EASTERN SEAS HOLDING COMPANY K.S.C.

INTERNAL CONTROL ASSESSMENT

SL # CONTROL IDENTIFIED LAPSES OBSERVED INDUSTRY BEST PRACTICES BENEFITS TYPE OF WEAKNESS RECOMMENDATIONS

1. Management should clearly define the roles and

responsibilities to the People addressing various questions of
who, when and how.
2. Policies and procedures should be developed giving
1. More effective use of management time
1. Lack of oversight and periodic review to identify, 1. Controls implemented should be capable of responding adequate consideration to the organizational structure, job
2. Effective risk management strategy.
report and rectify errors. quickly to evolving risks to the business. descriptions, authorization matrix.
3. Detection and prevention of errors and
2. Controls are neither monitored nor reviewed 2. Controls should help minimize the occurrence of frauds/ 3. The system of control should be embedded in the
irregularities in a timely manner.
1 Segregation of Duties periodically. errors and if any arise should be detected in a timely manner. Material operations of the company and form part of its culture.
4. Effectiveness and efficiency of operations.
3. Insufficient procedures to detect and mitigate 3. The system of control should include procedures for 4. The costs of control must be balanced against the benefits,
5. Helps prevent people from colluding to
significant risks related to the business. reporting immediately to appropriate levels of management including the risks it is designed to manage.
commit any kind of fraud.
any significant control failures or weaknesses. 5. Authority, responsibility and accountability should be
clearly defined and support the flow of information between
people.
6. Periodical assessment should be conducted to approve of
the effectiveness of control.

1. Formally documented organization wide policy foe initiating,

1. Absence of evidences to support a financial 1. Entrust the available resources to complete recording and
recording, processing and reporting each class/type of
transaction and insufficient safeguard and control over 1. Proper accounting records will assist the better documentation of transactions on a timely manner with hard
transactions that suit the business needs of the industry in the
retention of the accounting records. decision making. closure of accounts periodically.
which the organization operates.
Improper accounting records and 2. No real time or periodic updation of transactions to 2. Reliability of financial reporting. 2. Reconciliations of various key accounts, like banks,
2 2. Periodic review or inspections to identify any material Material
inadequate documentation the accounting system. 3. Proactive to any unforeseen business or customers and suppliers needs to be prepared, reviewed and
departures from the process and if any identified could be
3. Preparer, reviewer and approver are often the same operational risks. approved by the different levels of authorities.
plugged.
person. 4. Easy to monitor employee performance. 3. Utilise the available accounting software to its full
3. Fixing responsibilities of preparer and reviewer to separate
4. Improper reporting of income and expenses. potential by providing sufficient training to the Team.
individuals.
SL # CONTROL IDENTIFIED

Improper work flow for petty cash

1
transactions.
2 Intercompany transactions
 EASTE
IN

LAPSES OBSERVED

1. Cash receipt and payment vouchers used to report

transactions are not sequentially numbered.
2. Multiple persons are handling petty cash without proper
awareness about the Petty cash work flow.
3. Cash expense reimbursements were found without
proper approvals from the competent authorities which can
lead to mischaracterized expenses, overstated expenses,
fictitious expense, and multiple reimbursements.
4. Sign offs from distributing cashier and receiver were not
found on the petty cash claims and vouchers, which could
lead to embezzlement of company funds.
5. Supporting documents were not stamped Paid, which can
lead to multiple claims for the same transaction.
6. The management doesn't have a pre-defined expense
limit for each custodian of petty cash and no custodian is
maintaining a petty cash log.
7. Transactions are approved even without the supporting
evidences, which leads to mishandling of company funds.
8. The approving authority for each class of transactions
needs to fixed and formally approved by the management.
1. Different kinds of transactions are undertaken between
related parties like sales, payroll, loans and deposits.
However, these transactions are not recorded
simultaneously in each of the entities involved.
2. No periodic reconciliation of intercompany balances.
3. Absence of evidences to support an intercompany
transaction.
4. Insufficient safeguard and control over documentations
of accounting records.
5. No defined work flow for intercompany transactions.
6. Risk of improper or incorrect figures reported in the
financial statements.
 EASTERN SEAS HOLDING COMPANY K.S.C.
INTERNAL CONTROL ASSESSMENT

