BCL Internal Audit
AUDIT PROGRAM PHYSICAL STOCK TAKE Planning Fieldwork Location Period Under Review Report Issuance (GMs) Report Issuance (AC) Report Issuance (CEO)
Date 24.12.2 010
PLANNING & GENERAL Tick Comments Identify key management individuals who who will be dir directl ectly y affe affect cted ed by the the physical Stock Take activity and send a formal e-mail approximately 4 days prior to the the begi beginn nnin ing g of Stoc Stock k Take Take work work.. Comm Commun unic icate ate obje object ctiv ives es,, timi timing ng,, and expe expect ctati ation ons s of degr degree ee of assi assist stan ance ce required of personnel. Complete sc scoping an and pl planning ac activities sufficient to prepare a detailed work plan and time time budge budget. t. Comple Complete te work work plan plan and submit for IA Head approval. Prepare ti time es estimate an and c co ommunicate expectations to all team members. Review an and be become we well ac acquainted wi with the following: Current procedures to monitor inventory. Organization charts. Background on current processes. Schedule and hold a final planning meet meetin ing g prio priorr to the the begi beginn nnin ing g of any sign signiific ficant ant fiel fieldw dwor ork. k. Inv Involve olve the the com complet plete e audi auditt team. am. Disc Discus uss s the detailed plan and all relevant assignments, expectations, etc.
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Audit Tests Prepared by: Amjad Ghaffar
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Advance Preparation 1. 2.
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Review prior audit report for follow up. Ensure that all GRN, Issuances, returns etc have been entered and posted in the System before final Cut Off. Set up and organize SSR working papers as per number of teams and assigned the work to each team based on sample size. Obtain completed inventory internal control questionnaire from the Store In charge and document any potential control weaknesses or unusual practices in inventory handling.
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Obtain and document the following as of the audit date: a. Stock Status Report Last GRN, Last Issuance, return etc. Date of Last Physical Detail of Inventory held at Sub stores Type of inventory system
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Perform a thorough risk assessment on the operational areas relevant to this audit.
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Obtain a draft of physical inventory instructions sufficiently in advance of the inventory data to discuss any necessary revisions Discuss any potential problems areas or apparent weaknesses Tour warehouse areas in advance of physical inventory to assess stock layout and areas that may require special attention during the physical inventory Obtain a list of : Departments Areas name of department head Number of tags or count sheets issued to each team/department Latest available inventory amounts in each department. Determine the number of test counts to be made
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and recorded by us section/department/item etc. Observation of Store Procedures
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INTERNAL CONTROLS Assess the internal controls put in place by the management and identify weaknesses. Comment on the effectiveness of the control environment as a way of tackling errors, mistakes and fraudulent activities. Observe count team in action, noting adherence to instructions, care in making counts and care over accurate and complete recording of descriptions or stage of completing of in- process inventories. Note that count team systematically cover assigned areas to ensure complete coverage, without overlapping areas that are the responsibility of others Observe that all inventory in areas adjoining the primary storage areas including truck storage, tanks etc have been properly included in or excluded from the inventory count. Ascertain that count team deal with physical movements in a manner that will avoid duplicate counts or exclusion from the count. Determine that the serial number, description and last operational number selected for count are correct by referring to part numbers stamped on material or requesting identification by Store Personnel Ensure that the count teams open some sealed cartons or containers to determine the quantity and type of contents i.e identity, model number, physical characteristics etc. Ensure that count teams watch for empty boxes, spaces in the middle of stockpiles etc. When appropriate, ascertain that the client compares counts with perpetual records and investigates immediately any differences. Observe that count teams are noting seemingly excessive, slow moving or damaged inventory for later review. Ascertain that already issued/dispatched inventory or previously scraped materials are omitted from physical inventory taken by the counts teams.
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Testing by Internal Auditor 24.
Ensure that quantities on hand were not known to the counters prior to the physical count.
To determine if computer records of on hand inventory balances were accurate 25.
Using the SSR Inventory Report, judgmentally selected 100 % items from each section and perform the following: Count the items and compare the physical count to the SSR Report. Count the items and compare the physical count to the Bin Card. Reconcile the discrepancies. Summarize and conclude. •
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1. Verify the accuracy of stocks of all the raw materials and store at the plant site. 2. Assess the material receipt, issuance and recording mechanism. Comment on the effectiveness of the stock management system (in terms of operational and financial requirements) •
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Select and count certain bins, piles or sacks of materials and compare the count with the other team’s count, description and other data on completed tags. Recording of sufficient detail to enable exact matching with inventory summaries at a later date. Note seemingly excessive, slow moving or damaged items for later review.
