The team determining which locations to include in their inventory were given an incomplete list that excluded the China location with the ultimately obsolete inventory. Therefore, it was excluded from the count for the year under audit. This was determined to be caused by a human error. (CONTROL-A).

2) The COO and CFO both were sick with COVID in the year under audit and performed their responsibilities sporadically.

3) The inventory analysis had a manual human error where the inventory that was obsolete was shown as valued at $300,000 instead of $3,000,000 because a human error resulted in a missing zero. (Control B)

4) At year-end when the write-off analysis was performed the CFO was on vacation and the COO was sick and not informed about his required review timely and therefore (Control C). was not executed effectively.

Some of the key controls the company has are the following:

Control A- A count of inventory is performed quarterly (CONTROL A). The count is performed by the inventory team manually. The locations are periodically reviewed. Not every location is always selected based on how material the inventory is at that location.

Control B- An inventory analysis is prepared by the account manager and is reviewed for potential write downs and proper valuation every quarter by the COO. (CONTROL B). An inventory report is produced by the inventory system and used as the basis for the preparation of this analysis. If the COO is not available the CFO performs the review.

Control C- The Computer software prints a report of slow-moving items every 12 months, and this is reviewed by the CFO (Control C). If the CFO is unavailable this is performed by the COO.

 

1. Did the following controls work effectively during the year?  control A, B, and C
2. Are the following controls preventive or detective controls?  control A, B, and C, are they preventive controls or detective controls
3. Are the following controls manual, automated, or IT-dependent manual control? (a) Manual, (b) Automated, or (c) IT Dependent Manual?   control A, B, and C
4. Is the failure in the control(s) indicative of an (a) Control Deficiency; (b)Significant deficiency; (c) A Material Weakness? control A, B, and C