INDUSTRY BEST PRACTICES

1. Each department requiring petty cash will have to formally seek approval from the management
to hold petty cash for its daily cash needs.
2. Once the management approves the request, an expense limit is defined and a cash float is
released in the name of the department in charge who is assigned responsibility as custodian of the
fund.
3. All the expenses met out this petty cash needs approval from the department's approver fixed by
the management.
4. Custodians should maintain a Petty Cash Log including receipts for each disbursement. All
disbursements should state business purpose, reimbursee and date. Sign offs by the approver and
receiver is mandatory.
5. Upon exhausting the cash float, the custodian will submit a request to replenish the float with the
Finance department along with summary of amount expended and its supporting's.
6. Upon review and recording the expenses, the finance department approves the expenses.
7. During the review, if the finance team finds any expense without proper supporting's, the claim
shall be denied to the extent of such amount until proper evidences to support the transaction are
produced or a reasonable justification in writing is provided.
8. If any expenses incurred is outside the department's authority or defined expense limit, the
finance department shall seek the concerned department to get a higher level approval.
8. Once the above listed process are complete, the finance department either prepares a cheque in
the name of the department in charge or releases liquid fund available in the Main Cash Box of the
company to the department in charge.
9. There should be segregation of duties in disbursing and approving the petty cash fund. It is
important that the person who approves petty cash is not the petty cash custodian to avoid
incompatible duties.
1. Formally documented organization wide policy for initiating, recording, processing and reporting
each class/type of intercompany transactions.
2. Obtain and reconcile statement of accounts from related entities and match the payables and
receivables and report any discrepancies in balances with the counter parties.
3. Implement continuous monitoring of balances
4. Aging analysis
Y K.S.C.
NT

BENEFITS TYPE OF WEAKNESS

1. Helps control mishandling and misappropriation of

company funds.
2. Helps the management to fix responsibility on
individuals dealing with company funds.
3. An approval matrix in place will help the
management control fraudulent cash transactions. Significant
4. Less chance of paying the same expenses more
than once.
5. Reliability of financial reporting
1. Proper accounting records will assist better
decision making.
2. Reliability of financial reporting. Material
3. Realtime availability of intercompany balances.
4. Easy to monitor intercompany transactions.
 RECOMMENDATIONS

1. Define the limit of expenses for each custodian of Petty cash along
with the requisite level of approvers.
2. Custodians of Petty Cash should prepare the Petty Cash Log stating
the business purpose, reimbursee and date for each transaction.
3. All the evidences to support the transaction must be collected from
the reimbursee at the time of reimbursement of cash and should be
produced by the custodian before the finance department at the time
of replenishment of Petty cash.
4. Petty cash log should be updated on a daily basis, probably at EOD
and the physical balances should be reconciled.
5. Petty Cash Log should be complete - petty cash on-hand plus
receipts should always equal the original petty cash fund
6. The management should perform unannounced petty cash audits to
make sure the policies and procedures are followed.
7. The supporting documents have been stamped “paid” so they
cannot be used to support other payments.
8. Sign offs from receiver, approver and custodian is mandatory for all
the expenses and any expense claim or replenishment request
without sign offs shall be deemed void.
9. The custodian should ensure that the adequate physical controls
are in place to safeguard the Petty cash like proper locking facility for
the cash box, etc.
1. A transaction with related party needs to have proper evidence to
support the business purpose of the transaction.
2. The transaction shall not be initiated unless the management
approves for it and sign offs the request for the same.
3. All the supporting evidences along with JVs needs to be prepared
and signed off by the finance department team members.
4. Proper documentation and retention of evidences should be
ensured for each transaction.
5. Reconciliation of balances with the counter party statements needs
to be prepared, reviewed and approved periodically.
6. Review the aging of intercompany balances periodically and follow
up with the counter parties for settlement of old and aged account
balances.
SL # CONTROL IDENTIFIED LAPSES OBSERVED

