Internal Control Questionnaires for Audit Areas | Auditing

In this article we will discuss about various internal control questionnaires for audit areas.

1. Purchases and Creditors:

At purchase department:

1. (a) Is the department separate and organised centrally?

(b) Is it independent of Receiving and Accounts departments?

2. (a) Are purchases made only from approved? Suppliers? If so, is there any list? If not, why not?

(b) Is a ‘Master list’ maintained indicating dif­ferent supply sources for all important materials?

3. Is there any system of Preparing purchase Req­uisitions by the indenting department? If so, are these requisitions duly signed by those per­sons who have been authorised by the manage­ment in this behalf?

4. What is the scheme of approval in case of:

(a) Purchases from employees, directors and companies in which directors are interested?

(b) Purchase of capital goods?

(c) Inter-company transactions relating to pur­chases?

5. Are the competitive quotations obtained from two or more suppliers before placing Purchase orders for the same material?

6. Does the system provide for preparation of Comparative Quotations Schedule before authorising purchases?

7. Is the lowest of all the quoted rates always ac­cepted? If not, is it approved by an official at a senior level?

8. Are Purchase Orders serially pre-numbered? If so, what kind of control is exercised over the order forms remaining unused?

9. Are all Purchase Orders duly approved and signed by those officials who are authorised in this behalf by the higher management?

10. Is there any system of delegation of authority (powers) ‘value-wise’ for approval of purchase orders at different levels of management?

11. Do the Purchase Orders contain the minimum information as to:

(a) Name of supplier

(b) Delivery terms

(c) Quantity

(d) Quality (including specifica­tions)

(e) Price (including cash and /or quantity discounts)

(f) Freight terms

(g) Terms of pay­ment (including advances)

(h) Extras, such as excise duty, octroi, sales tax?

12. Are the Purchase Orders kept in safe custody against fraud or misuse?

13. (a) How frequent is the revision of the Terms of Purchase Orders ?

(b) Are the revisions or amendments in each case got approved by a next higher official?

14. (a) Are copies of Purchase Orders and all revi­sions, if any, sent to the Accounts and Receiving departments ?

(b) If so, are these being sent well in advance? Or, just immediately before deliveries re­ceived?

15. Is there any follow-up system for unexecuted Purchase Orders at regular intervals? If so, how are the interval periods? Are they specified by any authority?

At receiving department:

16. (a) Are all supplies received only at the Receiv­ing department?

(b) If not, are some of the supplies received di­rectly by user departments (i.e., at consum­ing points)?

(c) What is the procedure, in such cases, for obtaining acknowledgements as to the quan­tity and the condition of supplies of goods?

17. Is the receiving department denied authority to issue Purchase Orders or to approve Invoices?

18. (a) What is the arrangement for the inspection of incoming materials and supplies on re­ceipt ?

(b) Does this arrangement exist in the Receiv­ing department? If so, is the arrangement adequate? If not, is there any separate In­spection department?

19. Are description and quantities received duly checked against Purchase Orders and with Goods Inspection Reports for quality and con­ditions?

20. Does the receiving department deliver or su­pervise the delivery of each item received at the concerned stores or the user department lo­cation?

21. What kind of documents are prepared for goods/ containers returned to the suppliers?

22. Are Goods Receipts Notes prepared for all re­ceipts of materials and supplies?

23. Are copies of Goods Receipt Notes endorsed to the Accounts department: sent to Purchase department without undue delay?

24. Are all cases of returns, shortages and rejec­tions informed to the Accounts department, for raising ‘Debit notes’ on suppliers and/or ‘claim bills’ on the transporting agents and insurance companies, as the case may be?

At Accounts department:

25. (a) Are all ‘debit notes’ serially pre-numbered ?

(b) Are adequate controls exercised for record­ing, etc.?

26. (a) Are all suppliers’ Invoices received direct at the Accounts department ?

(b) Are the entries thereof made in the Bill Register before being sent to the other de­partments for check and/or approval?

(c) Are advance payments verified and/or en­tered on the Invoices before being sent to the concerned departments?

27. Does the system adequately ensure that all In­voices and ‘Credit notes’ are duly processed?

28. Are reconciliations of quantities (and/or value) received, as shown in the Purchase Invoices, made with all kinds of receipts into Stock Records?

