Audit No: B-G&T-BM3-21

December 10, 2020

INTERNAL AUDIT REPORT
GENERAL AND TECHNICAL
STORE
Date Started: Nov 11,2020
November-2020
Date Completed: Nov 30,2020

Draft Audit Report

Dec 10,2020
Date:

Management
Response Date:

INTERNAL AUDIT DEPARTMENT

COMBINED FABRICS LIMITED

CHECKED BY: DIRECTOR

 Audit No: B-G&T-BM3-21(November)

Audit Overview
This report covers the following audit area:

Audit Area/ Department Supply Chain

Process/ System reviewed 1) Policy and Procedure 7)
2) Stock management 8)
3) Stock receiving 9)
4) Stock issuance 10)
5) Inventory Accuracy
6) Inventory Ageing
Auditee General and Technical Store Management
Auditor Syed Musa Saeed Zaidi (ACCA) Hassan Ali
Namra Naveed Hamza Latif
Babar Ali
Key Area Personal: Fazl e Rabi
Shafqat Ali DRAFT

Type of Audit Schedule engagement

Inventory Count
Observations
Recommendations
Audit Criteria Industry specific practices
Quality Control
Company policies & procedures

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 Audit No: B-G&T-BM3-21(November)

Audit Scope:

Objective:
 To ensure that all processes/systems take full account of policies and procedures.
 To ensure stock accuracy is achieved & maintained.
 To ensure that there is accurate stock receiving/issuance.
 To ensure that there is appropriate stock identification & traceability.
 To ensure that adequate and accurate stock records and other documents are kept for a defined period.
 To ensure that there are adequate storage arrangements in place for all stock held.
 To ensure that there are adequate security arrangements in place at the stores.
 To ensure the risk of fraud is minimized.
 Effectiveness and efficiency of operations of the audit area.
 Safeguarding of assets; and
 To follow-up on decisions taken in prior audit meetings.

DRAFT

Audit Areas to be covered:

The scope is not only limited to providing the Board of Directors with assurance over the controls implemented by management but can head towards a
‘consultancy’ role, providing strategic support to the Board of Directors and Company.

This particular audit will encompass a review of the following areas:

1) Procedures
2) Inventory receiving and processing
3) Inventory tracking and controlling
4) Issuing of inventory
5) Stock aging analysis
6) Physical inspection and counting of entire inventory
7) Segregation of duties
8) Verification of documents

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 Audit No: B-G&T-BM3-21(November)

Stock Coverage:
Scope of audit is limited to General and Technical store inside of company’s premises. It is scheduled audit engagement extending up to 15 days. Stock
count is conducted on data till November 11, 2020. And the scope of current audit is mentioned below.

Current Month Stock Count Previous Months Stock Count

November-20 September-20 July-20
Sr. Audited Total Value Audited Total Value Audited Total Value
Categories Unaudited
No Items Rupees/- Items Rupees/- Items Rupees/-
1 Mechanical 1,323 - 11,940,648 1264 12,824,804 1314 11,475,973

2 Machine Parts 1,355 - 52,483,334 1220 31,167,397 1130 23,648,335

1,009 94,282,282
3 Order Accessories - 822 158,923,556 778 81,588,331
595 12,723,435 13,129,88
4 Electrical Items - DRAFT

591 539 7,812,682

3
5 General Store Supplies 168 - 3,562,508 150 2,275,362 150 1,940,595
53 1,377,509
6 I.T Items - 93 4,181,263 62 1,890,702
General Building Material(Building, 54 767,694
7 - 87 1,419,505 43 221,297
Sanitary & Carpenter Material)
31 1,768,424
8 Chemical - 29 313,873 27 350,366

9 Lubricants and Fuel 11 - 41,698 12 191,572 15 1,151,856

Total 4,599 - 178,947,533 4,268 224,427,215 4,058 130,080,136

Findings:
OB# Observations with recommendations

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 Audit No: B-G&T-BM3-21(November)
1. Current Audit: November-20 Initiated: May-18
Risk Level: High
Status: Continue
Possible Cause***: Guideline
Observation: Approved comprehensive SOP’s are not provided
During audits, we have noted some following points for the need of inclusion in SOP, with their observations; but they have not been incorporated yet.

