Audit, review and evaluation of the internal control of raw material purchase

Summary

Proposal of audit programs for the review and evaluation of the internal control system inherent in the process of purchasing the raw material - sugar cane.

objective

Propose audit programs that can be used by the auditors in the review and evaluation of the internal control system inherent in the process of purchasing the raw material - sugar cane from producers linked to sugar companies.

Abstract

Proposal of audit programs for review and evaluation of internal control system inherent in the process of buying the raw-cane sugar.

Objective

To propose audit programs that can be used by auditors in the review and evaluation of internal control system inherent in the process of buying the raw-sugar cane producers companies linked to Sugar.

Introduction

In the Guidelines for the economic and social Policy of the Party and the Revolution approved in the VI Congress of the Communist Party of Cuba, within group VII Agroindustrial Policies, it appears in guidelines 209 and 210: “… the sugar industry will have the primary objective of increasing in a sustained way the production of sugarcane, prioritizing the rearrangement of the areas to get closer to the plant. In its development, the relationship between the sugar mill and its producers must be improved, taking advantage of the existing sugar tradition and experience… in the formation of the purchase prices of cane from producers, the behavior of the price of sugar in the international market, also making it stimulating in relation to the rest of the crops,To ensure the increase in sugarcane production and the increase in the income of the workers linked to this activity, for which reason it is evident and necessary to develop and strengthen all the tasks related to the Audit, fundamentally to certain aspects of the economy that are not evaluated regularly in the control actions that are planned.

This work develops a proposal for a special audit program to audit the system for purchasing raw sugarcane, including the procedures that must be used to fulfill this important task.

The implementation in an entity or organization of an adequate internal control system practically determines its existence, thus having to achieve the safeguarding of assets and resources as well as making all the results obtained from the processing of information reliable, which are indispensable for the smooth running of any organization or area. In our country where almost all the entities and their resources are social property, administered by state institutions, the consequent application of the internal control system and all its aspects is vital. On the other hand, whoever intends to obtain results of efficiency, effectiveness and economy in the management of their organization,It cannot ignore the implementation and application of an internal control system with the necessary requirements to achieve these objectives.

An entity is not conceived that at the present time does not have its own control system designed according to its characteristics and proper functioning.

Internal control must be planned, it will never be the result of chance or it will arise spontaneously. Internal control is a well thought-out network of standards, methods, procedures and coordination measures, which must flow with security and responsibility, which guarantees the objectives of preserving, with maximum security, the control of resources, the operations listed in the primary documents and recorded by accounting. In short, it must help protect resources against fraud, waste and improper use.

Taking into account the economic context in which Cuban companies develop and the changes they are undergoing for the sake of business improvement, the effort of all those people who in one way or another have control of the companies will be needed. But to achieve this you need an internal control system that does not present a crack. Audit techniques and procedures allow evaluating the effectiveness of internal control, detecting existing problems and facilitating the decision-making process.

The Base Business Unit has as its main mission the production of sugar, for which reason it is of great importance to carry out a timely and systematic control of the entire production process, fundamentally that related to the purchase of sugarcane when it is determined that it represents more than 65 % of the cost of the ton of sugar produced.

The experience acquired during several harvests has shown the presence of fissures in the internal control of this area, the following being identified as the most common causes:

• Poor technical condition of the weighing means. Increase in losses beyond what was planned. Low preparation of personnel working in reception centers. Failure to observe internal control principles, rules and procedures. Absence of periodic reconciliations. the terms of the contract.

The internal audit in its role should be more preventive or anticipated and thus collaborate with the entity's management in making timely decisions. For this reason, the audit work is more inclined to the evaluation of those risks that may affect the operation of the entity, the implementation of the audit devices to supervise internal control. Identification of internal control indices based on the use of techniques and procedures that allow proper evaluation of management.

Development

The audit program is the plan that relates the content of all tasks to be performed during the course of the audit. The more detailed this program is, the easier it will be to carry out the audit, especially for inexperienced auditors.

The audit program constitutes an action plan to guide and control the auditor's work. In more or less general terms, it describes the scope of the work and the aspects that must be verified, constituting an orderly method to indicate and control the execution of the audit procedures by means of which the work will be carried out.

Taking into account all the aforementioned, as well as the different aspects specified in the Guidelines for the Party's and Revolution's economic and social policy, approved in the VI Congress of the Communist Party of Cuba, the following audit program is proposed, with which it is intended to provide auditors with a working tool that allows them to efficiently meet the following objectives:

• Evaluate the internal control system associated with the purchase of sugar cane raw materials. Verify the reliability of the information that is processed. Observe the compatibility between the established models and records. Verify that the payment obligations with the producers of the raw material is properly registered Check if the corresponding partial and final settlements have been carried out correctly Obtain relevant and competent evidence to identify whether the internal control procedures associated with the sugarcane adjudication system are working properly throughout the period harvest.

