PURCHASE SYSTEM

There Is one complete Question on purchase system while it has also been tested in hybrid questions 4
times.

Following are the headings which has been repeated many times.

Deficiencies Recommendation Controls Test Of Controls

Authorization
of purchase Purchase order below All purchase orders All purchase orders are Select a sample of purchase
order $XXX are not authorized. should be authorized authorized. orders and review for
1. Swift This could result in by a responsible This ensures only necessary evidence of authorization,
2. Fox unnecessary goods being official. goods and services are agree this to the appropriate
3. pear, purchased which are not Authorized signatories purchased, reducing the signature on the approved
4. comet required by the should be established risk of loss to the company. signatories list.
company, furthermore with varying levels of This reduces the risk of
there is chance of fraud purchase order inappropriate levels of
as employee could place authorization. stock being maintained
order for personal goods which could result in
which will result in loss obsolescence and
to the company. overstatement of
inventory.

Supplier
Statement Supplier statement Supplier statement Supplier statement Review the sample of supplier
Reconciliation reconciliations are no reconciliations should reconciliations are statement reconciliation
1. Swift longer performed. This be performed on a undertaken on a monthly performed in past months and
2. Pear may result in errors in monthly basis for all basis and these are also enquire the finance
3. Comet the recording of suppliers and these reviewed by the financial director about the process
purchases and payables should be reviewed by controller. taken to investigate if any kind
not being identified in a a responsible official. This ensures that any of difference arises.
timely manner errors in the recording of
purchases and payables are
identified and corrected in
a timely manner and
therefore that payables are
complete and accurate.
Bank Transfer
Authorization The finance director The finance director The finance director Review the payments list for
1. Swift authorizes the bank should review the authorizes the bank evidence of review by the
2. Comet transfer payment list for whole payments list transfer payment list for finance director.
suppliers; however, she prior to authorizing. suppliers after agreeing the
only views the total amounts to be paid to Enquire of accounts staff what
amount of payments to As part of this, she supporting documentation supporting documentation the
be made. should agree the and reviewing for any finance director requests
amounts to be paid to duplicate payments. when undertaking this review.
Without looking at the supporting
detail of the payments documentation, as This reduces the risk that
list, as well as supporting well as reviewing the suppliers could be being
documentation, there is supplier names to paid an incorrect amount,
a risk that suppliers could identify any duplicates or that sums are being paid
be being paid an or any unfamiliar to fictitious suppliers.
incorrect amount, or that names.
sums are being paid to
fictitious suppliers. She should evidence
her review by signing
the bank transfer list
Approved
Supplier List When raising purchase An approved supplier XYZ has an approved For a sample of purchase
1. Fox orders, the clerks choose list should be supplier list which gives orders placed, agree the
2. pear whichever supplier can compiled; this should assurance about the supplier name to the
des patch the goods the take into account the quality of goods and approved supplier list.
fastest. price of goods, the reliability of the suppliers.
XYZ may order goods at a quality and also the Observe a member of the
much higher price or a speed of delivery. Poor quality supplies will procurement team attempting
lower quality than is affect the product sold to to place an order with an
desirable, as the only Once the list has been the customers, leading to unapproved supplier. The
factor considered was produced, all orders customer complaints and system should not allow it to
speed of delivery. This should only be placed damage to the company’s proceed.
will reduce the with suppliers on the reputation
company’s profit approved list.
Input Control
1. swift Purchase invoices are The purchase ledger Purchase invoices are The audit team should utilize
2. fox input daily by the clerk should instead logged into the purchase test data procedures to assess
3. freesia) purchase ledger clerk input the invoices in day book in batches, whether data can be entered
and he does not utilize batches and apply utilizing control totals. without the use of batch
any controls over information control totals and also
inputting invoices. processing controls, Utilizing control totals whether sequence checks are
such as control totals ensures both completeness built into the system.
Without controls there is to ensure both and accuracy over the Observe the inputting of
a risk that invoices could completeness and input of purchase invoices. purchase invoices and identify
be input into the system accuracy over the If the invoices are not all what information processing
with inaccuracies or they input of purchase input completely and controls are utilized by the
may be missed out invoices. In addition, accurately payables may be clerk.
entirely. sequence checks misstated
This could result in should be built into
suppliers being paid the system to ensure
incorrectly or not all, completeness of input.
leading to a loss of
supplier goodwill
.