1. Revenue agreements with customers for providing

manpower services are not retained properly.
2. Invoices are not raised to customer in a timely manner
neither the agreement state any timeline for the process nor
the company has a proper billing cycle.
3. No proper acknowledgement obtained from customers for
receipt of invoice.
4. Improper retention and filing of accounting records.
Improper invoicing and 5. Multiple individuals dealing with invoicing process and the
1 recognition of revenue billed amounts are not matched with the prices agreed with
from operations the customers.
6. No control over editing and reprinting of invoices.
7. Subsequent changes to invoices issued are made without
obtaining approval from competent authorities.
8. No legal opinion obtained for the revenue agreements
entered to ensure compliance with the local laws.
9. Invoices are not sequentially numbered.
10. Revenue recognition not in line with the international
financial reporting standards.
 1. The receivable balances from customers and other related
parties are not reconciled periodically;
2. No prompt collection of receivable balances;
3. Non-collection of customer statement of account
periodically;
Insufficient internal
4. No periodic follow up with customers for settlement of
2 controls placed over
outstanding balances;
account receivables.
5. Ageing analysis is not performed to find out long
outstanding receivable balances;
6. No real time recording of data into the accounting software
thus leading to incompleteness or omission of reporting a
financial transaction with customers.
 EASTERN SEAS HOLDING COMPANY K.S.C.
INTERNAL CONTROL ASSESSMENT

INDUSTRY BEST PRACTICES

1. An end to end covered agreement is drafted between the service provider and
customer with details of:
- services agreed to be provided;
- pricing;
- billing schedule;
- termination of contracts;
- settlement of disputes
2. The management has to ensure that the services provided are inline with the
agreement and any service outside the scope of agreement needs to be treated
separately.
3. The company has to obtain the timesheets within the agreed timeline from the
supervisor and ensure that its accurate and complete.
4. The invoices are to be raised by the competent person and shall be send to the
approver.
5. Once approved the invoice is send to the customer and the process should be dealt
within the pre-defined timeline.
6. The company should always seek acknowledgement for receipt of invoice from the
customer.
6. The invoices approved shall be recorded into the system by the preparer and shall
be posted by a higher level authority so that the revenue recognition is not delayed.
1. The organization's system for billing and invoicing the customers should be based
on the service agreement with its customers and shall adhere to the agreed timeline
for billing the customer.
2. The company should formulate a proactive collection process based on the industry
in which the organization functions and the credit terms approved by the management
for each of its customers
3. Once the payments are collected, it should be applied to the correct customer and
against correct invoices into the accounting software to always have an accurate
ageing report for each of the customer.
4. The organization has to periodically request the customer for its statement of
accounts and reconcile the balances and any variance in outstanding balances should
be traced and appropriately accounted for.
5. To ensure the accounts receivables are handled properly and proper record is kept
and no payment is missed, periodical reviews should be done by the management.
OMPANY K.S.C.
SSESSMENT

BENEFITS TYPE OF WEAKNESS

1. A revenue agreement in place will allow the

service provider and customer to adhere to it at all
times.
2. The customer and service provider will be able to
function as per the mutually agreed scope of the
agreement.
3. Roles and responsibilities of both parties are pre-
defined, hence any material departure from it can
be curbed and either party could hold the other Significant
responsible for their lapses.
4. Better control over service provided, invoice
raised and amount collected.
5. Accounting for revenue transactions would be
inline with the international financial reporting
standards.
6. Timely/effective invoice generation and reporting
can ensure billing is completed in a timely basis and
reports are relevant to the end-user.
1. Helps control mishandling and misappropriation
of company funds.
2. Effective risk management strategy.
3. Detection and prevention of errors and
irregularities in a timely manner. Significant
4. Effectiveness and efficiency of operations.
5. Reliability of financial reporting.
6. Proper accounting records will assist the better
decision making.
 RECOMMENDATIONS

