In anticipation of an upcoming
- In anticipation of an upcoming engagement, an internal auditteam recently toured the company’s receiving, warehousing, andproduction facilities to obtain a better understanding ofday-to-day operations. Listed below are selected items noted by theinternal audit team during the tour:
- A large quantity of materials was sitting in a corner near theunloading docks. The receiving manager informed the audit team thatthe delivery trucks had already left. The materials had not yetbeen counted or inspected.
- One section of the warehouse contained large quantities ofitems with inventory tags from several physical inventory counts.The warehouse manager told the audit team that this was thecompany’s inventory of spare parts that it was required by law tokeep on hand for specified time periods.
- Hazardous chemicals are used in the inventory finishingprocess. Waste chemicals are stored in large plastic barrels in adesignated area of the factory before being shipped fordisposal.
For each item noted by the internal audit team:
- Describe the potential business risk(s) associated with theitem.
- Discuss how the internal auditors’ knowledge of the risksidentified might affect a subsequent audit of the materialsacquisition and production processes.
- A staff internal auditor found the following possibledeviations from prescribed controls and documented them in herworking papers.
|
Invoice Number |
PrescribedControl |
PossibleDeviation |
|
248 |
Written authorizations of sales bysales order department. |
Verbal authorization by phone bysales order department. |
|
333 |
Verification of sales orderquantities and prices. |
No evidence of verification;quantities and prices are incorrect. |
|
377 |
Verification of sales orderquantities and prices. |
No evidence of verification, butquantities and prices are correct. |
|
617 |
Billing department verification ofunit prices. |
Price verification indicated oninvoice; the prices do not agree with the price list in effect atthe time of sale. |
For each of the items listed above, indicate whether there is oris not a deviation from a prescribed control. Briefly explain youranswer.
Answer:
Invoice 248
Since prescribed control is written authorization by salesdepartment, verbal authorization on phone is a big deviation .
As whole audit is done on basis of written audit evidence , herethere is no audit evidence to verify the same as authorization wasverbal.This is conrol deficiency and stronger internal controlshould be put in purchase department , An ERP sysytem could beplaced where orders can only be placed through erp sysytem.
Invoice 333
Prescribed Control was Verification of sales order quantitiesand prices..
No audit evidence is available to verify the same this isdeviation from the prescribed control. If quantitites and pricesare not verified it could lead to theft or collusion by some onefrom purchase department by inflating the price. And they weresubject to fraud or theft as therer quantities and prices wereincorrect .As we saw that delivery trucks unloaded and left andmaterial was not checked , Its open to theft or seller could sendless quantities and bill for more
Invoice 377
Prescribed control was Verification of sales order quantitiesand prices.
Although price and qty. were correct but they were not verifiedhence its a deviation . A control is something which is notoptional it have to be applied on each and every transaction . Ifit would have been optional entity will never apply controls ontransaction of colorable nature.
Invoice 617
Prescribed control was Billing department verification of unitprices.
Here all though prices were verified but they donot agree withprice list in effect at the time of sale. Here controls wereapplied hence its not deviation. Billing department verified theprice ,there could be multiple reason for not matchin with saleprice list as it could be qty discount, etc. Auditor can verify thesame through other paudit procedures but is not the deficiencycontrol here
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