I.

Introduction
Today's customers expect nothing less than products of the highest quality, and it is
incumbent on all manufacturers to assure this expectation is met. A proven technique for
checking whether a production process is in control is a manufacturing audit.
A manufacturing audit is a comprehensive inspection of a process to determine whether
it is performing satisfactorily. A manufacturing audit is usually limited to a small portion of units
produced, but the manufacturing processes involved are reviewed thoroughly. An audit does not
replace normal quality control efforts, but supplements them. The production process
encompasses the process of turning inventory to goods from Raw Materials into Work In
Process into Finished Goods.

A good production process control consists of:

Announcement to all employees in advance before purchasing inventories for the

employees knowledge and to be consistent with the FIFO method being used by ABC
Company.

A rating scheme to determine the departments (Raw Mats., Work in Process, Finished
Goods) that has the most problem or flaw to be solved.

Training auditors to attain great production process and segregate duties to avoid
employees from doing fraudulent activities.

Having periodical inspections to assure that there will be no defective inventories.

Having a complete record of the movement of each inventory from one process to
another.

Coordinating with the Sales Department after turning inventories into Finished Good to
avoid misconceptions when recording.

II. Executive Summary

A. Scope of the Audit

1. The scope of the audit includes efficient production in a cost-friendly manner.

2. Productions for the 1 year period ended October 25, 2017.
B. Audit Objectives
To attain maximum efficiency in production with less error, fraud and cost.
C. Audit Procedure
1. The researcher conducted a survey to ABC Companys Employees to rate the
companys controls from strongest to weakest.

The survey has its results:

Announcement to all employees in advance before purchasing inventories for the

employees knowledge and to be consistent with the FIFO method being used by ABC
Company. (5th)

A rating scheme to determine the departments (Raw Mats., Work in Process, Finished
Goods) that has the most problem or flaw to be solved. (2nd)

Training auditors to attain great production process and segregate duties to avoid
employees from doing fraudulent activities. (3rd)

Having periodical inspections to assure that there will be no defective inventories. (6th)

Having a complete record of the movement of each inventory from one process to
another. (4th)

Coordinating with the Sales Department after turning inventories into Finished Good to
avoid misconceptions when recording. (1st)

2. The researcher also conducted an interview to support every material in this

paper.

a. Interview with Mr. Reimel Q. De Ocampo:

Q: Do you think ABC Companys rating of each department is consistent

and good for the company?

A: Yes. In fact, to avoid bias, two person are rating each department that
is done on a weekly basis.

b. Interview with Mr. Sherwin Precilla

Q: How well are you being trained here in ABC Company?

A: Every month we attend seminars to improve our performance. To be

specific, much of our seminars attended are centered into anti- fraud
activities.

c. Interview with Mr. Dan Joshua M. Gonzales

Q: How are you being notified that a Finished Good is ready for sale?

A: Once production in the Finished Goods department is done, Mr Jester

Jevonne D. Bagtas will call me immediately to ensure that I already have
the Finished Goods.

d. An interview with one of the employees who refused to give his name.

Q: How do you find ABC Companys inventory inspection?

A: I find it weak. Sometimes, the usual one month of inspection is delayed

so finding out if there are defective inventory is also delayed, this delay on
inspection causes defective inventories to turn into spoilage that is not
helpful to the company.

e. Interview with Popoy

Q: Does the company maintain a record for every movement of each

inventory?

A: They have. But the problem is only one person is in charge of it.
Because of that, some records are inconsistent, erroneous because the
load of work is really heavy and it is done in a manual manner.

III. Audit Findings

A. Areas of Internal Control which is adequate.
1. A rating scheme to determine the departments (Raw Mats., Work in Process, Finished
Goods) that has the most problem or flaw to be solved.

The interview with one of the employees of ABC Company, Mr. Reimel Q.
De Ocampo verified that two persons are in charge in rating each department to
maintain unbiased views. He also said that the said ratings of each department
are done every week to motivate ABC Companys employees.

2. Training auditors to attain great production process and segregate duties to avoid
employees from doing fraudulent activities.

Again, an interview with one of ABC Companys internal auditor namely

Mr. Sherwin Precilla attested that every month they are attending seminars
regarding production audit to fortify their competence in auditing.

3. Coordinating with the Sales Department after turning inventories into Finished Good to
avoid misconceptions when recording.

An outsider of the Production Department Mr. Dan Joshua M. Gonzales is

one of the employees of the Sales Department. He clearly stated in the interview
that when the Finished Goods are ready for sale, Mr. Jester Jevonne D. Bagtas,
which is in charge with the Finished Goods Department will call him right away to
verify that the said Finished Goods are already under Mr. Gonzales supervision.

B. Areas of Internal Control which is not adequate

1. Announcement to all employees in advance before purchasing inventories for the
employees knowledge and to be consistent with the FIFO method being used by ABC
Company.

The researcher found out in the survey and questionnaire conducted

among the ABC Companys employees in the production process that sometimes
Mr. Caleb Nethanel Q. Chavez fails to remind the employees about the upcoming
purchase that will be made by the company resulting to the employees having
confusions and errors in sorting the Inventories particularly in the Raw Materials
section.
2. Having periodical inspections to assure that there will be no defective inventories.

Based on the survey conducted among ABC Companys employees, it

was rated as the weakest control of the company. An interview with one of ABC
Companys Employees who doesnt want to give his name stated that sometimes
inspections are later than the usual thus, it results to defective inventories not
being discovered on time that causes spoilage to ABC Company.
3. Having a complete record of the movement of each inventory from one process to
another.

An interview with an employee who is named Popoy said that only one
person Mr. Jaz Paulo V. Escal, is in charge of that duty so it is obvious that there
will be inconsistencies and flaws on the record book assuming there is only one
personnel on one big responsibility and at the same time, the process is
manually done.

IV. Conclusions
A. Recommendation
Always remember that responsibility and work should not be passed onto one
person only. The company should segregate duty for less error and more efficiency. The
company should also not focus on only one topic regarding the improvement of their
auditors. Auditors can also attend seminars regarding efficient auditing, responsible
handling of inventories, etc.
B. Action Plan
Person Responsible: Mr. Caleb Nethanel Q. Chavez.
Completion Date:

December 31, 2016

ABC Company understands the load of work that is carried by Mr. Chavez. Although the
owner of the Company, Mr. Jed Nicolo Von A. Aranda has reprimanded Mr. Chavez, the
company still retained Mr. Chavez to the job and now added a job partner for Mr. Chavez
to lessen the work that will be done.

Person Responsible: Mr. Jaz Paulo V. Escal

Completion Date:

October 31, 2016

ABC Company knows that Mr. Jaz Paulo V. Escal is an expert with computer systems so
the company has provided budget for Mr. Escals computer for his convenience. ABC
Company also hired an assistant for him.