The fundamental aspects are set out below, which will serve as a basis for the auditors to assess the internal control status of this activity in the period of production of raw sugar.

Specific checks to be made to the process integrated into the Cane Award System

Award area

• Check if the Romanas Certifications have been made for the weight of the cane purchased by the specialized agencies with prior service hiring. Check that the weigher informs the cane award area, through the weight of the cane to which the ripener was applied and to which it was not applied, verifying the bonus and penalties as appropriate.Check through samples the calculation operations reflected in the weight vouchers, also verifying that the data of the model coincide with those passed to the model "Report of cane received". Check that all the weight vouchers are delivered to the awarding area and are included in the "Daily log of ground cane" model, avoiding discounts to producers. Check by sampling,that producers are discounted the tons of cane, to which the percentage of impurity is applied when they are received in the reception centers (determine the excesses of impurities). Sample the daily reports of the destemming that are sent to the Room of Control, instance responsible for the determination of the foreign matters once benefited, in order to verify the efficiency with which these centers work.Check that for each cane producer a payment file has been enabled for the liquidation, in which File all the documentation that supports the monetary - mercantile relations between the sugar company and the producers. Also verify that the payments made correspond to the nature of the operations carried out by the company. Check through selective tests,that the documents of receipt of the raw material coincide with the settlements to be paid after making the corresponding discounts established by the legislation in force in the final settlement. Review all the documentation related to the payment to the individual producers of the Credit Cooperatives and Services (CCS), as this is where the beneficiaries receive their settlement through individual bank accounts and alleged criminal acts may be committed. Check the coincidence of the data registered in the "Daily sugarcane record" model, with the number of tons of gross cane awarded from cooperatives and small farmers and received from other entities. Check if it is duly registered in the "Cane registration by growers" Model,the result of the weight of the cane carts in the batey before being ground. In addition, to know if the data of the heavy tons is provided, necessary to issue the model "Daily report of ground cane" and "Revision of cane carts", with a view to the preparation of the model "Ten-year summary of losses. Check that the tares of the railway cars, reflected in the "Record of Taras and Retaras", corresponds to the one noted in the model "Report of cane cars", it must also be taken into account when making challenges, that new changes are recorded in both models, the same procedures must be done in the reception centers. Check that in the "Ten-year summary of losses" model, the data regarding field weight and batey weight are collected,as well as the losses and / or increase that are determined in the comparison of the weight of the cane in reception centers and heavy in batey, taking into account that the determined loss indexes correspond to the procedures for its calculation, according to the ZF system. -38 Quality of the raw material -cane.Check that the standards reported represent one percent or more of the losses planned by each reception center.Check that the penalties established in Resolution V-78/97 of the MINAZ are applied. Check that reconciliations have been made between the producer and the buyer before executing the payment or settlement by the latter.according to the system ZF-38 Quality of the raw material - sugar cane. Check that the reported standards represent one percent or more of the losses planned by each reception center. Check that the penalties established in Resolution V-78 / 97 of the MINAZ. Check that the reconciliations have been made between the producer and the buyer before executing the payment or settlement by the latter.according to the system ZF-38 Quality of the raw material - sugar cane. Check that the reported standards represent one percent or more of the losses planned by each reception center. Check that the penalties established in Resolution V-78 / 97 of the MINAZ. Check that the reconciliations have been made between the producer and the buyer before executing the payment or settlement by the latter.

Control of documents and records

Review whether workers have operated or acted based on current documents.

Check the time in which the data and information records are kept in the files of the adjudication area as well as know what destination you have once the time has expired.

Verify if all the primary records to be used are available and if they are properly foliated.

Personal Resources Area

Verify if the company determined the need for resources to develop and implement, maintain and improve the control system.

Assess whether the level of competence, suitability of individuals, is adequate and whether current and future needs are guaranteed.

Check if the recruitment and recruitment policies have been applied.

Know if the company has identified the training and knowledge development needs of the personnel.

Evaluate the effectiveness of the training.

Observe if there are adequate conditions in the workplace, order and hygiene indoors and outdoors.

Verify the existence of the appropriate means and equipment to achieve the objectives with the expected efficiency (scales, work tools, modules).

Check if the company satisfies the support services (communication, transportation, calibration, material resources).