SOP’s Points Observations regarding SOP Management Remarks

Initiated
G&T accessories are not issued in the system after they
1) Process of arrangement and issuance of have been transferred to the specific area of G&T store for
ordered accessories. the process of work order wise bundling of mixed
accessories that are uncountable. So it creates main
difference between physical and systematic stock of
accessories.
Initiated
DRAFT

During audit, it has been observed that G&T received

24,680 sewing thread cones with manual record from Yarn
Dyeing Store on November 12, 2020 and it was not
entered in the system for 5 days till November 16, 2020.
2) Receiving of sewing thread (Yarn Dyed
dispatch)

3) If PR is entered wrongly in the system

then how amendment process occurs.
4) Time limit criterion for posting GRN in
the system after receiving IGP form and
goods from admin staff.

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 Audit No: B-G&T-BM3-21(November)

5) The process of rejected and FOC quantity

in GRN.
6) Process for each type of GRN like Open
GRN, and PO based.
7) The process of adding locations for
each item in GRN form.
8) If GRN is entered wrongly in the system
then how correction process occurs.
9) Process of stock adjustment.
Initiated
10) For how long an item can be kept in the
During audit, it has been observed that some items have
store especially items older than 6
been kept in the G&T store since 2018 and from that time
months
those are not in use.
11) Initiation of OGP process by outward
requisition form, entry of OGP
retention date in the system and if the
item doesn’t get back after the retention DRAFT

date.
12) Time limitation for the placement of
rejected/extra & damaged products in
the store detention area.

 Pre-approved policies have been received; and a recommended process map has been given by internal audit in response; which is under discussion for
the analysis and redesign of workflows, finding processes which are sub-par and figuring out ways to change them.
 Furthermore, the Incoming Material Procedure has been approved by directors and implementation has been started.
 Approved intra department policies and procedures are not finalized yet for some amendments.
Meetings Decisions at meetings

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 Audit No: B-G&T-BM3-21(November)

As of July 29, 2020, 5 sessions have been conducted to form

July 25,2020 policies of “Incoming Material Procedure, Procurement
department” and minutes of meetings have been shared with all
concerned departments by internal audit department.
February 10,2020 Fazli rabbi will discuss with CIO.
December 17,2019 Fazli rabbi will discuss with CIO & Sajid (Consultant).
Both procurement and G&T department will make their
October 12, 2019 respective procedures within procure to pay (P2P) cycle before
being discussed completely
August 19, 2019 Policies will be discussed with Sajid (Consultant).

Recommendation:
Policy or SOP’s should be devised and approved by director.

DRAFT

Audit#B-G&T-BM1-20: September-20
New SOP process has been started by Sajid sb and will be cleared after discussion on all the topics as per instruction of Sajid sb & CIO sb.

2. Current Audit: November-20 Recommendation:

Risk Level: High Management is putting effort to achieve goals and should keep this pace to
Status: Non-Conformance achieve target on 0% material difference.
Possible Cause***: Guideline
Observation:
Stock discrepancy has been noted on the basis of Stock Count. Management Response:

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 Audit No: B-G&T-BM3-21(November)
1) There are duplications of description of same items in the system. Annexure (Required)
A
2) There are 93,981 rejected pieces of order accessories having value of
Rs.390, 481/- found during the stock count. Annexure A
3) In the system, 10 items are with their negative balance quantity as
-44,278. Annexure A.
Annexure A

Total No. of
Excess/(Short) Items Error
Stock Data Criterion Items
Items %age
Audited

As on November 11,2020 15,312/(17,933) 4,599 1.96%

Items
Total No. of
Month Excess Short Error
Items Audited
%age
Audit#B-G&T-BM3-20: September-20
Sep-20 877 (601) 4,268 0.59% DRAFT

