Management of certain companies may encounter incidents of stocks losses due to misappropriation of assets by its employees, i.e. their employees stole the company’s stocks for personal benefit (i.e. personal usage/ personal profits after selling it out).
Let us discuss together on What Could Go Wrongs (“WCGW”) in the internal control system that may result in the entity exposure to the risk of fraud:
- stock take is not conducted on a regular basis (i.e. stock take on a half-yearly basis)
- quantities and movement of provision stocks / obsolete stocks are not kept tracked (note: these stocks usually carry scrap value, and might be misappropriated if there’s no proper record)
- physical stocks are not stored in safety area
- CCTVs not installed in warehouse
- ineffective procedure in updating inwards/outwards of stocks into stocks record
The list above is not exhaustive and it is for reference only
From management perspective, there are a few areas / procedures need to be carried out when they had experienced / encountered fraud with regard to their physical stocks:
- improve accountability of the employees by assigning different area of stocks of different employees
- impose penalty on all warehouse employees while there’s material stock differences ( e.g. penalty on warehouse employees if stock-take difference is greater than 0.5% of total stocks)
- employ strict security access to the warehouse
- install CCTV in the warehouse and perform random check on certain time slots
- security guard to perform check on employee’s bags before allowing the employees to leave the premises
- ensure that stock-take is conducted on a regular basis and any stock-take difference is investigated
Please feel free to email us Kauditor at myauditing@gmaill.com if you have any comments or you would like to find out more. Kauditor at Accounting & Auditing Blog is an experienced subject matter expert.
Showing posts with label Auditing- Stock Take. Show all posts
Showing posts with label Auditing- Stock Take. Show all posts
Monday, September 26, 2011
Sunday, December 21, 2008
#61- Stock Take Procedure 4
Proper segregation of duties must exist during stocktake.
As an auditor, we need to observe that the stock take team consist of:
1) Counter (Warehouse personnel)
2) Checker (Staffs from department other than warehouse department)
Warehouse personnels are the people who has direct access to the Company's stocks. Why should the warehouse personnel (counter) accompanied with a checker during stock take? This is to prevent potential fraud case and observe the normal inventory management procedures of the client. Warehouse personnel are the people who has day-to-day access to the warehouse. Assuming, they steal one and reported one stock lesser during stock take, nobody will not realize the fraud case, unless the inventory system capture the daily movement.
To illustrate with an example. Company XYZ does not has proper inventory system that keep track on goods in and goods issued. The Company will not know the exact quantity of the inventory item, until the physical stock take, which is done on a monthly basis. The employee could have just steal one item and without letting people realize.
Hence, stock take team must consist of at least one people from other department to check that the quantity counted and reported is as what have been counted physically.
As an auditor, we need to observe that the stock take team consist of:
1) Counter (Warehouse personnel)
2) Checker (Staffs from department other than warehouse department)
Warehouse personnels are the people who has direct access to the Company's stocks. Why should the warehouse personnel (counter) accompanied with a checker during stock take? This is to prevent potential fraud case and observe the normal inventory management procedures of the client. Warehouse personnel are the people who has day-to-day access to the warehouse. Assuming, they steal one and reported one stock lesser during stock take, nobody will not realize the fraud case, unless the inventory system capture the daily movement.
To illustrate with an example. Company XYZ does not has proper inventory system that keep track on goods in and goods issued. The Company will not know the exact quantity of the inventory item, until the physical stock take, which is done on a monthly basis. The employee could have just steal one item and without letting people realize.
Hence, stock take team must consist of at least one people from other department to check that the quantity counted and reported is as what have been counted physically.
Monday, March 17, 2008
#37 Stock Take Audit Procedure 3
Things to pay attention to by auditor during stock take:
- to walk around the warehouse / factory to observe if there is any physically impaired/ damaged items.
- if the items are damaged, to check if these damaged items are included i stock listing (if yes, then request client to write off the inventory items)
- to check if the damaged items are properly segregated, as the client might put the damaged item in along with normal goods and resulted in overstatement of inventory.
- if the items appeared to be dusty, check with client if the items are saleable. ( potential provisoin for inventory issue).
Rule of thumb: to observe the physical condition of stocks and report any stock obsolescence.
- to walk around the warehouse / factory to observe if there is any physically impaired/ damaged items.
- if the items are damaged, to check if these damaged items are included i stock listing (if yes, then request client to write off the inventory items)
- to check if the damaged items are properly segregated, as the client might put the damaged item in along with normal goods and resulted in overstatement of inventory.
- if the items appeared to be dusty, check with client if the items are saleable. ( potential provisoin for inventory issue).
Rule of thumb: to observe the physical condition of stocks and report any stock obsolescence.
Sunday, March 16, 2008
#36 Stock Take Audit Procedure - 2
As mentioned in previous posting ( Post #35), test count samples in stock take need to be selected: 1) from the floor and 2) from the list.
The purpose of selecting samples from the floor means select the samples from the warehouse floor, test count the result then match to inventory listing as at balance sheet date, to check that the stock listing is complete.
The purpose of selecting samples from the list means select the samples from the list, to check that the inventory appear on the list exist.
The purpose of selecting samples from the floor means select the samples from the warehouse floor, test count the result then match to inventory listing as at balance sheet date, to check that the stock listing is complete.
The purpose of selecting samples from the list means select the samples from the list, to check that the inventory appear on the list exist.
#35 Stock Take in Audit Procedure
Purpose of stock take is to verify the existence of the inventory accounted by the company. Procedures in stock take:
1. Obtain stock listing as at balance sheet date from client.
2. Randomly select certain number of samples from stock listing to physically count the inventory to check that the inventory listing ( as prepared by client) has no material difference.
3. Randomly select certain number of samples from the floor ( and test count the number of the items) to check that the stock listing is complete.
4. Make any adjustment if necessary.
1. Obtain stock listing as at balance sheet date from client.
2. Randomly select certain number of samples from stock listing to physically count the inventory to check that the inventory listing ( as prepared by client) has no material difference.
3. Randomly select certain number of samples from the floor ( and test count the number of the items) to check that the stock listing is complete.
4. Make any adjustment if necessary.
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