Answer – Pear International

Part – A

Direct controls Test of controls

Validation check in the website Visit the website of the company and enter
The website has inbuilt validation check to the sales order with some incorrect details
ensure details such as customers’ post code like incorrect post codes and card payment
and payment card details are in correct details to ensure these incorrect details are
format. being rejected.
This would reduce the chances of incorrect
orders and details and goods will be supplied
to correct customers address and also
ensuring the accurate and complete sales
records.
Credit check and credit limits Discuss with the management the process of
The retail customers undergo a credit check credit check, review their workings and also
prior to being accepted and also credit limit is review the written correspondence with the
set accordingly the sales manager. credit rating agency to confirm the credit
This would allow the company to make the check.
sales to good rating customers and Also agree the signature of sales manager as
undermine the chances of irrecoverable debt evidence to set the credit limit.
and loss to the company and also reduces the
chances of overstated receivables.
Invoices are raised from GDNs Select the sample of GDNs and also their
Sales invoices are raised by the accounts respective invoices and agree the prices in
department using GDNs. the invoices of the related goods supplied.
This would reduce the chances of incorrect Also discuss with the management the
invoices being sent and also ensuring to process/control in case of any invoices are
maintain the valid and accurate sales records. unmatched.
Customer statement and follow up Review the sample of customer statement
On monthly basis, customer statements are reconciliations, check the evidence of
being sent and also follow up is made by the statements sent, like email.
credit control team on overdue debts as soon Also discuss with the credit control
as they become overdue. department the process to make a follow up
This would remind the customers to pay for and review its evidences, like recorded call
the goods and thus minimizing the chances of logs or any email correspondence.
any liquidity issues. This would also
undermine the chances of overstated
receivables, if not written off.
 Inventory level is being checked Visit and observe the working of factory
Inventory levels are being checked on a supervisor to confirm he checks the stock
weekly basis prior to the purchasing of raw level prior to place the purchase requisition.
materials. Also review the past logged in trail using
This would ensure the purchases of only CAATs and ensure he checked the stock level.
those materials which are necessary and not Inspect the purchase requisition and agree
in stock and undermine the chances of that inventory was at re-order level at that
inaccurate records of inventory and date.
minimizing the chances of any omission in
the records of inventory and allow the
company to value the inventory at lower of
cost of NRV.
Authorized requisitions and approved Select the sample of purchase requisitions
suppliers and agree the signature of factory manager
Purchase requisitions are authorized by the to confirm its authorization.
factory manager before the order is Obtain the list of approved suppliers and also
processed by the procurement department the purchase orders raised and agree orders
and order is placed to the approved are placed to the suppliers who are in the
suppliers. approved list.
This would ensure the purchases of
necessary goods at required level of quality
and prices are also known since suppliers are
approved and thus less chances of loss to the
company.
This would also ensure the correct valuation
of the inventory.

Part – B

Control deficiencies Recommendations

Website is not integrated with inventory The website should be updated and it should
system be integrated with the inventory system and
Currently the website is not integrated with the availability of goods should be appeared
the inventory system. on the website and incase goods are out of
This may result in accepting those orders stock, then approximately waiting time
which are not in stock and it may dissatisfy should be shown on the website.
the customers and goodwill may be affected This would reduce the chances of negative
and future potential sales may be lost. impact on goodwill.
Discount is set by the sales team Sales team should not be allowed to decide
Sales discounts are decided by the sales the sales discounts, instead they should be
team. given the authority to give the discount till
There are chances to give unnecessary high certain limit, by the sales manager and any
discounts in order to boost the sales and thus discount above that limit shall be authorized
chances of reducing the sales and profits. by the sales manager.
There should be regular review of the sales
discount and should be adjusted considering
the time and need.
Customers’ signatures are not obtained The company should request the local
Goods are dispatched via local courier service courier services to always take the
and they do not always record the signature customers’ signature on GDN upon delivery
of customers as a proof. of goods as a proof of goods delivery and
Customers may claim falsely that they had copy should be sent to the company so that
not received the goods and since the chances of dispatching again can be
company has no proof for goods delivery and minimized.
thus chances of dispatching the goods again Sales team may follow up with the customers
and thus financial loss to the company. confirming goods delivery and it may
improvise the customer relationship.
Delay in the goods dispatched Sales and dispatch system should be
Sales orders were entered into the sales integrated; that is; upon entering the sales
system and not forwarded to the dispatch order into the sales system, dispatch
department on time resulting in delay of department should automatically receive the
supply of goods and increasing complains by notification so that goods can be dispatch on
the customers. time to meet the expectations of the
If this issue would continue then there would customers.
be reputational damage due to customer Any unfulfilled order should be systematically
dissatisfaction and chances of losing the flagged so that it can be investigated.
customers and may also negatively affect the
future potential sales.
Supplier statements reconciliations are not Supplier statement reconciliations should be
performed prepared regularly like on monthly basis so
Due to the changes in the payable ledger that valid and accurate records of payables
department, supplier statement can be maintained.
reconciliations are no longer performed. The reconciliations should be regularly
Any errors in the purchases and payables reviewed by the senior responsible official
may not be identified on time and payables and should sign as evidence of review.
records may be over/understated.
There is also a chances of paying incorrect
amount to the suppliers which may lead to
loss of reputation and supplier relationship
can be damaged.
Supplier master file The access towards supplier master file
Changes to supplier master file can be should be withdrawn by the clerk and it
undertaken by the payable ledger clerk as should be accessible by the supervisor and by
well as by the supervisor. the senior personnel like manager so that
Clerk is not the appropriate person to have only authorized changes in it can be made.
access towards the master file and can make Exception/edit report should be produced
the amendments. There are chances of any which should report the changes made and
unauthorized changes in it or even chances should be reviewed by the senior responsible
of fraud like by adding fictitious supplier and official.
thus loss to the company.
Supervisor is authorizing capital equipment Capital items should be authorized by BOD,
Purchase requisitions for all new capital however a certain minimum acceptable limit
items are authorized by the production of capital items authorization can be given to
supervisor who is not the person. the supervisor, which should be reviewed by
He may authorize those equipment which are the BOD later on with the justification.
not necessary and thus increasing the Any capital items above the limit should be
expenditure or may not get the best possible authorized by BOD.
lower price thus loss to the company.