 Mostly duplication has been removed and remaining will be cleared soon.
Jul-20 1,573 (693) 4,058 0.99%  Some items has been disposed and some are added in stock as per
May-20 3,682 (1,884) 4,398 0.95% instruction of CIO sb.
Jan-20 337 (403) 3,876 0.72%  Pendency due to I.T issues like FIS error (become an OGP without balance
or unavailability of conversion system.
Nov-19 6,136 (14,086) 4,682 1%  We are always strive for excellence but due to Shortage of staff (technical
Sep-19 35 (1,523) 4,453 1.03% section) some discrepancies observed and remaining discrepancies will be
Jul-19 285 (346) 3,447 1.36% resolved soon.

3. Current Audit: November-20 Recommendation:

Risk Level: High Demand and Issuance
Status: Continue  All demand slips should be placed and recorded properly.
Possible Cause***: Guideline  User department stamps should be issued as a control measure
Observation: which would be annexed on all Demand Slips.
As there is a manual demand system then due to this weak control that area  Demand Slip and SIN should accurately match with each other

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 Audit No: B-G&T-BM3-21(November)
is more vulnerable to errors that could not be determined in a limited time. without any cutting, rewriting or manipulation on Demand slip.
Moreover, this time we performed sampling by only 15% due to the  Manager and in-charge sign should only be acceptable.
constraint of time whereas in the previous audits it was upto 40%.  The dates should be mentioned with signatures on demand slip.
So, We are unable to give a reasonable assurance about it.  There should be proper controls on demand slips which can avoid
the risks of misappropriation of items that are entrusted to
department.
1) Old demand slips are not serially numbered.
 The issuance of items should be entered timely.
2) SIN forms are not arranged date wise in a file which makes their traceability
 The quantity of items on SIN note should be matched with quantity
cumbersome.
of demand slip.
Annexure B
Following Aggregate Error Percentage has been determined on the basis of
Purchase requisition
mostly sampling of documents:
 Purchase requisition system should overcome all the flaws that are
Date criterion Aggregate Error %age
reported to make system more efficient.
September 01,2020 to October 31,2020 3.91% Days Difference
 GRN should be recorded within 5 days after receiving IGP.
Previous  Stock issuance note should be entered within 1 day of issuance
Aggregate Error
Audit Date criterion according to KPI’s.
%age
Months DRAFT

Sep-20 July 01,2020 to August 30,2020 12.01%

Jul-20 May 01,2020 to June 30,2020 5.98% Management Response:
January 01,2020 to February (Required)
May-20 2.12%
29,2020
November 15,2019 to December
Jan-20 4.11%
31,2019
Nov-19 15 September to 12 November 9.56%
Sep-19 17 July to 14 September 2.89%
Jul-19 10 June to 10 July 7.53%
Audit#B-G&T-BM3-20: September-20
Systematically demand (ERP/FIS) system yet not provided by IT department.
Deadline of Pending Tasks
 New systematic demand based system
has been developed but not transferred Audit#B-G&T-BM1-20: July-20
In Process
to the user departments yet; but it will be Regarding G&T Audit Mostly issues are due to shortage of staff and load of work, direct issuance from
transferred to them within 6 months by Meeting conducted on gate & yarn dyeing (to avoid production loss) is major cause of this problem.

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 Audit No: B-G&T-BM3-21(November)
July 1, 2020, it was
ERP. decided that, ”ERP will SIN form are recorded serial wise but due to shortage of staff it’s missing.
 Current demand slips would have to be respond for solution of
replaced by new demand books. total automation.”

Audit#43564: April-19
Status: Initiated
Observation:
 There are more items and quantities requested in Purchase Requisition
Note after the proper scrutiny and approval of Directors.

Audit# 43235 May-18

Risk Level: High DRAFT

Status: Initiated
Possible Cause***: Guideline
Observation:

 Demand note is manually prepared by user.

 There are many loopholes observed in Issuance.