1. The management needs to enter into service agreements with all

its regular customers stating details of the scope of services, pricing,
billing cycle, settlement deadlines and other important clauses after
consultation with the legal counsel.
2. The management should fix responsibilities on competent
individuals within the organization to adhere to the billing schedule
and issue the invoice to the customer in a timely manner.
3. The sales copy retained should mandatorily possess the customer
acknowledgment for receipt of original invoices.
4. The finance team should follow up with the customers for
settlement of pending invoices once they breach the agreed payment
schedules
5. All the invoices raised during the period shall be sequentially
numbered.
6. The role of preparer and approver for revenue invoices shall be
pre-defined and no same person should play both the roles
7. The system through which invoices are raised should not allow any
individual within the organization to edit any issued invoices. This is a
severe weakness in the software and can lead to understatement of
revenue and misappropriation of company assets.
1. Establish a specific schedule for monitoring and assessing the state
of accounts receivables to track down any errors before it causes
major problems to the business.
2. The billing process must be accurate and streamlined to be
effective.
3. Payments must be applied correctly to the correct customer and to
the appropriate invoices.
4. Payments should also be applied quickly to ensure that at any
given moment, you know which accounts are current and which are
past due.
5. Properly optimizing accounts receivable makes it much easier to
collect payment in a timely and effective manner.
6. Establish specific guidelines for handling billing disputes which will
not only streamline the process, but it will improve overall customer
satisfaction.
7. Make collections a top priority and enforce it by establishing a
clear, concise collections strategy. Ideally, when an account slips into
the past-due column, the collections team should be all over it and
enforce all the collection guidelines.
SL # CONTROL IDENTIFIED

No proper process for

1 the payroll function
within the entity
 No adequate controls to
2 monitor and safe-guard
the fixed assets
 EASTER
INT

LAPSES OBSERVED

1. No employees master database with sufficient details for each

employee, like:
- Name of the employee
- Civil ID details
- Bank account details
- Date of Joining
2. No proper methods adopted for timekeeping of the employees
working under various customer locations.
3. No monthly payroll calculation are attached along with the salary
approval request submitted to the management.
4. There are cross-utilization of employees between the entities
under common control, however there is no proper record for
tracking the employees parent entity.
5. Inter-company charge for cross-utilized employees are neither
billed nor reconciled periodically.
6. Employee leaves and holiday balances are not available real-time.
7. Accruals for leave salary and indemnity are not captured into the
accounting records periodically.
8. No cut-off date for processing the monthly payroll and the payout
process isn't streamlined.
9. Employees contract of employment and other terms and conditions
to employment are not properly documented.
10. Insufficient methods for retention of records relating to
employees.
1. The company doesn’t maintain a comprehensive fixed asset
register providing all the requisite information's like date of
acquisition, date put to use, useful life, asset class, salvage value, etc.
2. The additions and disposals made in fixed assets are not updated in
real-time into the fixed asset register.
3. Insufficient physical controls to monitor the existence, condition,
and custody of the fixed assets.
4. No periodic physical count on inventory of fixed assets.
5. Lack of segregation of duties relating to fixed assets acquisition,
disposal, safe-guarding and record keeping.
6. No proper documentation for requisitions and approvals for
purchase and disposal of assets.
7. No procedures in place to evaluate the physical condition of assets.
8. Misclassifying assets in the wrong categories.
9. No proper process for disposal of assets once the asset has turned
obsolete.
 EASTERN SEAS HOLDING COMPANY K.S.C.
INTERNAL CONTROL ASSESSMENT

