store audit report

PVO/STR/VI/002/2010 DATED 30-12-2010

PREMIUM VEGETABLE OILS SDN. BHD. INTERNAL AUDIT REPORT _______________________________________________________________ RE: STORE AUDIT BACKGROUND An Internal Audit was performed in store division, which involved procedure of receiving, issuing, ordering, stock to hold at the most appropriate level for store materials and delegation of authority. In our audit, we have considered and reviewed transactions for the month of November 2010. A random physical stock count was carried out to check on the accuracies of the stock between the physical and store ledger balances. Objective of this audit is to gain an understanding of the processes and determine the effectiveness of internal control system. Audit appreciates the cooperation and courtesies extended during this review. 1.1 Findings It was found that there is no written standard operating procedure (SOP) and departmental organization chart available in the store division. 1.2 Recommendation

A duly approved organization chart and written standard operating procedure (SOP) to be made available immediately, clearly indicate the flow of store procedures 1.3 Management Response

1.3 Findings Store division unable to achieve their target to reduce store holding by 20% by 01/01/2010 has per mention in the ISO documents. Stock balances show RM7,726,561.02 as at 01/01/2008 and RM7,387,992.01and able to reduce by 4.38% 1.4 Recommendation

A duly approved organization chart and written standard operating procedure (SOP) to be made available immediately, clearly indicate the flow of store procedures 1.3 Management Response

PVO/STR/VI/002/2010 DATED 30-12-2010 2.1 Finding A random physical stock take was carried out and the audit found that there are stock discrepancies between the physical and book balance in 4 out of 10 items. Below are the details: NO 1 2 3 4 5 6 7 8 9 10

ITEM CODE PLSBRG22216 E PLSBRGNU308 PLSCOUPLG02D P&FLANGE 511A P&FLANGE 511 P&F KOMBINATOR 49 PISSEALER 02 PISPMILL 518 P& F COLLAR 413 PLSCCLIPA100

DESCRIPTION Bearing SKF22216 E Bearing SKFNU308 Coupling Rubber Insert Flange MS2 1 1/2" (pn16) Flange MS2 1 1/2" (10k) Kombinator O-Ring Seal THSP-H43main Spring Part P Mill Switch SLD 33 SS Collar 2" Circlip A62

STOCK QTY PHYSICAL QTY 9 9 3 3 49 9 4 0 8 6 10 10 10 10 2 2 2 2 4 0

DIFF 0 0 40 4 2 0 0 0 0 4

2.2 Recommendation Audit reiterates its earlier recommendation of implementing a perpetual inventory system, which could be carried on together with the regular monthly stock checks. 2.3 Management Response

3.1 Below are the pending matters, which has been highlighted in our previous audit report but pending for improvement.

2

Major lapses in controlling the returnable items send to the supplier by various departments by using Returnable gate pass. As per available records, there are items

The concerned divisions who are issuing gate passes should mention the expected date of receiving back the material on the gate pass itself.

All returnable gate pass will be monitored by stores dept.

The records with

After obtaining response

Monthly reports will be forwarded to concerned department to update on pending returnable gate passes.

Expected date of receiving back the material still not updated in the returnable gate pass. Records are yet to be checked and reconciled. The report was send

PVO/STR/VI/002/2010 DATED 30-12-2010

NO

not returned to us since 2005 and records were not updated properly.

security should be checked and reconciled with the concerned division at least once in fortnight

from the departments a copy will be forwarded to Sr.Vice.President.

Findings

Recommendation

Management Response

This matter has been highlighted in our previous audit report no SEC/RGP/001/2007

dated 07/04/07 and PVO/STRVI/004/08

dated 18/12/08 and still pending for implementation

3

A 100% physical stock check has been carried out to confirm the actual physical stock as at 31/07/2007 and encountered shortage of RM1, 332,216.64 between the physical and store ledger balances

All outstanding returnable gate passes for more than one month should be forwarded to the Sr. Vice President on the monthly basis. In the event of any material sent under returnable gate pass is not possible to be brought back, the concerned H.O.D. has to get specific approval from Sr. Vice President and forward a copy to the security for squaring up their records.

Expected date of receiving back the material not required due to an immediate action has been taken, which outstanding returnable gate pass will be reconcile on weekly basis.

Obsolete, damaged and used items must be accounted and removed from the stock.

Planning to do physical stock count, to complete by end March 2009.

Shortage/excess items should be properly accounted for in the store ledger.

only in the months of January, February, and March’09. The response has not been received from most of the divisions

Follow-up Audit Comments However, during the follow-up audit an email on the outstanding returnable gate pass has been forwarded to the concerned division and copy to Sr.Vice President. An immediate action has been taken, which outstanding returnable gate pass listing needs to reconcile on weekly basis.

