QUESTION

Your company is a large International Company that manufactures alcohol for both local and export in the Region. This company known as Huliter Plc was established in 2007. Its sales volume were very high and it enjoyed significant profits. It was able to declare and pay dividends to its shareholders every year as its liquidity was above the industry average. The Company was able to pay all its gratuity outstanding arrears and was thus current as part of its corporate social responsibility.

However, from late 2019 to early 2020, the company started experiencing liquidity problems, which resulted into delayed payment of creditors, statutory deductions like PAYE, and wages and salaries. It was explained that due to COVIT 19 and Lockdown in some countries where alcohol, was being sold, no international orders were received also there has been a general reduction of alcohol consumption locally.

In a recent Internal Audit Report to the Audit Committee, the following exemptions were however noted, among others:

i. A review of purchases and disbursement showed that an amount of K5, 000,000 was paid to an international supplier for equipment that was to be used to produce sanitizers. Your further review showed that only one quotation was obtained when in fact the procurement policy stated that three (3) quotations were to be obtained and considered by the purchasing committee (The Director of Finance was the only one who approved). It was noted at the time of Audit that the equipment was not received as the suppliers were unable to be traced.

ii. A review of staff earned gratuities amounting to K5, 500,000 were still outstanding. A further review showed that these funds were made available but was deposited in an offshore account to earn interest.

iii. A review of Petty cash whose float was K5, 000 showed that K200 was used and receipts identified. It was noted however noted that the K4, 800 which should have been in the cash box but was not there. When the Petty -Cashier was asked, she explained to the internal auditor that she used the money to buy mealie-meal and groceries for home use and was to replace the money once she gets paid.

iv. An amount of K2, 000 cash which was receipted on a Friday was deposited on a Wednesday the following week. The policy on deposit was two (2) working days after receipt. The Accountant explained that the deposit was not deposited the following Monday or Tuesday as these days were designated holidays.

v. A production manager was employed whose salary was pegged in US$20,000 per month. It was explained that he possessed special skills as the company was to diversity its activities as a response to COVIT 19. However, company policy stated that recruitment was to be advertised.

vi. A review of bank reconciliations for the sampled three (3) showed that for one months' bank reconciliation, there was a difference of K10 between the bank balance as per bank reconciliation and the balance as per cash book. It was explained that this was a result of rounding-up.

vii. A further review of the latest bank reconciliation should that there were unrepresented cheques. On this schedule were 3 Cheques amounting to K6,000 of K2,000 each. These cheques were on the list for over 10 months. The Management explanation was that they were unable to trace the trace the payee and hence remained unclaimed.

QUESTION

Make an evaluation of the exceptions under (i) to (vii) above which were reported in the final audit report. Explain as to why it should or should not have been reported.