INDUSTRY BEST PRACTICES

1. The organization should create an master database with all the

requisite information and the database must be constantly
monitored and any changes to the employee information must
be updated after obtaining requisite approvals.
2. Create and maintain employee file for each employee of the
organization which will contain the employment agreement,
legal documents, details of leaves availed, etc.
3. Collect real-time data for time and attendance records.
4. The organization will have a cut-off date for calculation of
payroll and there should be a fixed timeline for the approval
process and actual payouts to the employees bank accounts.
5. Employees of the group should be marked to the organization
under which they actually work and to which entity they legally
belong to, so that intercompany transactions can be reported,
accounted and monitored with ease.
6. Maintain a policies and procedures manual for your team and
the company.
7. Maintain organized payroll records for future references and
reviews along with proper and safe retention of employee
records.
8. Going automated in the long run, will be ideal for any type of
organization as the approved process will be followed without
fail.
1. An organization should maintain a comprehensive fixed asset
register which will have to capture all the movements in the fixed
account balances in real-time.
2. All the additions and disposals made during the year should
follow the pre-defined process, like:
- For additions there should be a requisition from the concerned
department with sufficient approvals followed by budget
approvals, quotations, and final approval from the management
to proceed with the acquisition.
- For disposals, the assets should be technically evaluated and
confirmed obsolete or non-usable from competent evaluating
authorities either internal or external, then shall be submitted to
the department supervisor for disposal approval. Once approved
from the management, the asset could be sold of to third parties
and the amount realized shall be recorded in the books of
account along with the gain or loss such sale.
3. A physical count on fixed assets are conducted by the
management, usually on an annual basis.
4. Depreciation charge is calculated and recorded monthly based
on the useful life assigned to each category of assets. An
automated function within the fixed asset module of the
accounting software will assist the management to minimize its
efforts.
5. Ensure that the organization sufficient title to each of its assets
owned and any change to it shall be monitored.
HOLDING COMPANY K.S.C.
ONTROL ASSESSMENT

BENEFITS TYPE OF WEAKNESS

1. A proper payroll system will help the organization to:

- work out payroll calculations and deductions quicker;
- generate accurate pay slips
- calculate bonuses, holiday pay, indemnity and other charges
with minimum effort.
2. Manage employee information efficiently
3. Effectiveness and efficiency of operations. Significant
4. Detection and prevention of errors and irregularities in a
timely manner.
5. Assist the management to have an improved reporting
framework and thereby contribute to better decision making.
6. An automated payroll system will reduce the employee
efforts and minimize the probability of errors when compared
with a manual payroll system.
1. Helps control mishandling and misappropriation of company
assets.
2. Ensures that the asset values and depreciation charges are
neither under-stated nor over-stated. Significant
3. Effective risk management strategy.
4. Effectiveness and efficiency of operations.
5. Reliability of financial reporting.
 RECOMMENDATIONS

1. The organization should create, maintain and monitor an

employee database which shall contain all the requisite information
relating to the employees.
2. The employee file should be maintained with confidentiality and
the records should be retained at an appropriate location with
sufficient controls to safe-guard it.
3. The management should introduce a system to collect the real-
time data for time and attendance records and this shall for the base
for payroll calculations.
4. It is ideal to have a biometric system to capture attendance
records and wherever its not possible a manual paper based
attendance register needs to be kept.
5. Inter-company billings for cross-utilized employees needs to
accrued monthly without fail.
6. Calculation of holiday pay, indemnity, bonuses and other like
charges should be accrued periodically.
7. The organization should maintain an HR Manual stating all its
policies and procedures and the need for the employee to comply
with it.
8. Clear documented policy for the payroll function will assist the
organization to have an accurate payroll processing for each of its
employees.
1. There should be a comprehensive fixed asset register that captures
all the required particulars relating to each asset owned and acquired
by the entity.
2. All the assets should bear its asset code, for identification
purposes.
3. All the movements in fixed asset needs to be captured in the fixed
asset register.
4. Acquisitions and disposals of assets must be approved by
management and then properly recorded to the books of record.
5. Performance of a periodic physical inventory of fixed assets, at
least annually.
6. Any disposals should go through a technical evaluation before
concluding on the operating efficiency of such asset.
7. Depreciation policy and useful life assigned need to consistently
applied, any deviation shall be justified before the management and
sufficient level of approvals are required to back the transaction.
8. All the costs incurred to acquire an asset shall be identified and
should capitalize at the full landed value.
9. Periodic reconciliation of the general ledger accounts to fixed asset
schedule.
10. Various physical controls should be attached to each class of
assets to safe-guard it from potential exposure to various risk factors.
SL # CONTROL IDENTIFIED

