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Stores & Spare PartsAudit Program

WorkpaperReference Auditor

1. Review the perpetual inventory records system to ensure: 1) anaudit trial of transactions recorded is available, 2) input into the

computer system is controlled, 3) significant items are reported onan exception basis, 4) results of cycle counts are recorded to theperpetual records, and 5) any alterations or changes are properlyapproved.

2. Evaluate the issues and reliability of perpetual inventory records inthe 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 haveconflicting duties.

4. Verify the accuracy of perpetual inventory records:

a. Select a representative sample (at least 20) of sourcedocuments including; customer invoices, receiving reports,scrap tickets, production reports, stock orders, bills of ladingand material requisitions. Trace to posting in records.

b. Review routines over returned material for approvals,preparation of receiving reports, etc. and trace a number ofitems to perpetual records.

c. Review routines related to stock transfers between stockrooms,warehouses, etc. and trace a number of items to perpetualrecords.

d. Review alterations or adjustments to perpetual records forpropriety and approval by supervisory personnel.

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WorkpaperReference Auditor

e. Investigate write-offs or adjustments.

f. Test check footings.

5. Generally, movement from stores should be covered by properauthorization. Test 25 authorizations to posting to perpetualrecords and charging to appropriate jobs.

6. Perform test counts of at least 25 high dollar items to determinethe accuracy of perpetual records. Prior to making test counts,ensure that proper cutoffs can be made for the recording oftransactions. 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 andperform physical count. Trace results to perpetual records anddetermine item, quantity, and location agree.

8. Review results of recent cycle counts and verify that appropriatechanges were made to the stock status. Obtain reasons for anyitems 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 arekept to control it.

b. Review the method of periodic confirmation of this material.

10. Review the physical layout of the stores area. Determine thefollowing:

a. Whether inventories are stored in a systematic manner.

b. Whether or not materials are under the direct control ofstorekeepers who are held responsible for quantities on hand.

c. What controls there are over access to storage areas forpersons other than storekeepers?

d. The adequacy of the control procedures for goods returned bycustomers.

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WorkpaperReference Auditor

11. Review procedures and controls over requisitions and determinethe following:

a. Prepared by someone other than storekeepers.

b. Signed by a duly authorized person whose signature andauthority are known by the storekeepers.

c. Controlled, e.g. by number, with all forms eventually beingaccounted for.

d. Manually signed by person receiving the material.

12. Request the following reports from EDP Audit and use to review forpossible 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 forpossible 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 thestores and spare parts dollarization reports and the general ledger.

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