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BCL Internal Audit AUDIT PROGRAM

PHYSICAL STOCK TAKE


Planning
Fieldwork
Location
Period Under Review
Report Issuance (GMs)
Report Issuance (AC)
Report Issuance (CEO)

Date PLANNING & GENERAL Tick Comments


24.12.2 1. Identify key management individuals
010 who will be directly affected by the
physical Stock Take activity and send a
formal e-mail approximately 4 days prior
to the beginning of Stock Take work.
Communicate objectives, timing, and
expectations of degree of assistance
required of personnel.
24.12.2 2. Complete scoping and planning activities
010 sufficient to prepare a detailed work plan
and time budget. Complete work plan
and submit for IA Head approval.
24.12.2 3. Prepare time estimate and communicate
010 expectations to all team members.
29.12.2 4. Review and become well acquainted with
010 the following:
• Current procedures to monitor
inventory.
• Organization charts.
• Background on current
processes.
29.12.2 5. Schedule and hold a final planning
010 meeting prior to the beginning of any
significant fieldwork. Involve the
complete audit team. Discuss the
detailed plan and all relevant
assignments, expectations, etc.
29.12.2 6.
010
29.12.2 7.
010

Audit Tests

Prepared by: Amjad Ghaffar


A Advance Preparation

1. Review prior audit report for follow up.


2. Ensure that all GRN, Issuances, returns
etc have been entered and posted in the
System before final Cut Off.
3. Set up and organize SSR working papers
as per number of teams and assigned
the work to each team based on sample
size.
4. Obtain completed inventory internal
control questionnaire from the Store
In charge and document any potential
control weaknesses or unusual
practices in inventory handling.

5. 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

6. Perform a thorough risk assessment


on the operational areas relevant to
this audit.

7. Obtain a draft of physical inventory instructions


sufficiently in advance of the inventory data to
discuss any necessary revisions
8. Discuss any potential problems areas or
apparent weaknesses
9. Tour warehouse areas in advance of physical
inventory to assess stock layout and areas that
may require special attention during the
physical inventory
10. 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.
11. Determine the number of test counts to be made
and recorded by us for each
section/department/item etc.
B Observation of Store Procedures
INTERNAL CONTROLS
12. Assess the internal controls put in place
by the management and identify
weaknesses.
13. Comment on the effectiveness of the
control environment as a way of tackling
errors, mistakes and fraudulent
activities.

14. 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.
15. 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.
16. Ascertain that count team deal with physical
movements in a manner that will avoid duplicate
counts or exclusion from the count.
17. 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
18. 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.
19. Ensure that count teams watch for empty boxes,
spaces in the middle of stockpiles etc.
20. When appropriate, ascertain that the client
compares counts with perpetual records and
investigates immediately any differences.
21. Observe that count teams are noting seemingly
excessive, slow moving or damaged inventory for
later review.
22. Ascertain that already issued/dispatched inventory
or previously scraped materials are omitted from
physical inventory taken by the counts teams.
23.
C 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.

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)

26. 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.
27. Recording of sufficient detail to enable exact
matching with inventory summaries at a later date.
28. Note seemingly excessive, slow moving or
damaged items for later review.
29. DISPOSALS
30. 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.
D 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:

33. All inventory is tagged or listed
34. Any significant amount of obsolete, slow moving,
excess, damaged or unusable inventory has been
recorded for later inspection.
35. Any scrap materials have counted according to
written instructions
36. Record sufficient cut of data
37. Release the area to the person designated in the
written instructions to pull the inventory tags or
count sheets
38. Prepare a memorandum for the working papers:
39. 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.
40.
E Receiving Cut offs

41. 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.
42. Select several receipts and issuance/dispatches prior
to and subsequent to the physical inventory and
record the following:

• 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.
43. ADJUSTMENTS & SECURITY

44. Comment on the health and safety,


security measures undertaken at the site
specifically with respect to stocks and
related activities.

45. 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.

46. Based solely on the work performed,


document observations regarding the
physical security of inventory.

47. Video cameras in warehouse and


security tapes are reviewed on a
scheduled basis

F Physical Inventory Follow Up

48. Obtain final costed physical inventory listings,


summaries and reconciliation with general ledger
control accounts
49. 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
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.

50. 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.
51. 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.

52. Test mathematical accuracy of inventory listings,
summaries and reconciliation to general ledger
control accounts.

53. Examine support, as appropriate, for reconciling


items and adjustments appearing on the
reconciliation
54. Examine proper approval and recording of book- to
– physical adjustments in control accounts and
detailed record.
55.
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.
58. REPORTING AND WRAP-UP
59. Draft final reports for IA Head review .
60. 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:
61. Review draft report in closing meeting
with all process owners.
62. 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.
63. Make final revisions and issue final
report.
64. Finalize working paper documentation
related to all work performed.
65. Prepare final time summary and staff
evaluation forms.