4. Current Audit: November-20 Recommendation:

Risk Level: High There should be proper controls on demand slips which can avoid the risks
Status: Initiated of misappropriation of items that are entrusted to department.
Possible Cause***: Guideline
Observation: G&T Store made fake demand slips with the involvement of Management Response:
user’s department to tally the shortage of stock (Required)

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 Audit No: B-G&T-BM3-21(November)
1) During stock count some items were short physically then a case has been
observed, in which store keeper had already blank demand slip but only
with user’s signature of Electrical Department Incharge (Muhammad Ali)
and storekeeper was filling demand slip by himself but when our auditor
performed cross-verification from the relevant person, it came to know; that
Incharge had not demanded those items mentioned on that demand slip
and even denied his handwriting on the demand slip but validated only his
signature on it, that shows controls over demand slip mechanism are so
weak and it also reveals that demand slips are made by G&T to tally the
shortage in stock

2) Another case has been observed, in which store keeper had already blank
demand slips but only with user’s signature of Mechanical Department
(Noman).

DRAFT

5. Current Audit: November-20 Initiated: September-18 Recommendation:

Risk Level: High 1. OGP control need to be revamped and should be transferred to
Status: Non Conformance gatekeeper.
Possible Cause***: Guideline 2. There should be department which takes responsibility to take back
Observation: Returnable OGP’s items that have not been received yet outward items timely and then updating OGP report after receiving
There are almost 69 out of total 90 pending OGP’s older than 1 month items linking with previous IGP or GRN.
having 99 items till November 25, 2020, and these items have been pending 3. Time should be specified in SOP’s, within which all pending entries will
to clear by G&T. be posted.

Regarding G&T Audit Meeting conducted on December 17, 2019, it was Management Response:
decided that” G&T is solely responsible for OGP’s regarding 2019.” (Required)

Annexure C

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 Audit No: B-G&T-BM3-21(November)
Items in
Responsible
Sr. Classification by OGP's Pending
#
OGP’s
Purpose & Year wise OGP
Dept.
Report
Response Required
1 99 69 G&T Audit#B-G&T-BM3-20: September-20
(OGP's dated 2019 & 2020) 14/74 is technically awaited for process, rest of report is as under:-
No response required(Within  2 items cleared against GRN
2 29 21 -
1 month OGP's)  9 Items are pending due to unavailability of conversion system.
Total 128 90 -  3 OGP Purpose in process.
 Furthermore we are intimated to concerned departments occasionally
and still looking for their positive response.

DRAFT

6. Current Audit: November-20 Recommendation:

Risk Level: High 1. Items which are already present in stock should not be purchased
Status: Continue except their inventory levels are not approved in order to avoid
Possible Cause***: Guideline spoilage and minimize ordering and holding cost.
Observation: Reorder level system has not been implemented yet 2. The maximum level of stock should be set and the quantity
There is no advancement in making the system of Reorder Levels. However, it should not be exceeded above this upper level without specific
is decided that ERP will make the software of order accessories and sundries authority.
first then it will tend to move to reorder levels. Management Response:
(Required)

Audit#B-G&T-BM3-20: September-20
Risk Level: High Audit#B-G&T-BM3-20: September-20
Status: Continue Stackable items list is under decision of respective directors.
Possible Cause***: Guideline

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 Audit No: B-G&T-BM3-21(November)
Observation:
As there is no an approved list of stock-able items because the system is in the
developing phase so it has been observed that G &T is requiring those items
without their prior approval currently. Hard Form Evidence

There is no advancement in making the system of Reorder Levels. However, it

is decided that ERP will make the software of order accessories and sundries
first then it will tend to move to reorder levels.

Audit# 43318: August-18

Risk Level: High
Status: Initiated
Possible Cause***: Guideline
Observation:
A. Some items are purchased frequently which are already sufficient in stock and still
not consumed.
B. There is no certain criteria and planning to maintain a maximum level of stock.

