Audit Theory And Practice

Internal Audit Objective

In this report, our objective is maximizing company wealth by increase effectiveness, efficient and economy of scale. During this report, we would concentrate on the control and record of software licenses. Also, we would focus whether the staffs follow company policies and regulation. Lastly, we will try to find out potential fraud and error.

Company core problem

After investigation, we found that company has two major problems. It causes company suffer unnecessary losses. For company benefit, company should hold sales record properly and updated with authorization. However, I found that company has weakness on sales and invoicing systems.

From contact with customers, demo, issue invoice, record sales to write off bad debts are done by sales representative. Also, Olympian herald ltd bounce scheme is based on sales register record. But all the record are held and updated by sales representative, it could help three kind of possible fraud.

First, if sales representative try to increase their bounce, they could create un-existing customer and sales. Because of sales representatives are required to follow up unpaid invoices and have authority to write off bad debts, under such system sales representatives could create un-existing sales without anyone notice. By create many of un-existing client and sales, sales representatives will increase their sales volume. Under this weakness, company suffers loss on paying extra bounce to sales representatives.

Second, Because of sales representative are the only mechanism on control of bad debt written off procedure and payment follow up, high risk of embezzlement could be happen. It could happen in two ways; first they could receive clientsÐŽ¦ payment on behalf of company but put it into his own and treat it as bad debt. Another ways, sales representative could over charge the client without notice of company, and then they could get the difference.

Besides of the potential problem on sales representatives, we found the inefficient communication of programming department and sales department. We found that programming department confuse on issue temporary licenses and permanent licenses. By resolve this problem, programming department will issue permanent licenses for replacement without investigation. As the price permanent licenses have large different with temporary licenses, company could suffer loss on it. Under current situation high degree of risk to company, because programming department practices already spread out in the industry.

And we could see that maintenance services should only provide to Serpent software users or Wand users with additional maintenance agreement. However, the maintenance service are provided to all customers who can show that they possess a valid and current licencee for the software. That mean company is providing unnecessary maintenance service. It would a error to lead company suffer losses.

Lastly but not least, we found sales and training staff can request licences for additional copies to be use for demonstration or training purposes and those licences are free. Those copies are usually installed on client machines. However, company does not have policy on control of using such licences. There is a potential risk of staff selling those licences as their own for earning money. Also there are potential problem with high IT skill client they can creak the password. As those demo copies install on clientsÐŽ¦ machine, those client would buy fewer licenses because they already have one or two licences that already installed. For those small size company client, not need large number of licences, will not purchase our product because they already have one to two copies with free licencces. It would lead to the company suffering financial loss.

In conclusion, issue and control of licences usage are weak in this company. It would lead many other losses such as illegal copies or hard to safeguard of company assets.

Recommend improvements

In order to increase the company security, we would like to introduce more segregation of duty, senior approval and master file control. Those actions could reduce the potential of fraud and error occurs.

We found that the finance department prepare account high rely on sales department however finance department do not control of bad debt written off and record. Thus, company needs a central management system for holding all the sales record and transaction tracing. Under that system, we could re-arrange all the authority of update file, enter transaction and monitor the performance of each department. So company could see the improvement and any possible risk.

Under the new system, we required the sales representative input the purchase order after the sales is made. So, they do not require issuing invoice and holding the sales registers anymore. As the duty of making sales and record sale with different person, no individual could override the system to increase bounce by making un-existing transaction. Also, any bad debt written off should approve by both finance department head and sales department head.

Under a consistence of master file, programming department only issue licences after they notice by the system. Under such system, there should not make any wrong licences issue. For those rare error, senior software manager have to communicate with finance department. After checking the payment and purchase order, replace the licences with permanent licences whenever double approval of head of finance and head of programming department. Also, any changes