Internal Audit Report

For Physical Stock Verification and Related Controls

of Finished Fabrics Godown Functions Unit # 5
Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

Table of Contents

1. Introduction ………………………………………………………… 02
2. Process Flow Chart and Control Documents................................... 03
3. Detailed Observation…...……………………………………………04 - 07
4. Annexure…………………..………………………………………… 08 – 09
5. Pictures ……………………………………………………………… 10 – 11
6. Concerned Department Comments………………………………… 12

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

1. Introduction
Audit Objective:
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an
organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control, and governance processes.

Assignment's Objective:
1. Quantity assurance.
2. Quality assurance (whether items are salable or usable).
3. Control assurance for stock maintenance.
4. Control assurance for maintaining slow moving stock.

Nature of Inventory: Finished Fabrics Godown

Method of Measuring Quantity: Pieces / Meters

Date of Stock Counts: From February 01st, 2018 to February 07th, 2018

Sample Size / Coverage%:70% coverage including Slow Moving Stock

Date of Draft Report: March 15th, 2018

Internal Audit Department Incharge:

Abdul Qadeer Sajjad (Deputy Manager Internal Audit)

Internal Audit Department Personnel's:

Aqeel Ahmed (Internal Audit Officer)
Muhammad Aamir (Internal Audit Officer)
Adeel Ahmed Shah (Internal Audit Officer)

Fabric Godown Incharge:

Munawer Shah (Manager Finished Folding)

Fabric Godown Personnel's:

Aqeel Zada (Finished / Folding Incharge)
Arshad Pervez (Quality Controller)
Hafeez Ullah (Asst. Fabric Godown)
Muhammad Dilawar (Packing List Clerk)

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

2. Process Flow Chart And Control Documents

Process Flow Chart Control Documents

Received on Manual Gate

Received Fabrics from Processing Pass than Issued to PPS
against Duplicate Challan

Quality Department Assure Fabric

Quality Before Proceed to
Quality Report
Stacking Cross Check with Lab
Report

Stacked in Warehouse as per the Packing List

Available Space

Issued To Other Units and

Commercial On Demand Gate Pass

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 Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

3. Detailed Observation
Concerned
Recommend
Department
S.No Observation Risk ations
Comments

Risk of Procedure A complete and

Absence of written and approved SOP Override leading to formal S.O.P
misappropriation (Standard
During our preliminary audit survey we discerned that the Fabric godown operations are
of Assets / No Operating Refer Point 6,
being carried out on general practices rather than a formal written and approved SOP
effective tool to Procedure) Bullet # 6.1
(Standard Operating Procedure).
1 measure regarding Fabric
performance and Godown function
no standardized shall be formulated
process in place. and implemented.

Collaboration with
I.T Department to
No Location wise System maintenance Risk of Wrong activate a system
2 There is absence of location wise system maintenance in Fabric Godown as during the Issuance/ Lack of of proper stock Refer Point 6,
Stock Count it was noted that the Fabric stock was traced on basis of Godown's Incharge traceability. location Bullet # 6.2
personal knowledge rather than a proper defined location. for effective
traceability.

Précised Identity Detail

3 The Finished Folding Godown has no précised identity detail i.e. (No tagging / No PPS
Risk of Stock Précised identity
representing Program number on which it process / Customer Name) or any other misplacement or detail should be in Refer Point 6,
identity detail apart from its length, hence finding stock location wise is done through shuffled / lack of place for effective
traceability. traceability. Bullet # 6.3
Godown's personnel knowledge rather than précised identity detail.
Refer Picture No. 5.1, 5.2 & 5.3

Such Construction
Not Found Physically Risk of Misstated
shall be checked
5 On locating the Finished Fabric we have encountered that there are few fabrics in Stock Inventory records.
and proper Record
Refer Point 6,
shall be maintained
Report which are not found physically but are included in packing list provided.
Bullet # 6.5
to avoid any
Refer Annexure No. 4.2
misstatement.

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 Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

Quantity Difference in Stock Discrepancies in

stock should be
6 Instances revealed that there are variances found during physical stock count which
Risk Of
adjusted,
Misappropriation
shortages in meterage.
furthermore
of Asset Refer Point 6,
Refer Annexure No. 4.3
receiving and
Understatement of Bullet # 6.6
issuances should
Inventory.
be accurately
maintained on
daily basis.

Negative Stock Quantity Items with

negative quantity
7 During the physical stock count there are some items which carry negative stock
Risk of
should be
Understatement of
quantity in stock sheets, upon further inquiry it was found that these items were already
eliminated from Refer Point 6,
Inventory Value.
issued but still their quantity are found to be having negative value in current stock
stock sheet with
Bullet # 6.7
sheets.
authorized
Refer Annexure No. 4.4
approvals.

