A) internal controls systems like any other system is subject to human error like miscalculation
etc
Internal control systems can be overridden by employees if they decide to collide together like
sales ledger clerk colliding with cashier to manipulate sales accounts of customers.
b)narrative notes give brief description of internal control systems so auditor does not make any
mistake while pointing out aws in internal controls, narrative notes as they are detailed are easier
for new audit members to understand
However narrative notes can be time consuming which could negatively impact the audit cost/
bene t ratio
Narrative notes can be too detailed making it di cult to grasp what exactly is happening at each
stage
C) two alternative methods include internal control questionnaire consisting a list of questions
each requiring a simple yes or no option, and owcharts a simple step by step chart of the control
process
Q2
a) owcharts are step by step chart stating the control which is in place like gdn being generated
gdn signed by customer, copies generated etc owcharts are less time consuming so will help the
auditor to focus on other important areas of audit where risk is relatively high.however owcharts
do not give brief description of the control in place so it may be harder for new audit team
members to understand,
Internal control questionnaire, consists a series of question each requiring a simple yes or no
answer it is harder to circumvent as the respondent has to give a clear yes or no rather than try to
convince the auditor why it is the way it is internal control questionaire may lack the detail of
controls necessary to make point out aws as compared to narrative notes.
Insu cient copies of goods dispatch note there
should be atleast 3 copies of gdn one for customer
one for accounts department and one for
warehouse to have evidence in case of dispute over
delivered goods
3 copies should be generated one sent to customer
one to the warehouse and one to the accounts.
Department to have su cient evidence in case of
dispute over delivered goods
Order taken is communicated through email as the
company markets itself as being able to dispatch
orders within 3 working days emails can be a slow
communication method as they can be left in
inboxes or lost within other emails leading to late
deliveries and customer dissatisfaction
The order taken should be communicated via
phone to ensure they are delivered on time to avoid
customer dissatisfaction
fl
Sales orders should be sequentially numbered to
avoid traceability issues in case of missing sales
order
ffi
Sales order number are not sequentially numbered
this can lead to traceability issues in case of
missing sales orders
fl
Sales sta should not have access to the master
data le it should be entered by a senior personnel
like the sales manager to avoid chances of fraud
fl
Sales sta have access to the master data le as
they record discount granted this high accessibility
could lead to fraud like reducing sales prices of
some goods and taking out the remaining cash
leading to loss of sales revenue
fi
Discount should be given by a senior personnel like
the sales manager or should be authorized by the
sales manager to avoid any wrong discounts being
given
fl
Sales sta can grant discount to customers upto
10% there is a risk that the sales sta may not be
experienced enough to grant discount to customers
leading to wrong discounts being given and
ultimately loss of sales revenue
ff
Recommendation
fl
Weakness
ffi
ff
ff
ff
fi
fi
ffi
fl
B)
Weakness
Recommendation
Salesperson is responsible for credit control by
chasing payments there is a chance that the sales
person may not be skilled enough to chase
payments which could lead to bad debts for the
company
The process of chasing payments should be
supervised by a senior personal to reduce the
chances of bad debts
Copy of the Sales order form Is kept with the
salesperson there is a chance that the salesperson
may misplace it which could lead to customer
dissatisfaction if the customer makes claim of any
order and the company has no record of it
One more copy should be generated and kept with
the nance department to have evidence incase
any dispute arises and avoid customer
dissatisfaction in case of no record.
fi
fi
C) setting up new joiners should be done by a senior person like the the production manager or
should be double checked by the purchase manager before payment to avoid any ctions
employees being set up.
Bank transfers should also be authorised by a senior personnel like the production manager this
would avoid payments being made into wrong accounts or joint accounts for fraud
To ensure there are proper segregation of duties and no relation exists between these employees
as in this although there was proper segregation of duties a martial relation existed between the
employees which lead to this fraud so to avoid it along with separate employees for each task
there should exist no relation to avoid collusion of employees which ultimately increase the
chances of fraud.