SMT Inc. is a manufacturing company that purchases products from a small number of suppliers. Annual audits have sometimes shown differences between book inventories and the items stored in the warehouse. However, the differences resulting from the most recent audit are much greater than the average for previous years. The company has asked you, a management auditor, to verify whether these differences are due to errors in the processing of transactions, theft by employees, or goods that were never delivered but were nevertheless paid for by the company.

You began by reviewing the company's purchasing procedures.

SMT INC.

Purchasing Procedures

1. Each department is responsible for its own purchases. When needs are identified, an employee of the department makes a written or oral requisition to the purchasing department.

2. The purchasing department fills out a purchase order in triplicate. The first copy is sent to the supplier, the second is sent to the receiving department, and the third is kept in the purchasing department.

3. When goods are received, a clerk in the receiving department compares the quantities received to those on the purchase order and fills out a receiving slip in four copies. The first copy is sent to the accounts payable department, the second accompanies the goods when they are transferred to the warehouse, and the third is sent to the inventory management clerk. The fourth copy is kept at the receiving department.

4. On receipt of invoices from suppliers, the accounts payable department compares the quantities received to the quantities invoiced, and then requests that a cheque be issued for payment of each invoice. The amount of the invoice is entered in the receipts file.

Using CAATs, your assistant conducted various analyses of the receipts file and the file on transfers to the warehouse. These files contain the following fields:

Receipts file

DATEREC: Date of receipt of order

SUPNO: Supplier number

AMOUNT: Total amount of invoice

PONO: Purchase order number

EMPNO: Employee number of person who filled out the purchase order

RECSLIPNO: Receiving slip number

File on transfers to warehouse

TRANSDATE: Date of transfer of items

SUPNO: Supplier number

EMPNO: Employee number of person who filled out the purchase order

RECSLIPNO: Receiving slip number

The results of these analyses are in Exhibit 1-1.

EXHIBIT 1-1

Command: CLASSIFY ON EMPNO SUBTOTAL AMOUNT TO SCREEN

Table: Receipts

EMPNO	Count	Percent of Count	Percent of Field	AMOUNT
2548242	115	23.05%	21.17%	264,034.11
4778504	115	23.05%	24.56%	306,281.70
7685711	197	39.48%	37.19%	463,784.14
9080842	72	14.43%	17.08%	212,943.75
Totals	499	100%	100%	1,247,043.70

Command: GAPS ON RECSLIPNO TO SCREEN PRESORT

Table: Receipts

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0 sequence errors detected

0 gaps and/or duplicates detected

Command: FILTER: AMOUNT <=0

Table: Receipts

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Command: GAPS ON RECSLIPNO TO SCREEN PRESORT

Table: Transfers

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0 sequence errors detected

5 gaps and/or duplicates detected

RECSLIPNO

18,780 - 18,782

18,956 - 18,958

18,978 - 18,980

18,986 - 18,988

19,008 - 19,010

Command: JOIN TABLES

PRIMARY TABLE: Receipts

PRIMARY KEY: RECSLIPNO

PRIMARY FIELDS: RECSLIPNO SUPNO

SECONDARY TABLE: Transfers

SECONDARY KEY: RECSLIPNO

UNMATCHED RECORDS

	RECSLIPNO	SUPNO
1	18,781	172
2	18,957	172
3	18,979	172
4	18,987	172
5	19,009	172

Required

a. State the preliminary conclusions that you can draw from the results in Exhibit 1-1. Provide three (3) points. 

b. In non-technical language (that means you do not need to use the ACL languages), explain the additional analyses that you would ask your assistant to perform using the information contained in the two files, in order to obtain other indicators to help you plan your audit. Provide three (3) points. 

c. Other than ACL, what other CAATs you can use to conclude this audit. Provide three (3) tools.