Internal Auditing 300 (IAU300): Semester 2
Contents
LA 4: Chapter 7 (PIAE): Bank and Cash ............................................................................ 3
1. INtroduction ................................................................................................................. 3
2. payment methods ...................................................................................................... 3
3. Risks and controls ........................................................................................................ 3
5. common fraudulent activities .................................................................................... 4
6. Bank reconciliation ..................................................................................................... 4
7. Financial audit ............................................................................................................. 4
LA 5: Chapter 8 (PIAE): Health and Safety ....................................................................... 7
1. compliance audit ....................................................................................................... 7
2. operational audit ........................................................................................................ 7
3. documenting findings ................................................................................................. 7
LA 6: Chapter 6 (PIAE): HR & Payroll .................................................................................. 9
1. Introduction ................................................................................................................. 9
2. ICT ................................................................................................................................. 9
3. related fraud................................................................................................................ 9
4. Substantive procedures .............................................................................................. 9
5. Analytical procedures .............................................................................................. 10
6. operational audit ...................................................................................................... 10
7. documenting results.................................................................................................. 11
8. Weaknesses ............................................................................................................... 11
9. Functions .................................................................................................................... 11
LA 7: Sampling................................................................................................................... 14
1. introduction ............................................................................................................... 14
2. terminology ................................................................................................................ 14
3. sample selection methods ....................................................................................... 15
4. steps ........................................................................................................................... 15
5. sampling for internal control .................................................................................... 16
6. sampling for substantive testing ............................................................................... 17
LA 8.1: Analytical analysis ................................................................................................ 19
1. Data/ Information ..................................................................................................... 19
2. Analysing financial/ operational information ......................................................... 19
3. Analytical review procedures .................................................................................. 20
4. analytical analysis and internal auditor .................................................................. 21
5. Example ..................................................................................................................... 21
LA 8.2: CAATS .................................................................................................................... 23
, 1. programs .................................................................................................................... 23
2. Data files .................................................................................................................... 24
3. Main GAS functions ................................................................................................... 24
LA 9: Chapter 5 (PIAE): Inventory .................................................................................... 25
2. Inventory count controls ........................................................................................... 26
3. Financial Audit ........................................................................................................... 26
4. operational Audit ...................................................................................................... 26
LA 10: Compliance Audits................................................................................................ 27
1. Companies Act 71 of 2008 ....................................................................................... 27
2. Sarbanes Oxley Act .................................................................................................. 27
3. protected disclosures act ......................................................................................... 28
4. Money Laundering Acts ........................................................................................... 28
5. Consumer protection act ......................................................................................... 28
LA 11: Chapter 9 (PIAE): Audit Communication ............................................................ 29
2. Standards ................................................................................................................... 29
2. practical..................................................................................................................... 30
LA 12: Public Sector .......................................................................................................... 31
1. Definition .................................................................................................................... 31
2. Structures.................................................................................................................... 31
3. Public Finance Management acts .......................................................................... 31
4. Treasury Regulations.................................................................................................. 31
5. Municipal finance management act ..................................................................... 33
6. Public Audit act ......................................................................................................... 33
,LA 4: Chapter 7 (PIAE): Bank and Cash
1. INTRODUCTION
Definition → Petty cash/ register
→ Business cheque/ current accounts
→ Investment account
→ Bank overdrafts
Inflow → Cash sales
→ Dividends received
→ Debtor receipts
→ Interest received
Outflow → Payroll
→ Cash purchases
→ Security
→ Asset purchases/ maintenance
→ Creditor payments
2. PAYMENT METHODS
Cash → Common in retailers/ supermarkets
→ High risk
→ Captured – recorded – banked timeously
→ Untraceable
Cheques → Drawer writes cheque
→ Drawee – bank
→ Use on decline – cheque fraud
Debit → Substitute for physical cash payment
cards → Initiated against customers account – requires sufficient funds
→ No credit risk
→ Service fee applicable
Credit → Purchase on credit
cards → Receives funds from bank – settle amount outstanding
→ Fees are higher
→ Additional annual fixed card fee + interest
EFT → Transfer funds electronically from bank accounts
→ Performed in 4 steps
1. Create beneficiary
2. Prepare EFT payment
3. Execute payment
4. Proof of successful EFT sent to beneficiary
3. RISKS AND CONTROLS
Risk Control Audit procedure
Cash stolen Stored in restricted safe Inspect safe – observe cash is
from placed in at end of day.
