Session 12

[Annie]

You have been appointed the internal auditor of Crackers Producers. Crackers Producers manufacture various kinds of crackers and fireworks. It is renowned for its extremely good quality and variety of crackers. Some crackers are made only by Crackers Producers.

YOu are supposed to assist the management in reviewing the human resources, procuremnet, health and safety activities.

Crackers airms at manufacturing at a high standard and accuracy of awork

It has around 4000 workiers and they are all on the payroll. Some are trainee workers who are not on the payroll. After the expiry of their training period they are absorbed in the job if their work is satisfactory.

Crackers purchases its rawmaterials for the local market and some of them are imported. The payroll is processed in house.

REquired:

For each of the following functions state the review process which includes
i) risks associated
ii) controls to manage those risks
iii) test of control to perform to check that the controls are effective

Functions of Crackers

a) Human resources
b) Treasury
c) Procurement

How will you do the value for money audit for the above.

[Annie]

Answer

Human Resources:
Qualifications experience and competence
Risk: unskilled workers allotted with work which requires skill, standard and accuracy may get affected and cause serious damage or wastage
Controls: employ right people and allot job properly, give adequate training and review at every stage
Tests of control: Reviewing the staff information ( qualification etc) with the work they are doing.

Criminal Record
Risks: Confidential information may be leaked causing damage
Controls: criminat records should be checked of every person emplouyed
Tests of control: police verification documents check, confirmation letters obtained from authorities

Ethical behaviour
Risks: staff may misappropriate information crucial for the organisation. Stealing goods or information
Contorls: security controls
Tests of control: Review of security controls. Safeguarding confidential information

Salary calculation
Risks: miscalculation of salaries, insuffiecint documentation etc
Controls: Recording attendance properly, maintaining documents and safeguarding them
Tests of controls: Reviewing no. of employees, payroll to personal files for appointment, retirement and termination

Staffing
Risks: High turnover f staff is very risky
Controls: trainees should be absorbed in first and existing staff should be given benefits to retain them in the job
Test of control: Review of staff turnover, increase of turnover should be checked with the HR department

Health and safey procedures:
Risks: Risk to Workers life and health
Controls: proper safety measures
Test of control: review the safey measures, possibility of risks, insurance covers etc, medical facilities given

Procurement
Fraudulent payments
Risk: fictitius suppliers, misappropriation of cash
Control: supplier list should be regularly checked and confirmation letters obtained from suppliers
Test of control: periodical checking

Incorrect and delayed payments
Risk: incurred and delayed payments
Conrol: internal control designed in such a way to avoid this
Test of control: check controls and working effectively and more functions are needed to be included

Best value for money:
Risk: quality of materials recived
Controls: proper decision making, authorisations levels, quotations minimum three procured before giving a order
Test of control: lowest quoted price is selected, if not the reason behind it to justify

Treasury
Risk: interest rates, foreign currency exchange rates
Contorl: finance department should manage the funds properly
Test of conrol: assess and ensure that they are functioning appropriately


Annie