DRAFT

7. Current Audit: November-20 Recommendation:

Risk Level: High Locations must be updated in system after each placement of item on
Status: Continue particular location.
Possible Cause***: Guideline
Observation: Default locations having old stock have not been eradicated Management Response:
from the system although location transfer system has been provided by (Required)
the ERP for the old stock
With respect to G&T Audit Meeting conducted on October 12, 2019, it was
decided that “location transfer system will be made by ERP” and it has been
made and transferred to G&T Store for old stock but G&T Store is not utilizing
that form.
New location system will be improved after the issuance of all the old items
located in “MSSL-01 A B”
 There are 21% items which are located systematically as MSSL-01 A B
currently.

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 Audit No: B-G&T-BM3-21(November)
 9.88% items which are located systematically as G.C Store 0 0 and
physically present at random floors. Annexure D
Audit#B-G&T-BM3-20: September-20
Risk Level: High Audit#B-G&T-BM3-20: September-20
Status: Continue
Possible Cause***: Guideline  New location form by which we can change the default location is still
Observation: pending from I.T side.
New location system will be improved after the issuance of all the old items located in  Some items are directly issued to respective departments+ in beginning
“MSSL-01 A B” some items out of racks was marks as GC location but later there was
 There are 25.78% items which are located systematically as MSSL-01 A B no option for Location change and we treat these items with G.C
currently.
location.
 8.33% items which are located systematically as G.C Store 0 0 and physically
present at random floors. Annexure D
With respect to G&T Audit Meeting conducted on October 12, 2019, it was decided that
“location transfer system will be made by ERP” and further Summair will provide date for
location transfer of old stock(July 1,2020)
Audit# 43235 May-18
Risk Level: High
Status: Initiated
Possible Cause***: Guideline
Observation: DRAFT

There are no locations allotted to items in system or physical due to which traceability of stock is
difficult.
8. Current Audit: November-20 Recommendation:
Risk Level: High There should be complete aging report of all items.
Status: Continue Management must respond to this observation to clear why this
Possible Cause***: Guideline stock is kept for so long and also inform us of any future action
Observation: Items, older than 90 days (3 Months) having value of 75% to resolve this issue.
(Rs. 149,382,616/-) of total value of items falling among the following
categories
Annexure E
Response Is required of following stock items.
90-180 180-360 days >360 Days Management Response:
days Value Value Value (Required)
Categories
(Rupees)/- (Rupees)/- (Rupees)/-
Machine Parts 11,363,160 8,654,916 9,532,988
Ordered
17,169,585 17,032,791 15,954,251
Accessories

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 Audit No: B-G&T-BM3-21(November)
Mechanical Items 2,193,995 3,536,711 13,817,629 Audit#B-G&T-BM3-20: September-20
Electrical Items 4,057,103 1,312,776 4,363,904
Building Material 531,018 139,255 2,621,622 Stitching and Packing Accessory
I.T Items 1,297,458 254,764 14,050 As per instruction of CIO sb we already provided the shade card and reports of
General Store all accessories to procurement depart for allocation of projection stock and
2,062,120 87,097 32,601,736 unusable items decision.
Supplies
Lubricants and
113,073 - 351,805
Fuel General & Technical Items
Chemical 68,350 22,108 228,350 As per instruction of CIO sb we already provided the aging reports to
concerned department for decision but they want to keep these items in stock.
Total 38,855,863 31,040,418 79,486,336
Furthermore Top Management response required for minimization of aging
Annexure F stock.
“Item stock report” and “item aging report” are not matched
There are 16 items in “Item Stock Report” that are not present in “Item
Aging Report”.
DRAFT

Audit#B-G&T-BM3-20: September-20
Risk Level: High
Status: Continue
Possible Cause***: Guideline
Observation:
Items falling between following categories which are older than 90 days (3
Months) having value of 59% (Rs.251, 674, 907/-) of total value of items.
Annexure E
Response Is required of following stock items.
90-180 days 180-360 days >360 Days
Categories Value Value Value
(Rupees)/- (Rupees)/- (Rupees)/-
Machine Parts 71,595,292.64 85,023,382.32 5,881,256.30

