Auditing: Inventory and Production Cycle

Weaknesses in Inventory Count

• Date and time for the inventory count were not predetermined, leading to potential disorganization.
• No pre-count planning meeting was conducted, resulting in unclear objectives.
• Counting method and tagging system for inventory were not specified.
• Staff requirements and assignments to specific functions were not communicated, risking inefficiency.
• Appointment of a count controller was missed, which is critical for oversight.
• The counting area was not prepared, affecting the accuracy of the count.
• Lack of a sketch or layout of the storeroom hindered effective counting.
• Pre-printed, numerically sequenced count sheets that detail inventory were not utilized.
• No inventory tags were distributed, making tracking difficult.
• Instructions for conducting the count were not documented and shared with the team.
• The counting staff were not divided into teams of two for accountability and accuracy.
• Teams lacked access to a floor plan, impairing their ability to navigate the storeroom.
• Inventory was only counted once, which undermines verification processes.
• There was no system to indicate counted inventory, risking double counting or omissions.
• Counters did not identify obsolete or damaged inventory, harming inventory integrity.
• Count controller’s walkthroughs were overlooked, leading to unverified counts.
• No checks were made to confirm first and second counts matched, risking discrepancies.
• Movement within the storeroom during counting created distractions and potential errors.
• Count sheets were not signed off post-count, lacking formal closure on the count.
• Count instructions were not circulated, leading to confusion among the count team.

Weaknesses in Internal Control Procedures

• The absence of a floor plan during inventory count planning led to inefficiencies.
• Lack of documented and communicated count procedures left teams unprepared.
• Members missing from meetings may not have received adequate instructions prior to the count.
• Poor planning was evident when a count meeting was scheduled without confirming team availability.
• No preparation of the storeroom for easy identification of inventory caused confusion.
• No designated area for inventory movement made tracking deliveries difficult.
• A count register to monitor count sheet issuance was not maintained, preventing accountability.
• Team members lacked expertise in inventory management, risking accuracy in counts.
• The failure to count inventory multiple times by different teams created potential for errors.

Recommendations for Improvement

• Implement a perpetual inventory record system managed by a responsible official, separate from storemen.
• Ensure both quantity and value data are included in the perpetual inventory records.
• Regularly reconcile perpetual inventory records with the general ledger for consistency.
• Align perpetual inventory records with physical inventory during counting, adjusting discrepancies promptly.
• Base purchase requisitions on actual inventory needs, communicated accurately to suppliers.
• Confirm supplier availability and delivery schedules upon ordering, even from approved vendors.
• Require senior staff approval for all requisition lists and purchase orders for enhanced oversight.
• Establish a review process for comparing orders to requisitions to prevent errors.
• Designate a receiving clerk to confirm received inventory and create goods received notes accurately.