Audit was informed that 100% physical count still under progress and expected Discussed with Mr Raja & to complete by end of Ms Sagthi and have this year. planned as per recommended. No action taken for the used and excess items. Perpetual inventory system still not

PVO/STR/VI/002/2010 DATED 30-12-2010 which mainly due to unexplained shortages /excesses obsolete and used items available in the stores as stock.

A perpetual inventory system to be introduced which could be carried on together with the regular monthly stock checks.

Perpetual inventory will be carried out once the new System takes effect. Expected trial in October’09 and full implementation by January 2010.

Findings

Recommendation

Management Response

Transport, duty, clearing accounts shows balance of RM144,117.96 as at 19/12/2008

This expense to be directly allocated to specific cost units.

Have discussed with Accounts/EDP to look on how to merge these charges into materials. EDP to look into this matter.

NO 4

Will be adjusted once the new System takes effect. 5

GRN is being raised for services as well as for work orders

6 -

implemented.

Follow-up Audit Comments As at 31/07/2009 this account shows balance of RM214,507.23. Action will be taken when the new system is implemented

GRN to be raised only for goods received by stores and for all other items the bill passing methodology is to be modified and to be done without GRN.

To carry on with the GRN is still being same method and further raised for all other discussions with audit. items such as Works Order, Natural Gas. Diesel.

Paper bags for packing to be stored in covered and safe area to prevent from absorbing moisture.

To clear area near electrical room/solvent. Planning to make shed area.

To fix a minimum level of stock and the store indent for purchase

Need time to update/store books to be adjusted. Still under planning

Will be look into this matter when the new System takes effect.

Still pending

Pending due to cost factor.

7

Under progress and expected to complete by end of this year.

PVO/STR/VI/002/2010 DATED 30-12-2010 immediately after the reorder level is reached.

Findings

NO 8

-

9 -

10

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Under progress and expected to complete by end of this year.

Recommendation

Management Response

All SRN should be properly authorized before issue of any items by the stores.

Agreed to follow. Have discussed with all HOD.

Follow-up Audit Comments

Found, there is a number of SRN issued particularly on Saturdays were not authorized. Below are the Decided that Saturday’s samples: SRN NO Date issuance only for the 93968 11/07/09 urgent items. 94478 11/07/09 94198 25/07/09 94101 25/07/09

The receiving Requester is the receiver person’s signature should be obtained Will introduce new on the SRN. format of SRN after clear the old SRN book.

Store division still claiming the requester will be the receiver.

All SRN for which Implemented and to be materials have followed strictly been issued should be entered in the store system on real time basis. Will be adjusted once the new System takes effect.

Implemented except for Saturdays issues which will be entered into the system on the following Monday. Also found a number of SRN for the excess stock was not taken into the system. Below are the samples: SRN NO DATE 99109 27/07/09 94250 06/08/09 99660 05/08/09 96046 04/08/09

PVO/STR/VI/002/2010 DATED 30-12-2010

NO 11

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Finding

Recommendation

Management Response

To have a better control of the physical inventory at floor level it is advised that bin card is to be maintain ed and all receipts and issues should be recorded on the spot.

This recommendation was disagreed.

As per the current This lapse of store system, internal store manager is control given authority to system amend the to be records in the rectified system after immedi closing is done for ately. In any case of period. any amend ment to be made

To be discussed with accounts and Mr. Raja.

Bin card system will be continuing only for fast moving items until the new system takes effect. After implementation of the new system bin card will be discontinued and this will be monitored directly from the new store system.

Follow-up Audit Comment Bin Card preparation is in progress. However store still disagree to the recommendation and would like to maintain in the system on real time basis. Audit reiterate its recommendation to implement the Bin card with immediate effect for better control

Store manager still carried out amendment after the closing period.

PVO/STR/VI/002/2010 DATED 30-12-2010 after the closing period, it is recomm ended to get prior approva l from Sr. Vice Preside nt and HOD. A copy of the amend ment to be forward ed to finance manage r/ Head of finance in factory.

NO 13

Finding

Recommendation Matching, checking on the accuracy of Purchase order, Delivery order and invoice and recording in to the System to be carried out by

Management Response

Follow-up Audit Comment

Recommendation has been accepted and implemented but discontinued and currently this activity is back to store division Found Better control in store

Audit recommends that there is breach in internal control system and accuracy should be checked by an independent department .

PVO/STR/VI/002/2010 DATED 30-12-2010 accounts division.

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