You are the Chief Financial officer if Hi Tech World Ltd, the external audit team from Young & Serious(Y&S) have just complete the audit which you believe went well.During an audit review meeting with the Audit Partner, the Lead audit manager, your CEO and yourself a report is provided by Y&S which highlights potential internal control issues in relation to your systems and associated procedures.

The key areas of concern included the Expenditure and general ledger procedures. An extract of the issues raised and the potential risk is as follows

Area/Activity

Risk/Issue observed during audit

Expenditure /Account payable

Requests for Supplies

It was observed during the audit that in some instances requests for supplies and inventory were over estimated. While in some cases inventory requests

Supplier being chosen

Purchasing from unauthorized suppliers, potentially paying too much or not adhering to supplier contract

Purchase orders

Not purchasing from approved suppliers provides the opportunity for kickbacks to occur with key purchasing personnel and non-approved suppliers

Accepting the delivery

Not all goods were received were checked by the receiving officer, this could result in:

Theft of inventory

Accepting low quality or damaged goods

Approving the invoice

On a number of occasions it was identified that supplier invoices were not paid within the period in order to receive discounts. This represents a cost to the organisation

Accepting the delivery

Data entry errors were detected by the goods receiving officer

General ledger

Extracting and validating data

It was observed that incomplete and inaccurate data was updated to the general ledger

Incomplete data does not provide accurate information to management - risk decisions not correct

Preparation of Adjustment journals

A number of errors were detected in adjustment journals made by staff in relation to inventory write off

Producing Management Accounts and statements

In some cases it was identified that incorrect parameters were used to prepare reports resulting in incorrect information being provided to management

Required

After the meeting your CEO requests you to business style report which details the issues and the recommendations on how to mitigate the risks to be provided at the next meeting of the Board of Directors.