INTERNAL CONTROL

Question 1

Sales System:Sales Order Function

Answer 1

1. Segregation of Duties
(order, and credit limit)
2. Authorization of credit
limit (by separate dept.)
3. Check credit limit.
4. Check inventory balance.
5. Prenumbered orders.
6. Use authorized rates.
7. Despatch every sales
order.

Question 2

Sales System:Despatch Function

Answer 2

1. Prenumbered GDN for
every despatch.
2. Cross-check with sales
order and Sign GDN.
3. Acknowledgement of
customer.
4. Daily transfer of GDN to
record in accounts.

Question 3

Sales System:Invoicing/Billing Function

Answer 3

1. Segregation of duties
(order, despatch, invoice).
2. Prenumbered Invoice.
3. Recalculation/Cross
checking of invoice with
Order & GDN.
4. Prenumbered and
authorized credit notes
(cross check with invoice)

Question 4

Sales System…GL/Accounts Function

Answer 4

1. Segregation of duties
(invoice, recording,
collection).
2. Batch Totals.
3. Control A/C reconciliation
4. Monthly Account statements.
5. Aging analysis to identify
overdue & follow up.
6. Authorization of bad debts.

Question 5

Purchases System:Purchase Order Function

Answer 5

1. Segregation of Duties
(user and order dept.).
2. List of approved
suppliers, with Access
controls.
3. Order only to approved
suppliers at lowest
quotation.
4. Authorization of all
purchase order.
5. Prenumbered orders.

Question 6

Purchases System:Receiving Function

Answer 6

1. Segregation of duties.
2. Prenumbered GRN for
   every receipt.
3. Cross-check with purchase
   order and Sign GRN.
4. Daily transfer of GRN to
   record in accounts

Question 7

Purchases System»Invoicing/Billing Function

Answer 7

1. Segregation of duties
(order, receiving, invoice).
2. Recalculation/Cross
checking of invoice with
Order & GRN.
3. Check discount allowed by
suppliers.
4. Prenumbered and
authorized of debit notes

Question 8

Purchases System:GL/Accounts Function

Answer 8

1. Check complete audit trail is
available (PO, GRN, Invoice).
2. Batch Totals.
3. Control A/C reconciliation
4. Monthly Account statements.
5. Prenumbered and authorized
debit notes

Question 9

Payroll System»>Calculating Gross Wages and

Salaries»>Only for real employees

Answer 9

1. Segregation of duties (HR & Payroll
& Payment)
2. Authorization of Appointment &
pay by HR.
3. Pay authorized by HR.
4. New employees authorized by HR.
5. Communication of resigned
employees

Question 10

Payroll System»>Calculating Gross Wages and

Salaries»>Only for real work:

Answer 10

. Prenumbered and authorized Time
Sheets (or clock-card system with
monitoring).
7. Approval of overtime & bonus.
8. Use authorized time sheet and rates

Question 11

Payroll System»>Calculating Gross Wages and

Salaries»>Calculated correctly:

Answer 11

9. Range Tests.
10. Recalculation and approval
    of payroll by independent person

Question 12

Payroll System»>Calculation of tax and other

deductions

Answer 12

1. Use latest rates of tax.
2. Authorization of voluntary
   deduction by employees
3. Recalculation and approval
   of deduction by
   independent person.

Question 13

Payroll System»>Payment of wages and

salaries

Answer 13

1. Authorization of
payments by CFO (total
as well as individual).
2. Confirmation of identity
before payment (for
cash, as well as bank
transfer)
3. Reconciliation of
salaries payable with
salaries paid.
4. Timely payment of
deductions

Question 14

Payroll System:Recording payroll in

accounts

Answer 14

1. Use authorized payroll.
2. Timely recording.
3. Reconciliation of
   payroll file with
   general ledger.

Question 15

Inventory System»>Recording Inventory

Answer 15

1. Segregation of duties (ordering, custody,
   recording)
2. Inventory records.
3. Accurate and timely recording of receipts
4. Accurate and timely recording of issues

Question 16

Inventory System»>Physical Safeguarding

of Inventory

Answer 16

1. Restricted physical
   access.
2. Inventory count and
   reconciliation

Question 17

Inventory System»>Valuation of

Inventory

Answer 17

1. Updated Standard
   Costing.
2. Identification of slow
   moving items.

Question 18

Inventory System»>Management of Levels of

Inventory

Answer 18

1. Inventory levels.

Question 19

Fixed Assets System:Authorization of additions/deletions

Answer 19

1. Authorization of purchases and disposal.
2. Approval of invoices.
3. Sequential numbering on fixed assets.
4. Updated fixed assets’ register

Question 20

Fixed Assets System:Recording of expenditures

Answer 20

1. Marking of invoices for correct classification.
2. Recording in appropriate accounts.
3. Reconciliation

Question 21

Cash and Bank System:Cash Receiving

Answer 21

1. Segregation of duties (receiving &
recording)
Controls over cash received
through Post:
1. Monitor mail-opening process.
2. Listing of cash received by
independent person.
Controls over Cash Sales (at
counter):
2. Restricted employees to receive
cash.
3. Till roll or cash receipts for every
transaction.
4. Reconciliation of cash received and
recording by independent person.
Controls to ensure all money
received is banked:
1. Prompt banking.
2. Match deposit in bank with receipts
and cash book

Question 22

Cash and Bank System&raquo_space;>Cash Payments

Answer 22

1. Supporting
documents
2. Cancellation of
documents
3. Authorization of
payments
4. Prompt
Recording

Question 23

Cash and Bank System:Cash Balance»Controls over Cash in hand:

Answer 23

1. Restricted employees to
   receive cash.
2. Heavy locked box in
   secured place

Question 24

Cash and Bank System:Cash Balance»Controls over Bank

Balance:

Answer 24

1. Established procedures
for new bank account.
2. Segregation of duties.
3. Secure cheque book.
4. Bank Reconciliation
Statement.
5. Control over devices used
to prepare cheques
electronically

Question 25

Cash and Bank System:Petty Cash

Answer 25

1. Set reasonable limit.
2. Keep petty cash in a heavy
   locked box (or locked drawer)
   in secured place.
3. Spending on pre-approved
   expenses only.
4. Spending should be supported
   by documents and recorded
   on petty cash voucher.
5. Surprise checks of petty cash
   by independent person.
6. Petty cash expenses should be
   periodically recorded in
   general ledgers, after review
   by finance manager.
7. When petty cash is ‘topped
   up’, the amount of withdrawal
   from bank should be equal to
   total of petty expense
   recorded.