Fabric Roll Quantity Difference Risk Of

Such roll shall be
checked and proper
8 There are significant difference in fabric meterage of recorded rolls compare to physical Misappropriation
Record shall be
present on floor in addition the fabric roll quantity also differ that is 62 out of 68 as per of Asset / Under / Refer Point 6,
maintained to
packing list. Over statement of Bullet # 6.8
avoid any
Refer Annexure No. 4.5 Inventory.
misstatement.

Union and Commercial Party Fabrics

9 The fabric of Union and Commercial Parties are not separately placed in Finished Fabric
Risk Of Loss / Mix Should be
of Union and separately placed Refer Point 6,
godown even there is no define criteria to distinguish specific quality in Finished Fabric.
Commercial fabric for effect Bullet # 6.9
Stock. traceability.

No Record for Samples

10 The samples are present in Finished Fabric and not recorded at any phase, these samples
Proper record of Refer Point 6,
samples should be
are placed at various locations in Finished Folding Godown floor and no check and maintained with Bullet # 6.10
Lack of Audit reference of it PPS
balance is found in this instance. Trail. number and other

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 Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

Refer Picture No. 5.2 identity details.

Gate Pass
11 During the conduct of physical stock count it was observed that there is a gate pass in
Risk Of Unrecorded fabrics
Refer Point 6,
Misappropriation should foam part
which excess fabric issued compare to recorded fabrics issue to Party . of Asset / Under / of inventory to Bullet # 6.11
Over statement of avoid excess
Refer Picture No. 5.4 Inventory. issuance against
documented.

Inventory Ageing The items

categorized as slow
12 There is an absence of system maintain aging report (month and year wise) in order to
moving are to be
trace out the total tenure of slow moving items though record. Risk of Asset
placed in one
Deterioration.
location and their Refer Point 6,
movement should Bullet # 6.12
be oversee by
preparing proper
aging report month
and year wise.

Absence Of CCTV Surveillance Installation of

CCTV surveillance
13 The Finished Fabric at Unit # 5 does not have the facility of CCTV Surveillance despite Refer Point 6,
shall be made on
being holding significant valuable meterage in their inventory. Risk of Item Theft Bullet # 6.13
the gates and aisles
of Finished Fabric.

Health and safety To avoid such risk,

First Aid Box
14 We identified that First Aid Box was not installed in Finished Fabrics Godown.
Risk of loss of
needs to be Refer Point 6,
skilled labor time.
installed resultant
Bullet # 6.14
in avoiding idle
time in production.

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 Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

Highlighted
Absence of Passageway Marking marking and
15 The Passage way of the Finished Fabric of Unit-5 is not marked properly with the Overutilization of proper
relevant yellow and red marking to indicate the locations and exit terminals of that area. Space by using passageways
Refer Point 6,
passage way as should be made in
Bullet # 6.15
stocking. order to distinguish
the stacking area
with walking area.

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

4. Annexure
1. Physical Found

Category
S.N Job Card Physica Differenc
Quality Party Name Total
o # Fres l Found e
B CP
h
30 x 30 / 72 x 68 100% Cotton 17-12066/1 Atiq Gagan - 140 - 140 148.00 8
1

40 x 40 / 110 x 50 100% Cotton 1/1 18-121836/1 Aziz Sons. 712 - 6 718 963.00 245
2

20 x 20 / 100 x 50 100% Cotton 17-31815/1 Crescent Enterprise 4,881 120 32 5,033 5,711 678
3

