DJ Marketing

Operational Audit

Audit Working Papers

Period Covered: August 2017

Auditors:
Eco, Bea Josephine Ann S.
Jaque, Joana Rose C.
Palen, Aldous Joseph D.
Quilantang, Jess Celle C.
Rueras, Maica Flor C.

Objective 1: Identify the policies, controls and standards set as to the inventory system used in the
entity through research.
Audit Procedures Conducted: In order to attain the objective mentioned, interview with the
personnel in-charge with the process and walk-through were done by the auditors.

Results of the Audit:

After the audit procedures conducted, the following were noted by the auditor.

Business Policies Evidence

and Standard of
Practice
  Inventory “See Transcription and
Purchase Documentation”.
>They buy products
if their stocks is 70
to 80% sold
 Medium of
Payment
>Cash basis when
they order products
and sell.
 Receipt
>They provide
Purchase order and
Order receipt to
customers and
resellers who
purchase their
products
 Update Books
and
Inventory
>In books they
update it weekly
especially in beauty
products and in
inventory is weekly
and monthly (bags,
slippers, t-shirts and
small bags)
 Lay-away
>1 month plus zero
interest and down
payment is 32 to
50% but above 500
pesos. No ID needed
but signature signed
on the OR is
required.
 Cross Check
>They cross check
books to keep track
of sales, expenses
and products left.
 Discount and
sales
5 to 10% and they
sale a product that is
over 3 months.
 Resellers
>10 item limit for
purchase of
products in bags and
T-shirt plus
discount. For beauty
products 5 item
limit
 Inventory
count
>Weekly, Monthly
and Quarterly.
 Security
>The city
government
implemented to
provide CCTV's
apply to small and
big businesses.
 Time
>From Monday to
Sunday the store
opens at 9am and
close at 7pm

Auditor : Eco, Bea Josephine Ann S.

Signature : _______________________________
Date : August 18,19 and 21, 2017

Objective 2: Assess the efficiency and effectiveness of the design and implementation of the
inventory system by comparing the actual from the standards set.
Audit Procedures Conducted: To achieve the second objective, the auditors were able to have an
inquiry with the Management regarding the operation process, observation, checking of documents
and walk-through.
Results of the Audit:
After the audit procedures conducted, the following were noted by the auditor.
 Business Policies and Actual Practice Evidence What Could Go Wrong?
Standard of Practice During the Audit

 Inventory  >They do not “See >The Policy in Inventory

Purchase provide Transcription purchase won’t be
>They buy products if receipts unless and followed due seasonal
their stocks is 70 to 80% the customer Documentation”. trending products by the
sold asks. customer demand. The
 Medium of  >The prices of result will incur over
Payment the products stocking which will lead
>Cash basis when they are not fixed; cost in inventory
order products and sell. they give expansion and a loss.
 Receipt discounts >Mode of payment
>They provide Purchase anytime just so which is cash basis the
order and Order receipt that the product possibility would incur
to customers and will be sold or theft and no proper
resellers who purchase especially when storage of money will
their products the customer cause misplacement and
 Update Books asks for it. inconvenience.
and Inventory  >They just close >Negligence of placing
>In books they update it the store (CCTV’s) for security
weekly especially in anytime they purposes will have
beauty products and in want even higher chance of
inventory is weekly and during the robbery.
monthly (bags, slippers, t- broad daylight. >Since DJ marketing has
shirts and small bags)  >There is no 2 employees which is the
 Lay-away CCTV as of the owner and the sales
>1 month plus zero moment. person. Both of them
interest and down  >The frequency update the books and do.
payment is 32 to 50% but of their >Inventory counting.
above 500 pesos. No ID inventory count The possibility that both
needed but signature and updating on of them will depend who
signed on the OR is books and will do the task which
required. inventory only will result delay of work.
 Cross Check applies to the Then if one person who
>They cross check books products that will do all the work it
to keep track of sales, are on demand might incur errors when
expenses and products not to cross-checking and
left. everything they updating the books also
 Discount and have. in inventory will cause
sales miscalculation in
5 to 10% and they sale a counting the inventories.
product that is over 3 >Customer closure,
months. friendship and relatives
 Resellers will reconsider the
>10 item limit for policy in price, discount
purchase of products in rate and lay-away
bags and T-shirt plus implemented and same
discount. For beauty with resellers they might
disregard the limit in the
products 5 item limit. products.
 Inventory count
>Weekly, Monthly and
Quarterly.
 Security
>The city government
implemented to provide
CCTV's apply to small and
big businesses.
 Time
>From Monday to Sunday
the store opens at 9am
and close at 7pm

Auditor : Jaque, Joana Rose C.