Ordered 8,752,217.77 20,765,751.02 9,618,809.31

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 Audit No: B-G&T-BM3-21(November)
Accessories
Mechanical Items 3,087,906.40 3,722,841.13 4,286,867.26

Electrical Items 24,412,918.80 4,441,724.92 3,119,298.86

Building Material 261,799.03 1,860,548.30 19,990.00

I.T Items 991,022.00 2,424,092.45 38,100.00

General Store
199,531.34 414,297.79 411,349.50
Supplies
Lubricants and
230 96,800.00 87,500.00
Fuel
Chemical 51,650.00 66,830.00 42,900.00

Total 109,352,567.98 118,816,267.93 23,506,071.23

DRAFT

Audit#43564: April-19
Risk Level: High
Status: Initiated
Possible Cause***: Guideline
Observation:
All items are not included in Items aging report so audit could not be
performed on the basis of lack of completeness of data in the given report.

9. Current Audit: November-20 Recommendation:

Risk Level: High  All items should have been placed with bin cards.
Status: Non Conformance  Bin Cards should be updated with quantity and date after each
Possible Cause***: Guideline issuance.
Observation: Items without Bin Cards
There are some items that don’t have bin cards. Pictures Attached (Pic#2)
Management Response:
Audit#B-G&T-BM3-20: September-20 (Required)

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 Audit No: B-G&T-BM3-21(November)
Risk Level: High
Status: Improvement Noted
Possible Cause***: Guideline
Observation:
No issue has been found regarding bin card practice. All bin cards are updating
regularly.

Audit#B-G&T-BM1-20: July-20
Risk Level: High
Status: Non-Conformance
Possible Cause***: Guideline
Observation:
Bin Cards are not updated with following shortcomings.
1. Issued quantity of items is not updated after each recent issuance Hard
Form Evidence Attached
2. Dates are not mentioned Hard Form Evidence Attached
3. Some items which don’t have bin cards and some are with blank cards.
DRAFT

10. Current Audit: November-20 Recommendation:

Risk Level: High Items codes must be generated in stock reports and they should be precise
Status: Non Conformance and also display with items on bin card to properly manage tracing issue.
Possible Cause***: Guideline Management Response:
Observation: No advancement in making the system of Coding Process (Required)

ERP Meetings Decisions at meetings

Audit#B-G&T-BM3-20: September-20
Need to ask Fazl e Rabbi for providing Coding Item coding format still not provided by the stakeholder.
7-Jul-20
Samples.”
New incumbent will be hired for new coding
26-Nov-19
process.” ERP Response
Coding process will be one window operation B-ERP-Q4-20: July-20
30-Aug-19 Still no format is provided by the stakeholders.
by ERP”

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 Audit No: B-G&T-BM3-21(November)

Pictures(1-6)

Leftover stitching thread cones

(Quantity 2,288) are placed in the
G&T store and its decision is
pending by the management.

1. DRAFT

Management Response:
(Required)

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 Audit No: B-G&T-BM3-21(November)

DRAFT

Items without Bin cards

2.
Management Response:

(Required)

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 Audit No: B-G&T-BM3-21(November)

Mechanical,
Machine Parts &
Electrical Store
Area

DRAFT

Ordered
Accessories
Area

These crucial areas are not

surveilled through cameras.

Management Response:

(Required)
3.

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 Audit No: B-G&T-BM3-21(November)

Leftover embroidery thread

(quantity 1,955) are placed in the
G&T store and its decision is
pending by management.

Management Response:

(Required)

4.
DRAFT

Audit#B-G&T-BM3-20: September-20
 Awaiting decision from
directors.

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 Audit No: B-G&T-BM3-21(November)

Inappropriate and scattered stock

on the floor

5. Management Response: DRAFT

(Required)

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 Audit No: B-G&T-BM3-21(November)

PVC box kept underneath the

table using as a footrest

6.
Management Response:

(Required)

DRAFT

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