16 x 10 / 76 x 34 1/1 DUCK 17-12742/1 ESSA TEX. 113 - - 113 121 8

4

150 x 6 / 60 x 34 1/1 DENIER 17-12742/5 ESSA TEX. 278 - 20 298 369 72

5

300 x 10 / 76 x 28 1/1 DENIER 17-121805/3 ESSA TEX. - - - - 1,698 1,698

6

300 x 10 / 76 x 28 1/1 DENIER 17-121805/1 ESSA TEX. - - - - 2,274 2,274

7

60 x 60 / 96 x 80 O1883 ESSA TEX. - - - - 7,318 7,318

8

300 x 10 / 76 x 28 17-121805/2 ESSA TEX. - - - - 1,883 1,883

9

150 x 30 / 68 x 68 DANIER 7 18-12035/1 HANIF NADEEM. 1,500 - - 1,500 1,549 49

10

14,233
2. Physical Not Found

Category Physica
S.N Job Tota Differenc
Quality Party Name l Not
o Card # Fresh B l e
Found
150 x 10 / 60 x 42 17-12259/3 ESSA TEX. 78.00 - 78 - 78
1 POLYESTER
150 x 10 / 60 x 42 17-12259/8 ESSA TEX. 2,865.00 - 2,865 - 2,865
2 POLYESTER
150 x 17 / 76 x 34 17-12283/1 ESSA TEX. 150.00 - 150 - 150
3 POLYESTER
150 x 17 / 76 x 34 17-12283/3 ESSA TEX. 150.00 - 150 - 150
4 POLYESTER
150 x 17 / 76 x 34 17-12283/7 ESSA TEX. - 13.00 13 - 13
5 POLYESTER
40 x 40 / 127 x 68 100% 17-12534/1 GUL AHMED TEXTILE MILLS 274.00 - 274 - 274
6 COTTON LIMITED.
60 x 60 / 96 x 80 100% 17-0034/1 UNION FABRICS (PVT.) NO. 55.00 - 55 - 55
7 COTTON
10 x 08 / 52 x 48 100% 17-0056/1 UNION FABRICS (PVT.) NO. 1,215.00 - 1,215 - 1,215
8 COTTON

4,800

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

3. Shortage Found

Category
Job Physical
S.No Quality Party Name Total Difference
Card # Found
Fresh B CP
22 x 20 / 60 x 60 100% 17-01803/1 INDUS TEXTILE 171.00 474.50 185.00 831 670 (161)
COTTON 1/1 PLAIN
1

60 x 60 / 102 x 90 100% 17-121649/1 MYTEX 4,711.25 99.00 5.00 4,815 4,716 (99)
COTTON 100% INTERNATIONAL
2 COTTON

150 x 6 / 60 x 34 1/1 17-121808/3 ESSA TEX. 790.25 - 15.00 805 800 (5)
DENIER
3

(265)
4. Negative Quantities

Category
S.No Quality Job Card # Party Name Total Difference
Fresh
40 x 11 / 76 x 35 100% Cotton 17-20913/1 UFT (PVT.) LIMITED (12.00) (12)
1 (12)
40 x 11 / 76 x 35 100% Cotton 17-20966/1 UFT (PVT.) LIMITED (24.00) (24)
2 (24)
40 x 11 / 76 x 35 100% Cotton 17-20966/2 UFT (PVT.) LIMITED (10.00) (10)
3 (10)
60 x 60 / 90 x 88 100% Cotton 17-3691/1 UFT (PVT.) LIMITED (1.75) (2)
4 (2)
60 x 60 / 90 x 88 100% Cotton 17-3706/1 UFT (PVT.) LIMITED (19.00) (19)
5 (19)
60 x 60 / 90 x 88 100% Cotton 17-20704/1 UFT (PVT.) LIMITED (6.00) (6)
6 (6)

(73)
5. Fabric Roll

Category
Job Tota Physical
S.No Quality Party Name Difference
Card # l Found
Fresh B
40 x 40 / 127 x 68 100% 17- GUL AHMED TEXTILE MILLS 3,446.00 73.00 3,519 4,281 762
COTTON 12440/2 LIMITED.
1

762

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

5.Pictures

1. Précised Identity Detail

2. Sample and Small Mtr Fabric Mixed with no Identification

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

3. Stock with Multiple PPS in One Tag

4. Gate Pass (4,892 out of 4,858 b/w Gap 34 Mtr Excess with Recorded Mtrs)

6. Concerned Department Comments

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Internal Audit Report For Physical Stock Verification and Related Controls of Finished Fabrics Godown Functions Unit # 5

Reply points from Finish fabric Godown management are given below based on issues highlighted
by Internal Audit Department.

6.1 Compliance Issue.

6.2 We don’t have enough space to work on it, our warehouse is under construction than will apply as per
our best.
6.3 Same as above point 6.2.
6.4 There is an issue of old stock, we will discus to inventory concern than solve it as soon as possible.
6.5 Same as above point 6.4.
6.6 Same as above point 6.4.
6.7 Same as above point 6.4.
6.8 Same as above point 6.4.
6.9 Same as above point 6.2.
6.10 It’s old stock or leftover stock which you found during stock we will not issue single meter or receive
without gate pass all fabric will record as per current Patrice.
6.11 If we found during dispatching any pcs excess than we dispatch with them.
6.12 IT issue.
6.13 Compliance Issue.
6.14 Compliance Issue.
6.15 Compliance Issue.

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