Insufficient GRNs are only sent to the The GRN should be

Copies of GRN finance department. created in three parts
1. comet Failing to send a copy to with one copy of the
2. freesia the purchase ordering GRN being sent to the
department means that ordering department.
it is not possible to The second copy The GRN should be created in
monitor the level of should be held at the three parts with one copy of
unfulfilled orders. This warehouse and the the GRN being sent to the
could result in a third sent to the ordering department. The
significant level of finance department. A second copy should be held at
unfulfilled orders leading purchase ordering the warehouse and the third
to stock‐outs and a clerk should agree sent to the finance
consequent loss of sales. their copy of the GRN department. A purchase
to the purchase order ordering clerk should agree
and change the order their copy of the GRN to the
status to complete. On purchase order and change
a regular basis, a the order status to complete.
review should be On a regular basis, a review
undertaken for all should be undertaken for all
unfulfilled orders and unfulfilled orders and these
these should be should be followed up with
followed up with the the relevant supplier.
relevant supplier.
 SALES SYSTEM
There are total 2times when sales system has been tested as a full question whereas 4 times it has been
tested in a hybrid question

Following are the questions relating to sales system

1. Amberjack (full)
2. Heraklion (full)
3. Pear (Hybrid)
4. Equestrian(Hybrid)
5. Snowden(Hybrid)
6. freesia(Hybrid)

following are the controls which have been tested various times by examiner:

DEFICIENCY RECOMMENDATION CONTROL TEST OF CONTROL

Customer Customer Credit Limit Credit limit should be set by All new customers are Inspect a sample of
Credit Limits are set by XYZ clerk. an appropriate person of required to undergo a customer files to ensure
XYZ clerk are not credit department not by credit check and credit credit check has been
sufficiently senior XYZ clerk. limits with appropriate obtained and review the
enough so may set limit These limit should be authorization are set by date it was performed to
too high leading to reviewed regularly by a XYZ person. ensure it was up to date.
irrecoverable debt or too responsible official
low leading to loss of Credit limits are Inspect the customer file
customer. reviewed on regular with in the system to
basis and an authorized ensure credit limit has been
form is required to make put in place.
any changes to the limit.
For a sample of customer
This mean sales are only shoes credit limit has been
made to the customer changed during the year
that are likely to pay in obtain the credit limit
full reducing the risk of review form and ensure it
bad debt. was authorized by the sales
director.
Access to
master data XYZ staff are allowed to XYZ staff should not be given
file make changes in access to make changes in
customer master data master data file. Any such
file in order to record amendments in master data
discount allowed or to file should be restricted so
set credit limit or setting that only supervisor or above
up new customer details. Can make changes.
There is a risk that these
amendments could be
made incorrectly.
In addition XYZ staff are An exception report of the
not senior enough to be changes made should be
given access to master generated and reviewed by a
data file as this could responsible official.
increase the risk of
fraud.
Customer
statements Customer statement are XYZ company should Customer statements For a sample of customer
no longer generated or produce the customer are sent on regular basis inspect the sample of
sent to customer. statement regularly on which reminds the monthly statement to
If statements are not monthly basis and should customer of invoices ensure they are actually
sent regularly this sent them to all customers which they have to pay being sent.
increase the likelihood of promptly. and they can also check And review the evidence of
error and any if there are any errors in follow up such as phone
undisputed invoices not the invoices. call or emails.
being quickly identified Follow up of overdue
and resolved by debt is also being done
company. which reduces the
This could lead to cash chances of irrecoverable
flow issues within the debt which would have
company cause loss to the
company and
overstatement in
receivable if not written
off.
 X
Invoices Not A credit controller should be
chased on XYZ person is given appointed and it should be
time responsibility to chase their role instead of that XYZ
customers directly for person to chase customer
payment once an invoice which are outstanding more
has been outstanding for than the given credit period.
90 days.
This is in excess of
company’s term of 30
days which will lead to
poor cash flow
Further XYZ person will
be more focus on XYZ
(his actual duty) rather
than chasing customer.
This could result in
increased irrecoverable
debt and reduced profit
and cashflows
SALES
DISCOUNT Sales staff have All discounts to be granted Discount must be With the company
discretion to grant sales to customers should be requested by a sales permission try to process
discounts to customers authorized in advance by a manager and authorized an invoice which has not
of up to 10%. responsible official, such as by a sales director. been authoried, the system
This could result in a loss the sales director. If not This reduces the risk of should reject this invoice.
of revenue as they may practical, then the supervisor fraud which will result in Inspect the sample of
award unrealistic of the sales staff should misstatement of invoice of customers who
discounts simply to meet undertake this role revenue. are given discount and
sales targets. review it for the evidence
The discounts granted by of signature of Director
sales staff are not being authorizing the sales
reviewed and could discount.
result in unauthorized
discounts allowed.
Insufficient
Copies Of GDNs are completed and Upon the dispatch of goods,
GDN filed by the warehouse a four part GDN should be
department. completed, with copies to
If the finance the customer, ware house,
department does not sales department to confirm
receive a copy of GDN, it dispatch of goods and a copy
will not know when to for the finance department.
raise invoice. Upon receipt of the GDN a
This could result in goods clerk in finance department
being dispatched but not should raise the invoice in
being invoices resulting timely manner confirming all
in loss of revenue. details to the GDN and order.
 PAYROLL SYSTEM
There are total 3 complete Questions on payroll while it has also been tested in hybrid question 3times.