29. (a) Are duplicate invoices properly marked immediately on receipt to guard against duplicate payment ?

(b) If double payments against duplicate Invoice were made even occasionally, what precau­tionary measures have been devised?

30. Does the Accounts department match the sup­pliers’ Invoices with the Goods Receipt Notes and Purchase Orders?

31. (a) What kinds of check and review are exer­cised on Goods Receipt Notes and on records at Receiving department, especially for the item for which invoices have not been received ?

(b) Are all such items thoroughly examined and provisions made for the liability in respect of them?

32. Are all Invoices properly stamped as evidence of being checked for

(a) Prices (b) Freight terms and (c) Extensions and additions?

33. Do the suppliers always attach relative Purchase Orders with their Invoices?

34. Are all payments of ‘advances to suppliers’ routed through the Accounts department?

35. (a) Is a list of pending ‘advances to suppliers’ drawn up at regular intervals ?

(b) Are appropriate follow-up measures main­tained?

36. Are the Ledger accounts compared with the Suppliers’ statements?

37. What kind of follow-up action is taken in case of differences, if any, between the Suppliers’ statements and Ledger accounts?

38. Does the Accounts department prepare a state­ment 6f outstanding account payable at regu­lar intervals?

39. Is the statement referred to in (38) above re­conciled with the General Ledger Control Ac­count?

40. Is there any system by which the Accounts de­partment could fully ensure that the cash dis­counts, quantity discounts, trade discounts, etc., are availed of, whenever offered by the suppli­ers?

2. Fixed Assets:

Purchases and disposals:

1. Is there any Budget for capital expenditure?

2. Are capital expenditures approved by the Board?

3. Are the Budgetary provisions communicated in writing to:

(a) Purchase department

(b) Accounts depart­ment

(c) Department originating the capital re­quest?

4. Is there any sound policy to differentiate between Capital expenditure and Revenue expenditure?

5. (a) How are the Capital expenditures autho­rised?

(b) Have specified officials been delegated with such authority?

6. Are the Capital asset items subject to same con­trol procedures as applied to purchases of Raw materials and other supplies, etc.?

7. Are receipts of Capital asset items subject to same procedures as applicable to Raw materi­als, stores, etc.?

8. What kind of control is exercised to ensure that the amounts spent do not exceed the amounts authorised?

9. Are excess expenditures scrutinized before sup­plementary sanctions are obtained and/or made?

10. Is there an established procedure for the trans­fer of plant and machinery from one location to another?

11. Is a written authority necessary for:

(a) Declar­ing a Fixed asset scrapped

(b) Selling a Fixed asset? If so, is it restricted to specified senior officials?

12. Are sales of fixed capital assets subject to same procedures as applied to the sales of finished products?

13. Are reports prepared and issued in respect of capital assets sold/scrapped/transferred (from one location to another)?

Records:

14. Are fixed assets under construction:

(a) Subject to separate Control account in the General Ledger ?

(b) Controlled by Capital Job-in-progress Number?

15. Are shares of expenses on wages, materials and stores reasonably determined and charged to the Capital Asset Account?

16. Are proper records of fixed assets, including fully depreciated assets maintained? If so, are they being regularly written up throughout the year?

17. Are the records reconciled with the financial accounts at regular intervals?

18. What are the basic information details kept? Do they include:

Suppliers’ name, date of purchase, cost (includ­ing additions, improvements, exchange rate ad­justments, installations, erections, modifica­tions, etc.).

Location and identification number, Rate of depreciation, Estimated life, Accumulated dep­reciation, Estimated salvage value?

19. Is a record maintained of the plant, equipment, machinery, etc., used by the company, but owned by others?

20. Does the company maintain a list of Title for all landed properties and buildings?

21. Does the company keep the Title Deeds of prop­erties in a safe custody?

22. Does the company maintain Registration Books of all kinds of vehicles? If so, are they periodi­cally verified?

Verification:

23. Are the Capital Assets verified at regular inter­vals? What is the periodicity?

24. What is the procedure followed for such verifi­cation?

25. Does it provide for verification or confirmation of the Assets with third parties?

26. Who are generally assigned the task of verifi­cation?

27. Are Verification Reports prepared?

28. Do such verification reports indicate the dam­aged and obsolete items of Assets?

29. In case of discrepancies disclosed by such re­ports, what kind of action is taken?

30. Are the adjustments in Asset Records made with proper authority?

31. Are damaged and obsolete items struck off from the Records and Financial accounts?

If so, how are they made, and how are they au­thorised?

