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Chapter 18
Case Study
What information would you expect to see on the permanent file in
respect of this company?
Draft and document an audit programme for the audit of the above
system
What information would you keep on the current file?
Examination questions
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(Note: These are abbreviated answers)
1 Rapidrise
(a) Flow chart this system
(b) and (c) Identify and list weaknesses in this system and possible
consequences
Some individual control issues are
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(d) Control measures which could be introduced include:
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2Alset
(Again this is an abbreviated answer and the flow chart has been
omitted)
Weakness Fraud/error Possible action
Managers can buy and
sell inventory without
head office knowing as
they have autonomy to
buy other than from head
office
Essentially
managers could run
their own business
from the branch
intermingled with
legitimate business
All purchases to be
sourced through head
office based on
requisitions from shop
managers
Managers have control
over shop staff wages Possibility of
managers creating
fictitious employees
–especially part
time casual staff
Payroll to be prepared
centrally.
All staff to be paid by
credit transfer
Staff numbers and
members details at each
shop to be agreed with
human resources
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HP payments made in
cash to branches Danger of HP
instalments being
classed as sales and
double counted
All HP payments to be
collected by direct debit
directly to head office
Managers remuneration
based on commission Danger of distorting
branch results in
order to maximise
commission by
suppressing costs or
inflating income
through fictitious HP
sales
With good controls and
removal of financial
responsibility for
transactions the difficulty
of distorting results is
increased. Monitoring from
head office should ensure
the possibility is minimised
(c) Tests would mostly be substantive as branch systems do not have
much Internal Control. Compliance testing is therefore extremely difficult and
may not give the required standard of evidence
For all branches tests would include analytical review: e.g.
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(d) For new system compliance testing procedures can be applied to the new
purchases and wages and HP sales system at head office in line with
examples in Chapter 13.
Branches should be visited on a rotational basis