Following are the headings which has been repeated many times.

ANALYSIS DEFICIENCIES RECOMMENDATON DIRECT TEST OF

CONTROLS CONTROLS
This has been tested
4times SEGREGATION
AMONG PAYROLL
1. Snowden AND HR
2. Swift DEPARTMENT
3. Raspberry
4. EQUESTRIAN During the year, the The payroll should not be XYZ Co has a separate Review the job
human resources (HR) allowed to setup new human resources (HR) descriptions of payroll
department has been joiners and this role must department, which is and HR to confirm the
busy, therefore the immediately revert back to responsible for setting split of responsibilities
payroll department has HR. up all new employees with regards to setting
set up new joiners to Additionally, a review and a payroll up new joiners.
the company. should be undertaken of all department, which is
new joiners set up by responsible for the Discuss with members
This is a lack of payroll with agreement to payment of these of the payroll
segregation of duties, as employee files to confirm employees. department the process
payroll that all new employees are for setting up new
bona fied. Having a segregation of joiners and agree new
employees are able to roles between HR and joiners to
set up new joiners in the payroll departments documentation initiated
payroll system and reduces the risk of by HR
process their pay, this fictitious employees
leads to an increased being set up and also
risk of being paid which
fictitious/duplicate would result in
employees being set up. overstatement of
payroll costs.
 Pre‐printed new
This case has been joiner forms
tested 3 times.
All new employees are Select a sample of new
1. Snowden assigned a unique employees added to the
2. Swift employee number by payroll during the year,
3. Raspberry HR. review the joiner forms
for evidence of
The payroll system is completion and the
unable to process new allocation of a unique
joiners without the employee number which
inclusion of the unique was received by payroll
employee number. As prior to being added to
payroll staff are unable the system.
to set up new joiners
without the employee
number from the joiner
form it reduces the risk
of fictitious employees Attempt to add a new
being set up by payroll joiner to the payroll
system without a unique
employee number, the
system should reject this
addition.
This case has been AMENDEMENTS TO
tested 4 times.
STANDING DATA
1. Snowden The password to amend On a monthly basis an Select a sample of
All members of the
2. Swift standing data should be exception report of monthly exception
payroll department can
3. Raspberry changed and only changes to payroll reports and review for
amend employees'
4. Trombone communicated to senior standing data is evidence of review and
standing data in the
members of the payroll produced and follow up of any
payroll system as they
department. reviewed by the payroll unexpected changes by
have access to the
Exception reports should be manager. This ensures the payroll manager.
password.
generated for all standing that any unauthorized
As all members of
data changes with clear amendments to
payroll can amend
reference to who made the standing data are
standing data this may
change and who authorized identified and
result in errors or
it. investigated on a
unauthorized changes
These edit reports should timely basis so that the
being made, leading to
be regularly reviewed by a data used when the
incorrect payment of
responsible official and they payroll is run is valid
wages and increased
should evidence this review and accurate
risk of fraud
with a signature.
This case has been Lack of segregation
tested 3 times
of duties
1. Snowden The senior payroll manager
The senior payroll
2. Raspberry should not be able to
manager reviews the
3. Bronze process changes to the
bank transfer listing
payroll system as well as
prior to authorizing the
authorize payments.
payments and if any
Discrepancies should be
discrepancies are noted,
thoroughly investigated,
always makes the
and adjustments made in
adjustment in the
the relevant record as
payroll records for any
required.
changes required.
The authorization of the
Discrepancies may arise
bank transfer listing should
due to the payroll
be undertaken by an
records or the bank
individual outside the
transfer listing being
payroll department, such as
incorrect. Assuming the
the finance director.
discrepancies are always
in the payroll records
may result in incorrect
amendments being
made to payroll or
incorrect amounts paid
to employees

