Princess Bookstore (PB) Sdn Bhd is currently one of the largest book distributors in Malaysia. Established in 1981, in Sham Alam, Selangor, PB was originally a side project of founder and current Chief Operation Officer, who at the time worked for a law firm. At the end of the first year of business, PB had grossed only RM20,000. The company now distributes books over 50 states and sees sales approaching RM105, 000, 000 per year. Recently the company has experienced an unusually high level of complaints from customers regarding incorrect shipments, disputes with suppliers over incorrect inventory receipts and the general lack of audit trail information for reviewing transactions. You have been hired as an independent auditor to inspect the internal controls currently in place at PB Sdn Bhd. Your focus at this phase of audit is on the fixed assets and payroll procedures.

Fixed Assets and Payroll Procedures

In the various PB business departments, employees manually register their hours worked on timesheets, which they kept at their desk until Thursday, when the manager or supervisor of their department approves them. The manager or supervisor then forwards these timesheets to Bebby, the Payroll clerk, who manually prepares cheque for each employees' approved timesheet. She then posts to employee records and the payroll register using laptop computer, which she allowed to take home for work. A copy of the cheque is made and filed in the payroll department. The cheque is then mailed to the employee. Two payroll summaries are then printed. One of this is sent to account payables department and the other is sent to the general ledger department.

Users in individual departments verbally report their fixed assets requirement to their respective managers. If the manager approved the request, he or she manually prepares and submits a fixed asset request form to the purchasing department. Upon receipt of the fixed asset request form, the purchasing department clerk manually prepares two copies of purchase order. One copy is sent to the supplier, and one is filed in purchasing department. Finally, the purchasing department manually prepares and sent a hard-copy fixed asset change report to the fixed asset department.

The account payables clerk receives the payroll summary and writes a cheque to the imprest account for the exact amount of the payroll. When fixed assets are received, the receiving clerk reconcile the goods with the packing slip and invoice and then manually prepares a receiving report. The goods are sent to the user department while the packing slip, invoice, and receiving report are forwarded to the accounts payable department. The accounts payable clerk reconciles the documents from receiving, manually writes a cheque to the suppliers, and manually prepares a journal voucher, which she subsequently sends to the general ledger department. The general ledger clerk posts journal vouchers and payroll summaries to the digital general ledger using department PC.