Insufficient internal
1 control over inventory
management
 E

LAPSES OBSERVED

1. The company has no organization wide policy for inventory

management.
2. The company doesn’t have a process to raise a purchase requisition
once the material reaches its ROQ.
3. No ROQ is defined for each item in the inventory.
4. There is no system to monitor the actual quantity with the budgeted
quantity for the actual units produced.
5. Any variances from the budgeted quantity needs to be justified by the
production department in charge.
6. No KPIs to demonstrate how well the inventory functions.
7. There is no system to monitor the ageing of inventory.
8. No proper documentation at the time of receiving the goods into the
warehouse and the time of issue of goods for production.
9. The movement in inventory are not captured into the system in real-
time neither at EOD.
10. The item received and the item recorded are at different UoMs.
11. Ineffective periodic internal counts.
12. Warehouse in charges are not held accountable for the discrepancies
found in inventory during the periodic physical counts.
13. Chemicals which are directly fed into the plant are not monitored
neither the production supervisor doesn't raise an issue note at the end of
each production cycle.
14. No methods implemented to monitor obsolete and slow-moving
products.
15. Dependence on outdated software for management of inventory.
 EASTERN SEAS HOLDING COMPANY K.S.C.
INTERNAL CONTROL ASSESSMENT

INDUSTRY BEST PRACTICES

1. An efficient inventory policy with proper segregation of duties.

2. A detailed process flow for inventory from requisition, procurement,
receiving, issuing, warehousing and delivery.
3. A ROQ is defined for each item of inventory and requisitions are
raised only when the physical quantity reaches the ROQ Level.
4. A GRN is raised when the goods are received at the warehouse and
the store employees matches the actual quantity received with the
invoice and purchase order.
5. Mandatory sign-offs and approvals on the GRNs.
6. Issue notes are raised whenever raw materials are taken out of the
warehouse facility for production.
7. Every issue note needs to be approved by the warehouse in charge
and the production supervisor.
8. Quality controls at various intervals from requisition till delivery of
finished goods.
9. Proper batching of finished goods along with the recording of
manufactured date and expiry date.
10. A proper warhousing facilty with spaces separetly earmarked for
storing different kinds of products based on its nature.
11. Maintenance of inventory cards for each item and real-time
updation to it will assist to ascertain the physical quantity of each item.
12. Depending on a tailor-made inventory management module
suitable for the industry in which the company operates.
LDING COMPANY K.S.C.
TROL ASSESSMENT

BENEFITS TYPE OF WEAKNESS

1. Improves the accuracy of inventory orders.

2. Leads to a more organized warehouse
3. Helps save time and money.
4. Increases efficiency and productivity.
5. Avoiding Stockouts and Excess Stock Significant
6. Better Terms With Vendors and Suppliers
7. Greater Insights
8. Data-Driven Decision Making
9. Ensure Compliance With Generally Accepted Accounting
Principles (GAAP)
 RECOMMENDATIONS