Insurance:

32. (a) Are the following Risks covered by appro­priate Insurance Policies in respect of plant and machinery and buildings, etc. Fire, Flood, Earthquake, Riot, Civil com­motion, War, Sabotage?

(b) If any of the above Risks not covered, was it in accordance with the management’s policy?

33. Are the new Assets acquired during the year also covered by Policies?

34. Who are the officials authorised to decide on the Value of assets for the Insurance policies taken?

35. What is the basis adopted for the Insurance? Replacement basis? Any other basis?

36. Is there any arrangement to review the adequacy of Insurance coverage?

37. (a) What kinds of Insurance coverage are in existence, e.g.,

Loss of profits insurance cover?

Machinery breakdown cover?

Any other insurance cover?

(b) If either of the coverage not in existence, was it in accordance with the policy of management ?

3. Stores and Materials:

1. Are incoming materials and stores stocked in assigned location?

2. Are they under the direct control of the Stores Officer?

3. Are adequate measures taken for their protec­tion?

(a) Insurance to cover risk of:

Fire, Flood, Riot, Civil commotion, etc.?

(b) Limited access to stores areas?

(c) Storage spaces’ fencings? Enclosed rooms? Locking arrangements, etc.? If any of the above is not adequately provided for, was it in accordance with the management’s policy?

4. Are Stock Records, perpetual or otherwise, maintained by way of the following classifica­tions:

Raw materials, Component parts, Indirect materials, Stores and spares, Tools and implements, Sub-assemblies, Work-in-process, Finished Goods, etc.

5. Are the Records contemplated at 4 above main­tained by those who are independent of the stores personnel?

6. Are the Records contemplated at 4 above re­conciled with the Accounting records at regu­lar intervals?

7. Is there any arrangement for continuous stock­taking? If not, what is the periodicity? If so, who are the officials authorised in this behalf?

8. In case of continuous Stock Checks:

(a) Are Reports of shortages and excesses made out?

(b) Do the Reports highlight damaged and/or obsolete items?

(c) How are these viewed by the management? Investigations initiated? Results of investi­gation recorded?

(d) Are these discrepancies or observations ad­justed in the Stock records and financial records?

If so, are these done based on written approvals from higher levels of management?

Is there any approved list of officials au­thorised in this behalf?

9. Are appropriate Stock Records, e.g., Bin cards maintained, for all goods in the stores?

10. What kind of control is in vogue in respect of:

Scrap materials; Salvage materials; Defectives; seconds, thirds, etc.; Waste materials (having value)?

11. What is the scheme of Internal Checks in op­eration to ensure about correct recording in stores?

12. Is there any Inventory Control Systems based on (say):

A- B- C – analysis (High-Medium-Low value)?

V – E- D analysis (vital – Essential – Desirable)?

F – S – N analysis (Fast – Slow – Non-moving)?

S – A – P analysis (Scarce – Available – Plenty)?

H- M- L volume analysis (High – Medium – Low)?

13. Is there a well-laid out written Manual specify­ing procedures for inventory control?

14. Are written instructions issued by the manage­ment for guidance of staff employed in physi­cal stock-taking in respect of the following matters in particular?

(a) Classification of stores and materials?

(b) Stocking arrangements of stores their iden­tification by location codes, stores codes?

(c) Cut-off points of receipts and issues?

(d) Condition as to stocks’ quality oiling and greasing of spare parts and important dies and tools?

(e) Preparation of stock-check sheets?

15. What are the procedures followed with respect to the matters, e.g.,

(a) Checking of Stock sheets?

(b) Summarisation of quantities?

(c) Summarisation of Stock cards?

(d) Reconciliation between the quantities shown in the Stock sheets and those declared to the Insurance and/or Banks?