register/ safe Enquire how access is
restricted
Deposited in bank <24h Obtain cash receipt list –
inspect deposit slips to confirm
receipts banked the next day
, Register summary reports Observe cash counting
reconciled to cash counted in procedures
presence of supervisor
Segregation of cashier/ person Observe staff receiving cash is
performing banking not staff performing banking
Unauthorised → Authorized personnel add beneficiary
beneficiaries
Invalid EFT → Log in details not shared
requests → Authorized access to banking platform
→ Monitor log in reports on weekends/ public holidays
→ Reconcile EFT transaction listing
→ Payments supported by signed of payment requisition
→ Segregation creator of payment proposal + approver
→ Changes to bank payment system by authorized individual
EFT → Proof of payment report
payments → System should supply audit trail of EFT payments
not properly → Audit trail reviewed by senior personnel
accounted → Bank reconciliations
for
5. COMMON FRAUDULENT ACTIVITIES
Kiting → Steals cheque received for deposit into main bank account A
→ Writes company check form bank account B to replace
→ Cheque written from bank account C into bank account B
Lapping → Steals cash from cash payments received from debtors
→ Continuously uses cash from other payments of debtors
6. BANK RECONCILIATION
Aim → Reconcile cash balance in bank statement with bank balance in
accounting records
→ Performed by employee independent of handling cash
→ Reviewed by employee independent to preparer
Cash book 1. Cash book balance
Cash book balance (beginning) (ct/dt) (X)/X
Add deposits for month X
Less EFTs for month (X)
Less expenses in statement not in cashbook (X)
Add deposits in statement not in cashbook X
Adjusted balance per cashbook (beginning) X
2. Bank reconciliation
Adjusted cash book balance (beginning) X
Add outstanding EFTs (in cb not statement) X
Less outstanding deposits (X)
Other reconciling items (X)/X
Bank statement balance (end of month) X
7. FINANCIAL AUDIT
Substantive → Main risk: Overstatement of bank balance
procedures → Reperform bank recon
Contents
LA 4: Chapter 7 (PIAE): Bank and Cash ............................................................................ 3
1. INtroduction ................................................................................................................. 3
2. payment methods ...................................................................................................... 3
3. Risks and controls ........................................................................................................ 3
5. common fraudulent activities .................................................................................... 4
6. Bank reconciliation ..................................................................................................... 4
7. Financial audit ............................................................................................................. 4
LA 5: Chapter 8 (PIAE): Health and Safety ....................................................................... 7
1. compliance audit ....................................................................................................... 7
2. operational audit ........................................................................................................ 7
3. documenting findings ................................................................................................. 7
LA 6: Chapter 6 (PIAE): HR & Payroll .................................................................................. 9
1. Introduction ................................................................................................................. 9
2. ICT ................................................................................................................................. 9
3. related fraud................................................................................................................ 9
4. Substantive procedures .............................................................................................. 9
5. Analytical procedures .............................................................................................. 10
6. operational audit ...................................................................................................... 10
7. documenting results.................................................................................................. 11
8. Weaknesses ............................................................................................................... 11
9. Functions .................................................................................................................... 11
LA 7: Sampling................................................................................................................... 14
1. introduction ............................................................................................................... 14
2. terminology ................................................................................................................ 14
3. sample selection methods ....................................................................................... 15
4. steps ........................................................................................................................... 15
5. sampling for internal control .................................................................................... 16
6. sampling for substantive testing ............................................................................... 17
LA 8.1: Analytical analysis ................................................................................................ 19
1. Data/ Information ..................................................................................................... 19
2. Analysing financial/ operational information ......................................................... 19
3. Analytical review procedures .................................................................................. 20
4. analytical analysis and internal auditor .................................................................. 21
5. Example ..................................................................................................................... 21