1. The management should devise a tailor made inventory policy which

should include all the process from requisition till delivery of goods to
an end user based on the industry in which the company operates.
2. Fix ROQ for each item of inventory so that once the inventory reaches
the ROQ level, either an automated or manual purchase requestion is
made.
3. The requisition for materials should be reviewed and approved for
initiation of RFQ and which further turns into a PO.
4. The goods received against the PO should be matched by the
warehouse employees and a GRN needs to raised and approved by the
warehouse manger.
5. Every item of inventory leaving the warehouse or storage tanks,
should carry an issue note which needs to be signed off by warehouse in
charge and production supervisors.
6. In case of chemicals that are fed directly into the plant for production,
the meter reading at the start and end of each production shift should
be reported by the concerned production supervisors and an issue note
for the same shall be raised and approved.
7. All the movements in inventory items needs to captured in real-time
so that the stock levels are ascertained for having a better planned
production cycle.
8. There should be a reconciliation between budgeted quantity and
actual quantity consumed to ascertain any abnormal losses.
9. A control oriented inventory management system will assist to
minimize employee efforts as well as reduce the risk of errors.
10. Introduce periodic physical stock counts and the warehouse
employees should be held accountable for any material discrepancies.
 EASTERN SEAS HOLDING COMPANY K.S.C.
INTERNAL CONTROL ASSESSMENT

SL # CONTROL IDENTIFIED LAPSES OBSERVED INDUSTRY BEST PRACTICES BENEFITS TYPE OF WEAKNESS RECOMMENDATIONS

1. Needs Analysis: The company recognizes and documents a need for goods
or services to solve a particular problem. The procurement team describes the
need to be met, and works with others to determine how best to do so.
2. Purchase Requisition to Purchase Order: The “purchasing” portion of the
1. Purchase transactions are not supported by any requisition for materials 1. Creating and efficient and effective buying process for not just
purchasing process kicks off with a purchase requisition submitted to the
from the department concerned. direct spend (e.g., raw materials) but indirect spend (e.g., office
purchasing department containing full details on the items or services to be
2. No committee for evaluation of suppliers and quotations obtained from supplies, IT services, etc.).
obtained.
suppliers to drill down to a potential supplier. 2. Develop budget-related expense restrictions by classifying the
3. Purchase Order Review and Approval: Approved purchase orders are sent to
3. No benchmarking criteria for supplier evaluations. products and services necessary for inventory stock replenishment,
accounting to verify the funds exist in the appropriate budget to cover the
4. There were instances were purchases were made out of petty cash. segregating purchases into categories such as office supplies,
requested goods and services.
5. No monetary limit based approval structure for purchase transactions. manufacturing components or equipment.
1. Securing greater value from the 4. Requests for Proposal: Potential suppliers submit their bids, and are
6. No predefined ROQ for inventory items, hence the purchase process is 3. Proper segregation of duties along the entire process to prevent
supplier or the supply base carefully reviewed based on their benchmarking criteria's set by the
initiated manually. the risk of fraud.
2. Stabilizing the prices management and other important characteristics such as average lead times,
7. PO raised are not sequentially numbered and the status of POs are not 4. Implement a purchase approval system to control costs and
3. Improved internal effectiveness reputation, and price.
monitored and updated periodically. prevent financial mismanagement which helps the entity to prevent
1 Weak internal controls 8. Supplier invoices are not matched with PO's and receiving notes to ensure purchases from getting out of hand particularly if a duplicate order 4. Streamline your stock Significant
5. Shipping and Receiving: The goods or services delivered to performed by
for purchases 5. Create accurate records and the supplier needs to be carefully reviewed to ensure that the goods or
correctness of quantity ordered, received and billed. is placed for the same product.
reports services received are matching with what was promised, and notifies the
9. Purchase related documents from requisition to payment are not properly 5. A series of quality assurance checks help maintain accurate data
6. Reduced time spent on vendor of any issues.
documented, accounted for and retained with appropriate physical controls. of purchase orders to reduce errors and ensure that all details have
procurement processes 7. Three-Way Matching: A three-way-matching is the comparison of shipping
10. Credit purchase invoices are not monitored periodically to avoid any delay been accurately filled.
7. Supply Chain Management documents/packing slips with the original purchase order and the invoice
in the agreed payment schedules and the penalties associated with such 6. Have well-maintained documentation and records for auditing
8. Reduced risk issued by the supplier. This comparison is used to ensure all the information
delays. purposes, records should be held and filed so that all documents
related to the transaction is accurate. Discrepancies must be rectified as soon
11. Intercompany transactions relating to purchase of materials on behalf of related to a purchase order are filed together correctly, providing a
as possible to avoid additional charges, delays in production and payment, or
other group entities are not reported in a timely manner. clear backstory of the transaction.
damage to supplier relationships.
12. No periodic reconciliation of supplier balances based on their SOA. 7. Optimal supply chain management and strategic sourcing (for
8. Invoice Approval and Payment: Successfully matched orders are approved
13. Dated or ineffective information systems. both cost savings and value)
for payment. Any modifications or additional charges may require another
14. No evaluation of suppliers ageing. 8. Streamlining the procurement cycle and all its sub-processes.
layer of approvals before payment can be issued.
9. Accounting Records Update: Completed orders are recorded in the
company’s books, and all documents related to the transaction are securely
retained and in a centralized location.