(e) Checking of stocks:

————– in public warehouses ?

————– in company’s warehouses ?

————– in bonded warehouses ?

————– in consignees’ go downs?

————– with the outside contractors for

fabrication work, job work, conversion work, etc.?

16. Does the company’s Stock Verification scheme extend to

Third parties’ stocks? Consignment stocks?

17. (a) What are the norms fixed for Stock Levels ?

(b) What are the factors usually considered for Stock Levels determination?

(c) Do the company officials review these lev­els periodically?

If so, who are generally assigned this task?

18. What is the company’s procedure for issue of stores and materials?

(a) Are Requisition Notes always prepared?

(b) If so, are they serially pre-numbered?

(c) Has the company issued any list of officials authorised in this behalf?

19. What are the procedures followed for:

(a) Return of excess of the materials issued to Jobs or Processes?

(b) Transfers from one job to another? Is the system compatible?

20. In case of Job orders:

(a) Is the ‘bill of materials’ prepared in ad­vance?

(b) Is the copy of ‘bill of materials’ distributed to the stores department?

(c) Are the piece-meal issues against Requisi­tion Notes reconciled with the ‘bill of ma­terials’? How and when?

(d) Is Standard Costing system followed for materials issued against job orders:

(i) If so, how are the cost rates determined?

(ii) How are the variances between stand­ard and actual cost rates adjusted?

(iii) Are the standard cost rates reviewed periodically?

(e) Are separate Job Control Accounts main­tained where the consumption of materials contributes to the maximum of total Job cost?

(f) Is Job-wise ‘Materials Issue Analysis Sheet’ prepared periodically for costing jobs in-progress? Reconciling with stocks and issues?

21. (a) In arriving at the cost of materials, supplies, packages, etc., which of the following charges are included or excluded Car­riage, Excise, Sales tax. Customs, Octroi, Insurance, etc.?

(b) If included, are they in conformity with the Cost Accounting Records Rules for the ‘product’ under cost audit?

(c) If any of the charges excluded, is it in ac­cordance with the Rules indicated above?

22. (a) What is the procedure followed by the in­dustry under cost audit in regard to the fol­lowing factors Dry-age, Evaporation, Shrinkage, etc.?

(b) Has a standard or norm been evolved by the industry?

(i) Is it consistent with other industries of the same class?

(ii) If not, what studies have been made by the management in these areas ?

23. (a) How does the company ensure that values of ‘Stores and Spare parts’ have been ap­propriately debited to the proper Heads of accounts, viz. — Repairs to building, Repairs to plant, other repairs, etc.?

(b) Is there any guideline of the management for the information of concerned staff?

24. (a) What is the system followed for Inter-com­pany Transactions in regard to the materi­als and stores ?

(b) How are the rates determined?

(c) Who are the officials associated with the determination of rates?

4. Salaries & Wages:

1. (a) What are the Records maintained for each employee in regard to the following specifi­cally :

Employment, Retirement, Dismissal, Pay scales, Increments, Leave, Promotions etc.?

(b) How are these Personnel records control­led?

2. (a) Is there an arrangement for the issue of ‘identity cards’ to all employees ?

(b) If so,

(i) are they periodically checked up?

(ii) are they taken back when an em­ployee’s terms of service cease ?

3. Is the ‘Salaries and wages’ department sepa­rate and independent from other departments?

4. Are the company’s policies clear and the pow­ers of company officials well defined with re­spect to:

Appointment, Dismissal, Retrenchment, Pay- scale Fixation, General pay increase, Special allowances, Leave availment, Leave encash­ment, Holiday pay. Reimbursement of medical and other expenses in accordance with the company’s scheme?

5. Are there appropriate records with respect to Piece-work and Timework?

6. Are there approved schemes of Fringe benefits to employees?

Pension, Gratuity, Leave travel? Are the records maintained adequate?

7. (a) Is the Attendance department (entrusted with time-keeping and attendance record­ing functions) separate from the ‘salaries and wages’ department and also from other departments ?

(b) If not, is it under a separate, official so as not to be incompatible with the existing organisation pattern ?

8. Are ‘check-in and check-out’ times of employ­ees adequately supervised by a competent offi­cial?

9. (a) What procedures are followed in regard to the approval of:

Time cards or Clock cards, Job cards?