There is a lack of
segregation of duties as
it is the payroll team
which processes the
amounts and the senior
payroll manager who
authorizes payments.
The senior manager
could fraudulently
increase or incorrectly
amend the amounts to
be paid to certain
employees, process this
payment as well as
amend the records.
 BANK TRASFER
This requirement
AUTHORIZATION
has been tested 2
time in payroll cases
The finance director
however exact The finance director should Obtain a sample of
authorizes the bank
requirement has review the whole payments payments list and
transfer however; he
been tested list prior to authorizing. review for signature by
only views the total
numerous times in the finance director as
amount of payment to
purchase, As part of this he should evidence that the
be made.
sales or cash system. agrees the amount to be control is operating
paid to the supporting correctly.
Without looking at the
1. Freesia documentation as well as
detail of payment list, as
2. Trombone reviewing the supplier
well as supporting
names to identify any
documentation there is
duplicate or any unfamiliar
a risk that supplier could
names.
be being paid an
The finance director should
incorrect amount, or
evidence the review by
that sums are being paid
signing the bank transfer list
to fictitious suppliers.

This case has been

tested 2 times
Bonus Determined
1. Raspberry by The Supervisor Inspect the
2. Bronze communication of
Production supervisors The bonus should be bonuses to the payroll
determine the amount determined by a department and ensure
of the discretionary responsible official, such as it is sent by a senior
bonus to be paid to the production director and official.
employees. should be formulated based
on a written policy.
Production supervisors If significant in value, the
could pay extra bonuses bonus should be formally
to friends or family agreed by the board of
members. directors.
The bonus should be
This will result in communicated in writing to
additional payroll costs. the payroll department.
 A senior member of the The payroll supervisor Review the monthly pay
payroll team should selects a sample of pay slips sampled by the
This case has been recalculate the gross to net slips and recalculates payroll supervisor for
tested 3 times pay workings for a sample the gross to net pay their signature for
No calculation of employees and compare calculations, compares evidence the review of
1. Swift their results to the output the results to the calculations has been
2. Raspberry checks from the payroll system. output from the payroll undertaken. For a
3. Trombone These calculations should system and sample of monthly
The wages calculations be signed as approved investigates any payrolls re perform the
are generated by the before payments are made. discrepancies. This gross to net pay
payroll system and reduces the risk that calculation and compare
there are no checks the automated system to the payroll system,
performed. generates errors during discuss any
the payroll processing. discrepancies with the
Therefore, if system Any errors would be payroll supervisor.
errors occur during the identified on a timely
payroll processing, this basis to prevent wages
would not be identified. being over or under
This could result in paid.
wages being over or
under calculated,
leading to an additional
payroll cost or loss of
employee goodwill.