Stores & Spare Parts Audit Program

Workpaper Reference 1. Review the perpetual inventory records system to ensure: 1) an audit trial of transactions recorded is available, 2) input into the computer system is controlled, 3) significant items are reported on an exception basis, 4) results of cycle counts are recorded to the perpetual records, and 5) any alterations or changes are properly approved. 2. Evaluate the issues and reliability of perpetual inventory records in the overall materials management system which may include: Basis for cycle count. Aid in identifying surplus and obsolete inventory. Basis for issuance of purchase requisitions. Aid in production scheduling. Monetary as well as quantity control. Basis for calculating inventory restandardization. Reference in determining location of material. 3. Determine that employees maintaining stock records do not have conflicting duties. 4. Verify the accuracy of perpetual inventory records: a. Select a representative sample (at least 20) of source documents including; customer invoices, receiving reports, scrap tickets, production reports, stock orders, bills of lading and material requisitions. Trace to posting in records. b. Review routines over returned material for approvals, preparation of receiving reports, etc. and trace a number of items to perpetual records. c. Review routines related to stock transfers between stockrooms, warehouses, etc. and trace a number of items to perpetual records. d. Review alterations or adjustments to perpetual records for propriety and approval by supervisory personnel. Auditor

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Workpaper Reference e. Investigate write-offs or adjustments. f. Test check footings. 5. Generally, movement from stores should be covered by proper authorization. Test 25 authorizations to posting to perpetual records and charging to appropriate jobs. 6. Perform test counts of at least 25 high dollar items to determine the accuracy of perpetual records. Prior to making test counts, ensure that proper cutoffs can be made for the recording of transactions. If material is shown as stored in several locations, ensure quantities at each location agree with the locator listing. 7. Randomly select 10 inventory locations and identify item and perform physical count. Trace results to perpetual records and determine item, quantity, and location agree. 8. Review results of recent cycle counts and verify that appropriate changes were made to the stock status. Obtain reasons for any items not adjusted. 9. If material is kept at outside locations (warehouses, vendors, customers, etc.) complete the following: a. Determine that material is in this category and what records are kept to control it. b. Review the method of periodic confirmation of this material. 10. Review the physical layout of the stores area. Determine the following: a. Whether inventories are stored in a systematic manner. b. Whether or not materials are under the direct control of storekeepers who are held responsible for quantities on hand. c. What controls there are over access to storage areas for persons other than storekeepers? d. The adequacy of the control procedures for goods returned by customers.

Auditor

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Workpaper Reference 11. Review procedures and controls over requisitions and determine the following: a. Prepared by someone other than storekeepers. b. Signed by a duly authorized person whose signature and authority are known by the storekeepers. c. Controlled, e.g. by number, with all forms eventually being accounted for. d. Manually signed by person receiving the material. 12. Request the following reports from EDP Audit and use to review for possible obsolescence: a. Stores and spare parts by last issue date. ("CULSTISD") b. Stores and spare parts never issued. ("CULSTNEV") c. Stores and spare parts by last order date. ("CULSTORD") 13. Request the following reports from EDP Audit and use to review for possible valuation errors: a. Parts with average cost > last price paid by 10%. ("CULTYPEA") b. Parts with average cost < last price paid by 10%. ("CULTYPEB") c. Parts with negative quantities or values. ("CULTYPEN") d. Parts with zero units and a value. ("CULTYPEZ") e. Parts with units on hand, no extended value. ("CULUNTNC") 14. Review the most recent three months reconciliations between the stores and spare parts dollarization reports and the general ledger.

Auditor

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