(b) Does the procedure provide for verification by the Department officer only or also with Time Office’s official?

(c) Are the Time cards and Job cards matched periodically, at least in each week or month? Which department is assigned this respon­sibility?

10. (a) Is the attendance on overtime work of em­ployees approved by an official authorised in this behalf ?

(b) Does the scheme of overtime work ensure parity in so far as the engagements of em­ployees are concerned?

(c) Are selected few individuals only engaged?

11. Is the preparation of Pay-roll based on the verification of (a) Original time cards (b) Original job cards (c) Original rates of pay advices (d) Original leave and absenteeism records (e) Original overtime records?

12. Is there a segregation of work between Payroll preparation and Payroll checking?

13. Are test checks of Payrolls done by an official?

14. Is the official authorising Payroll different from the person who carried on test checks or super­vised preparation?

15. Are the persons engaged in ‘salaries and wages disbursement’ independent of the preparation of payroll?

16. Are surplus checks exercised by a senior level official (independent of cash or wages section) on the wages disbursement function?

17. Are the employees:

(a) Advised of their Gross earnings, Deductions and Net earnings?

(b) Identified at the time of wages disburse­ment?

(c) Informed beforehand of the ‘cost of living index’ appropriate to their different classes/ categories?

18. Is payment to absentee employees made on ‘let­ters of authorisation’ duly endorsed by an offi­cial having knowledge of absenteeism of the concerned employees?

19. Is the gross amount payable as per payroll for current wage period reconciled with the amount corresponding to the previous wage period?

20. Is the Payroll sorted out for payments to be made by cash and cheques?

21. (a) Is a record of Unclaimed and/or Unpaid wages made out immediately after the wages disbursement is completed?

(b) Who are the officials of the Cash depart­ment authorised to retain unpaid or un­claimed wages?

(c) What is the time-limit after which the un­claimed or unpaid wages will be deposited into the Bank?

(d) Is there a system of regularly checking the unpaid or unclaimed wages?

(e) Is a separate Cash Voucher made out at the time of disbursing unpaid wages? Is the Pay­roll cross-referenced to such voucher pay­ments?

22. Are the various deductions — statutory and no statutory — from salaries and wages appropri­ately recorded in the Control Accounts?

23. Is the Payroll properly classified for well de­fined (a) departments and (b) cost centres?

24. Are all Pension disbursements approved by ap­propriate authority with reference to ‘living cer­tificate’?

5. Cash and Cheques Receipt:

1. Is the custody function separate from the ac­counts section?

2. Is the periodic verification function by the man­agement independent of cash section?

3. Are all employees who handle or have any direct or indirect access to cash adequately covered by guarantee bonds?

4. Are the work assignments including the bank accounts reconciliation independent?

5. Are the receipts with respect to: (a) Cash at the counter, (b) Cheques accompanied by remit­tance advices, (c) Cash against money orders, and (d) Postal orders etc. classified?

6. Are the systems and control records relating to 5 above independently maintained?

7. Are the receipts listing and their distribution to — (i) the cashier along with cash and cheques, and (ii) the accounts receivable and the general ledger departments for reconciliation and cleri­cal verification, etc. prepared?

8. Are the systems adopted for (i) deposits to the bank, and (ii) checking of deposit slips and of the counterfoils of each receipt issued adequate?

9. Are all cash sales supported by invoices?

10. Are all dis-honoured cheques properly accounted for and informed to the accounts/sales depart­ments?

6. Cash Disbursements:

1. Are the different modes of disbursements:

(i) cash at the counter,

(ii) cash against departmentalised payrolls, and

(iii) cheques relating to suppliers and others, classified and systematised?

2. Are the procedures of: voucher preparation, authority to pass vouchers for payment, cheque writing by authorised personnel, cheque sign­ing by authorised officials, cheque linking to vouchers, etc. adequately streamlined?

3. Are the controls over the credit cards and the documents for payments adequate?

4. Is a test of cash transactions with ‘block rec­onciliation’ for a selected period made to ob­tain the proof of cash?

5. Are the physical safeguards and insurance coverage of the persons concerned adequate?