LA 8.2: CAATS .................................................................................................................... 23
, 1. programs .................................................................................................................... 23
2. Data files .................................................................................................................... 24
3. Main GAS functions ................................................................................................... 24
LA 9: Chapter 5 (PIAE): Inventory .................................................................................... 25
2. Inventory count controls ........................................................................................... 26
3. Financial Audit ........................................................................................................... 26
4. operational Audit ...................................................................................................... 26
LA 10: Compliance Audits................................................................................................ 27
1. Companies Act 71 of 2008 ....................................................................................... 27
2. Sarbanes Oxley Act .................................................................................................. 27
3. protected disclosures act ......................................................................................... 28
4. Money Laundering Acts ........................................................................................... 28
5. Consumer protection act ......................................................................................... 28
LA 11: Chapter 9 (PIAE): Audit Communication ............................................................ 29
2. Standards ................................................................................................................... 29
2. practical..................................................................................................................... 30
LA 12: Public Sector .......................................................................................................... 31
1. Definition .................................................................................................................... 31
2. Structures.................................................................................................................... 31
3. Public Finance Management acts .......................................................................... 31
4. Treasury Regulations.................................................................................................. 31
5. Municipal finance management act ..................................................................... 33
6. Public Audit act ......................................................................................................... 33
,LA 4: Chapter 7 (PIAE): Bank and Cash
1. INTRODUCTION
Definition → Petty cash/ register
→ Business cheque/ current accounts
→ Investment account
→ Bank overdrafts
Inflow → Cash sales
→ Dividends received
→ Debtor receipts
→ Interest received
Outflow → Payroll
→ Cash purchases
→ Security
→ Asset purchases/ maintenance
→ Creditor payments
2. PAYMENT METHODS
Cash → Common in retailers/ supermarkets
→ High risk
→ Captured – recorded – banked timeously
→ Untraceable
Cheques → Drawer writes cheque
→ Drawee – bank
→ Use on decline – cheque fraud
Debit → Substitute for physical cash payment
cards → Initiated against customers account – requires sufficient funds
→ No credit risk
→ Service fee applicable
Credit → Purchase on credit
cards → Receives funds from bank – settle amount outstanding
→ Fees are higher
→ Additional annual fixed card fee + interest
EFT → Transfer funds electronically from bank accounts
→ Performed in 4 steps
1. Create beneficiary
2. Prepare EFT payment
3. Execute payment
4. Proof of successful EFT sent to beneficiary
3. RISKS AND CONTROLS
Risk Control Audit procedure
Cash stolen Stored in restricted safe Inspect safe – observe cash is
from placed in at end of day.
register/ safe Enquire how access is
restricted
Deposited in bank <24h Obtain cash receipt list –
inspect deposit slips to confirm
receipts banked the next day
, Register summary reports Observe cash counting
reconciled to cash counted in procedures
presence of supervisor
Segregation of cashier/ person Observe staff receiving cash is
performing banking not staff performing banking
Unauthorised → Authorized personnel add beneficiary
beneficiaries
Invalid EFT → Log in details not shared
requests → Authorized access to banking platform
→ Monitor log in reports on weekends/ public holidays
→ Reconcile EFT transaction listing
→ Payments supported by signed of payment requisition
→ Segregation creator of payment proposal + approver
→ Changes to bank payment system by authorized individual
EFT → Proof of payment report
payments → System should supply audit trail of EFT payments
not properly → Audit trail reviewed by senior personnel
accounted → Bank reconciliations
for
5. COMMON FRAUDULENT ACTIVITIES
Kiting → Steals cheque received for deposit into main bank account A
→ Writes company check form bank account B to replace
→ Cheque written from bank account C into bank account B
Lapping → Steals cash from cash payments received from debtors
→ Continuously uses cash from other payments of debtors
6. BANK RECONCILIATION
Aim → Reconcile cash balance in bank statement with bank balance in
accounting records
→ Performed by employee independent of handling cash
→ Reviewed by employee independent to preparer
Cash book 1. Cash book balance
Cash book balance (beginning) (ct/dt) (X)/X
Add deposits for month X
Less EFTs for month (X)
Less expenses in statement not in cashbook (X)
Add deposits in statement not in cashbook X
Adjusted balance per cashbook (beginning) X
2. Bank reconciliation
Adjusted cash book balance (beginning) X
Add outstanding EFTs (in cb not statement) X
Less outstanding deposits (X)
Other reconciling items (X)/X
Bank statement balance (end of month) X
7. FINANCIAL AUDIT
Substantive → Main risk: Overstatement of bank balance
procedures → Reperform bank recon