Palen, Aldous Joseph D.
Quilantang, Jess Celle C.
Rueras, Maica Flor C.
Signature : ___________________________________
___________________________________
___________________________________
___________________________________
Date : August 22, 23, 25, 30 and 31, 2017
Summary

DJ Marketing, owned by Mrs. Divina Gracia P. Gorme is originally a Caribean distributor. Due to the
increasing demands of health and wellness products and fashion apparels such as bags and clothes,
they were able to venture and sell variety of products. The entity started its operation last August
22, 2012, located at E. Luna Street, Butuan City. The store opens at 9 o'clock in the morning until 7
o'clock in the evening every day. The reason why the owner started the business is to augment
financial status and earn more profit. The audit being done is operational audit in the inventory
system of the entity covering only the whole month of August 2017.
Objectives:
The following are the audit objectives:
1. Identify the policies, controls and standards set as to the inventory system used in the entity
through research.
2. Assess the efficiency and effectiveness of the design and implementation of the inventory
system by comparing the actual from the standards set.
Audit Findings:
After the conduct of audit procedures as planned, the auditors noted the following weaknesses in
the inventory system of the DJ Marketing:
1. The lack of information system. Upon further visit and observation last August 19, 2017
by Auditor Eco in the entity, it was found out that they are using manual method. In times of
data loss, it will be hard to recover information since they do not have a back-up file.

2. The lack of security. On August 22, 2017, the auditors Eco, Jaque, Palen, Quilantang and
Rueras conducted an interview. The importance of installing surveillance camera gives
security to the entity by monitoring the products and its daily operation. During the
interview, the interviewee Joy Villa mentioned about the robbery that just happened
recently. Without security, another same incident may happen again.

3. The frequency of their inventory count and updating on books and inventory. During
Auditor Quilantang’s walkthrough in the entity, he has seen that they do not always update
the inventory on all products. The frequency will only depend if the items are on demand or
not.

4. No fixed working hour. When the Auditors are supposed to visit and conduct an audit, the
entity is most of the times close. Thus, they will miss the chance of getting their products
sold.
A. Receipt Priority
Observations Business Impact
Criteria: Provide purchase order and order 1.) Non-issuance
Non-issuance of
of receipts
receipts and
and invoices
invoices is a
is a
receipt to customers and resellers that criminal
criminal offense
offense punishable
punishable byby imprisonment
imprisonment
purchase their product. plus penalties.
penalties.
2.)

Condition:

Recommendation Management Response

1.) Provide purchase order and order receipt
for every product purchased
2.)
B. Update Books and Inventory Priority
Observations Business Impact
Criteria: Update books weekly in beauty 1.) Short or over on updating books and
products and inventory is weekly and monthly inventories
such as bags, slippers, t-shirts and small bags. 2.) Non-reconciliation of books and inventories
3.)

Condition:

Recommendation Management Response

1.) Manual cross-checking of books and
inventories to keep track
2.) Follow the weekly and monthly policy in
updating of products
C. Inventory Count Priority
Observations Business Impact
Criteria: Weekly, Monthly, and Quarterly in 1.) Short or over in inventory counting
inventory count 2.) Non-reconciliation of inventories
3.)
Condition:

Recommendation Management Response

1.) Manual recount of inventories
2.) Follow the weekly, monthly and quarterly
inventory count
D. Security Priority
Observations Business Impact
Criteria: The city government implemented to 1.) Frequent theft
provide CCTV’s apply to small and big 2.) Can’t provide facial identity to police for
businesses blotter purposes
3.)
Condition:

Recommendation Management Response

1.) Vigilant and watchful for possible theft
2.) Install CCTV’s
E. Time Priority
Observations Business Impact
Criteria: Monday to Sunday the store opens at 1.) Customers are disappointed
9am and close at 7pm 2.) Miss the opportunity to earn profit
3.)
Condition:

Recommendation Management Response

1.) Follow the opening and closing time
allotted
2.) Follow the