DISPOSALS If possible, comment on the procedures relating to the disposals including how the materials/items held for disposal are physically kept and recorded in the store systems.
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Completion of Physical Stock Take 31. 32.
After completion of the count make a final tour of the area, preferably with a department head and note that: •
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All inventory is tagged or listed Any significant amount of obsolete, slow moving, excess, damaged or unusable inventory has been recorded for later inspection. Any scrap materials have counted according to written instructions Record sufficient cut of data Release the area to the person designated in the written instructions to pull the inventory tags or count sheets Prepare a memorandum for the working papers: Summarize the results of our observations, test counts etc. and concluding on the effectiveness of physical inventory activities and our degree of satisfaction with them.
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Receiving Cut offs 41.
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Visit the receiving and dispatch areas and ascertain that employees in those departments understand the procedures to be followed for identifying goods received or dispatched before and after the inventory count. Select several receipts and issuance/dispatches prior to and subsequent to the physical inventory and record the following: •
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Numbers of last receiving reports and description of inventory that is included in the count Number of last issuance/dispatches and a description of inventory that have left the store. Last inter or intera company transfers details Ascertain that related material has been tagged or counted. Also ascertain that goods have been issued/dispatched are not set aside awaiting issuance/dispatch.
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ADJUSTMENTS & SECURITY
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Comment on the health and safety, security measures undertaken at the site specifically with respect to stocks and related activities.
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Document book to physical adjustments for the past three years. Inquire as to whether or not the adjustments were investigated prior to correcting entries being made. Document your understanding of this process. Determine when and if the adjustments were capitalized or expensed and if they were approved.
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Based solely on the work performed, document observations regarding the physical security of inventory.
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Video cameras in security tapes are scheduled basis
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warehouse and reviewed on a
Physical Inventory Follow Up 48.
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Obtain final costed physical inventory listings, summaries and reconciliation with general ledger control accounts Agree control account balances and physical inventory: Agree test count to inventory listings. • Agree count sheets numbers, quantity, • description, stage of completion, last GRN, Issuance/dispatch number Void and unused count sheets are excluded • No additional counts or lines added to count • sheets Agree confirmations from Store In charge • and counters to listings. Determine that appropriate action has been • taken with respect to materials observed during physical inventory to be damaged, obsolete etc. Review counts sheets for possible •
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alterations subsequent to physical inventory and fully investigate any indication of changes. Determine whether receiving/issuance cut offs were properly handled. Agree costs assigned to quantities for selected items to appropriate cost records, supplier invoices etc.
For In process inventories note that cost records from which assigned costs were taken indicate cost accumulation through stages of completion ( Last operation number) which confirm to actual stages of completion observed. Review inventory quantities and unit costs on inventory lists and summarizes for such things as: General reasonableness of inventory by • type, category and physical location etc. Reasonableness of unit costs when related to • the type of material or product in comparison to similar material or products. •
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Test mathematical accuracy of inventory listings, summaries and reconciliation to general ledger control accounts.
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Examine support, as appropriate, for reconciling items and adjustments appearing on the reconciliation Examine proper approval and recording of book- to – physical adjustments in control accounts and detailed record.
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Receiving and Issuance Cut offs. 56.
After completion of the physical inventory taking, the cut off information obtained should be followed-up to ascertain that: a) Supplier invoices for items listed on receiving reports prepared before and after the inventory dates are recorded as accounts payable in the proper period. b) Sales invoices for items listed on dispatches reports prepared before and after the inventory dates are recorded as sales in the proper period. c) Inter- Company and inter plants transfers of
inventory have been properly accounted for at both locations. 57.
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REPORTING AND WRAP-UP Draft final reports for IA Head review . Draft report should include the following sections: Executive Summary Objectives & Scope Statement Background (in general and for each process) Summary of Procedures Performed Detailed Findings & Recommendations (organized by area/process/significance) Effects Recommendations Management Comments Person Responsible Target Date Action Matrix Appendix/Annexure: Review draft report in closing meeting with all process owners. All findings and recommendations should have been discussed prior to discuss with Audit Committee and clear draft report with GMs and/or other appropriate personnel. Make final revisions and issue final report. Finalize working paper documentation related to all work performed. Prepare final time summary and staff evaluation forms. • • •
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