1. The company doesn’t have a system to obtain bank statements for each of
1. Obtain the bank statements from banker's regularly, often monthly and all
its accounts monthly.
the transactions reported in books are matched with the bank statements.
2. There is no bank reconciliations prepared on a monthly basis.
2. Any variances in the bank statements with the books of accounts are traced
3. Interbank transfers are not reported as and when the transaction is
and a reconciliation for the same is prepared.
initiated.
3. Supporting evidences for all types of bank related transactions needs to
4. Non-recording of bank charges auto-debited from our bank accounts on a
1. The organization will seek to obtain the bank statements from its documented, stored and secured properly.
monthly basis. 1. Helps control mishandling and
banker's regularly, often monthly and all the transactions reported 4. Cheques and vouchers used for bank transactions should be in sequence
5. Inter-company fund transfers are conducted without proper supporting's misappropriation of company assets.
in books are matched with the bank statements. and cancellations needs to properly documented.
and the approved transfer letters are not retained with sufficient controls. 2.Detection and prevention of errors
2. Periodic preparation of bank reconciliation statements. 5. Cancelled cheques should be monitored and physically stored in a secured
6. Cancelled cheques are not stored or disposed off properly. and irregularities in a timely manner.
Ineffective controls over 3. Transactions needs to documented, stored and secured properly. place or disposed off adequately.
2 the bank related 7. Accounting system used is not technically sound and doesn't have any 3. Proper accounting records will
4. The organization will have a schedule of all the on and off balance Material 6. Maintain, monitor and update the schedule for all the on and off balance
controls to detect misstatements. assist the better decision making.
transactions. sheet items containing all the requisite information. sheet items like OD, Term Loans, Promissory Notes, LCs, LGs, etc. with all the
8. There is no schedule of off-balance sheet items like LC, LG, etc. and the 4. Effectiveness and efficiency of
5. There should be a hierarchy for the transaction flow with requisite information's.
transactions are neither monitored nor updated periodically. operations.
sufficient segregation of duties at each level of the flow. 7. No single person should undertake the entire work flow for bank
9. The company has various facilities with various banks like OD, Term Loans 5. Reliability of financial reporting.
6. Periodic updation to the accounting system to curb the internal transactions and there should always be a preparer, recorder and approver for
& Promissory notes. However, there is no schedule maintained with required
control weaknesses. each transaction.
details like monthly installments, payment date, maturity date, etc. to keep
8. All the inter-bank transactions needs to be documented, retained and the
track of all the movements and avoid any penalties for lapses.
transactions should be recorded into the system on a real-time basis.
10. No segregation of duties for bank related transactions. Often the preparer
9. Update the current accounting module to incorporate the requisite
and recorder are the same person.
updation to automate various aspects to a transaction and overcome the risk
11. Supporting documents like bank payment/receipt voucher, copy of
of material misstatements.
cheques, supporting invoices, etc., are not retained properly.