then
be inadvertently sold to customers or inspect these goods to assess the level
moved to another aisle. of any write down or allowance.
Competence of warehouse manager A specialist should be utilized to assess 238
It is unlikely that the warehouse both work-in-progress and the
manager has the experience to assess quantities of raw materials.
the level of work-in-progress as this is
something that the factory manager
would be more familiar with. In
addition, the warehouse manager will
also estimate the quantity of raw
materials. A mistake could be made
when assessing the quantities.
Inventory could be materially
misstated.
Third-party inventory included in All inventories belonging to third 238
count parties should be moved to one
There is a risk that these goods may location. This area should be clearly
not be correctly removed from the marked and excluded from the
inventory count sheets, resulting in counting process.
inventory being overstated.