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Total Number of Subscribers: 464 | |||||||||||||
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Date:9th September 2008 |
Compiled by Mr. M. Sathya Kumar | |||||||||||||
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Control Self Assessment — A Case Study
Background : An engineering manufacturing company was facing
competition from small and medium-size operations despite its product
having impeccable quality. The margins were under pressure and it was even
perceived that the operations may have to be scaled down or closed. The
internal audit was being conducted by a firm of chartered accountants. The
Managing Director of the company discussed the situation with the partner
in charge, who had been there for the last several years. As a matter of
fact the partner in charge had for the last two years been reporting on
increasing costs and loss of market share. The internal auditor instead of carrying out a
detailed survey himself suggested to the Managing Director to approach the
problem by adopting ‘Control Self Assessment’ approach with the internal
auditor acting as a facilitator. He suggested the creation of teams for
different areas and involving the teams in finding solutions. He
identified the following areas for creating teams : 1. Accounts Receivables 2. Accounts Payables 3. Inventory Management and he himself acting as facilitator during
discussions. Methodology : Before we go into the operations and results of the
effort let us briefly understand what is ‘Control Self
Assessment’. ‘Control Self Assessment’ is a workshop facilitation
technique where the internal auditor acts as a facilitator. The internal
auditor selects certain objectives to be achieved and then selects
participants, of the area concerning the objectives, from amongst the
employees. The internal auditor also conducts walkthroughs and does some
data analysis prior to holding workshops (usually two to three workshops)
for the selected participants, with the objective of arriving at action
points for the selected objective/s. The internal auditor basically
facilitates the discussion focussing on the objective/s and the employees
themselves arrive at the action points for achieving the
objectives. In the engineering company since Accounts Receivables
was considered to be a problem area, the internal auditor studied this
area from the time the material leaves the organisation to the time the
payment come — that is received. The ‘team for receivables’ comprised
representatives from sales department, accounts department, stores —
inventory management, specially for goods returned and transportation
There were number of issues which came up during the four one-day
workshops conducted over three weeks and the action points for
improvements which came up by employees themselves are given
below : To reduce duplication. Increase revenue. Avoid control weaknesses in form of likely weak control — leakage points.
Action points decided in the workshop :
1. Cancelled invoices report to be generated from the software. 2. Manual checking of total value — cross-checking by accounts department on daily basis for assessable value, excise duty and sales tax (from customer for receipt of goods) to be strengthened. 3. All acknowledgements to be received for passing of freight bills within the country — No control over double billing of freight payable presently and to be brought in by amending software to ensure that each transporter bill is tagged to each despatch. Further reconciliation required for all outwards vs. freight bills vs. acknowledgements vs. service tax paid input credit taken. 4. Proper freight register to be maintained by shipping department. Details of register
5. Debit Note to be raised on timely basis on the party for any charges as per purchase order of the party — double-check through outwards register. Major control which is lacking at present if someone misses out on raising debit notes. 6. Time taken to submit the documents to the customer to be tracked by accounts and deviation report to be given to head of department’s office if delayed beyond 2-3 days. 7. Delay in clearance of documents by customer — to be tracked by accounts. 8. Details of cheque/DD received from customer — register as well as excel sheet — duplication of efforts — to be done only by Shipping. Recording of reasons for short receipts — tagging of ‘on account’ payments received to be done properly to avoid problems in debtors accounts where credit and debit both are lying untagged. The details of cheque/DD may be entered by shipping on receipt rather than again sending it to accounts for entry purposes. 9. Bank charges to be debited to customer for cheque bounced immediately on cheque getting bounced — management policy for amount to be charged to the customer — presently not followed. 10. Timely clearance of outstation cheques. (a) Whether payment through RTGS possible ? (b) To claim interest from bank for delayed clearance of outstation cheques. (c) To get at par cheques from customers. (d) Whether the cheques can be deposited locally by customers in core banking environment. This will save substantial interest on working capital. 11. Weekly review of debtors — meeting to be held with aging analysis, presently not being held regularly. 12. Weekly reminders to debtors about payments due/overdue — by email. 13. Policy for write-offs — authority levels to be decided. 14. Debtors’ confirmation to be obtained on yearly basis — once the records of accounts and shipping department are reconciled. 15. Details of sales tax forms to be fed in ERP — separate excel records/register to be closed/ stopped — to be reconciled and separate records/excel sheets to be stopped. Presently 3 registers being maintained — one by shipping, one by accounts and one by sales tax in accounts who compute this again manually invoicewise — waste of manpower efforts. 16. To track commission payment to agents to avoid double payment. The suggestions when implemented resulted in (1) Reducing receivable from an average of 65 days to 45 days, thus reducing interest costs. (2) Increased customer satisfaction as customers complaints were attended to at short notice, as the defect was rectified or equipment replaced. (3) Improvement in transaction costs for receivable area. (4) Improved control over billings by vendors, thereby avoiding duplicate billings and raising of debit notes which were missed out.
Conclusion : This exercise of facilitating discussion amongst employees from different departments and the employees themselves arriving at action points for improvements was a success and resulted in number of improvements. Since it meant that solution came from employees with internal auditor acting as facilitator, the acceptability and respect for the internal audit function was quite high. The management also commended the excellent work done by internal auditor and requested the partner of the firm to extend this to other important problem areas. The effort of the internal auditor in creating a multi-disciplinary team to solve the problem by involving the concerned people and by creating a sense of solution ownership was very much appreciated not only by the managing director but also by the Board of Directors.
Source : Deepjee Singhal & Manish Pipalia, Chartered Accountants | |||||||||||||
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