Examine whether there are mechanisms that influence people's motivation and whether they are aimed at improving quality and whether they are linked to stimulation.

Hiring

Verify if the company has contracts with each sugarcane producer and if they include the specific conditions for the delivery of the raw material.

Review and evaluate the use of contract oriented proformas.

Verify if the parties involved in the signing of the contract have foreseen the legal mechanism that allows the proper use of the contract.

Verify if the contract gives you specific treatment to apply in payment to:

• the content of foreign materials. arrears due to causes attributable to the producer or the industry. the burned cane. the cutting time and reception in the collection centers. expenses and transportation conditions. responsibility for noncompliance. total value and method of payment. place and conditions of delivery, means and resources to make the delivery.

Accounts payable and purchases

Verify that the annotations in the records for these operations are made at the time they originate and for the primary documents and that they do not have smears, amendments and erasures.

Verify that they have established the price check, calculations, documents, and sum when registering the purchase.

Check that the records and sub-majors related to these operations are enabled, authorized and squared.

Check if balance confirmations were made between customers and suppliers, if there is documentary evidence of them before making the payment.

Review the payment record. Investigate the annotations that you consider unusual.

Verify by tests that the purchases made have the corresponding contract that the same is consigned.

• Code, name and surnames, address of the parts and characters with which it is sympathetic. Quantity of assortment, quality, price or unit rate of the merchandise and amount, and the percentage of decrease. Delivery conditions specifying the place, date and means of transport, which will be used for the transfer. The procedures to be followed in case of difference in quantity or quality of what was agreed. Penalties or bonuses derived from non-compliance or over-compliance.

Of purchases

Select the period to do the detailed checks and do the following work:

• Compare the invoices made by the suppliers, quantity, type of products and prices and the notes in the purchase register. Verify that the invoices were approved by an official before payment and duly canceled when they were paid. Verify the sum of purchase records and the passing of your totals to the ledger, review the transaction or journal entry vouchers that account for these amounts and required signatures.

Examine subsequent (closing) accounts payable payments and determine if they have settled unregistered liabilities or for amounts other than those shown in the books.

Evaluation of internal control according to Resolution # 60 of 2011 of the CGR (YES / NO / NP)

Questionnaire to review and evaluate the application of the Control Environment component and its standards

The entity's management pays due attention to the internal control system for the sugarcane adjudication activity.

There is an executive organizational structure that guarantees the correct functioning of this activity during the harvest period.

There are written regulations and standards related to the subject.

Efforts have been made by the management to ensure that the entity monitors and observes ethical values ​​and the regulations of the state cadres, as well as the regulations of the workers who participate in the operational cycle of the purchase of raw material-cane.

There are mechanisms that ensure that each task oriented has constant monitoring.

The workers know the disciplinary regulations, as well as the other provisions that regulate the conduct to be followed.

Mechanisms are established to achieve the desired professional competence of the workers who participate in this activity.

Leaders, officers and workers have a level of competence (attitude, suitability) that allows them to understand the importance of developing, implementing and maintaining internal controls, records and appropriate operations.

Workers sufficiently understand the importance of internal control.

There is a training plan for the human resources that participate in this activity.

The levels of authority, responsibilities and actions that contribute to achieving the objectives of the organization are reflected in some document.

• The selection, induction, recruitment, rotation, promotion and sanction procedures are fulfilled by the Romanian resources that participate in this activity. The Director General's Resolution has been issued approving the position of weigher in the Reception Centers. The regulations and procedures governing the proper functioning of this activity.

Questionnaire to review and evaluate the application of the Risk Management and Prevention component and its regulations

The entity has identified the internal and external risks associated with achieving this objective of the organization.

In the identification process, the factors or sources that most affected them were taken into account, among which are:

• Lack of experience and knowledge of the personnel participating in the operational cycle. Calculation errors in the weight vouchers and established records. Reception of weighing of full cage carts. Certification of the Romans in the reception centers and bateyes..Errors in determining the percentage of foreign matter. Differences between field weight and batey weight within the permissible standards. Timely transportation of raw material from the reception centers to the batey or industry. Intentional changes in the quality of the cane purchased, including: cane burned by green cane, cane cut manually for more than 24 hours per cane cut in established time (-24 hours). Loss or loss of car cards, weight vouchers. Suitability,attitude and traits of nepotism between the staff representing the company (reception centers) and the sugarcane producer (computer).

The frequency and the economic impact on the company have been estimated.

The assumed strategy is in correspondence with the objectives outlined by the organization.

There is full control of the operating cycle, which allows predicting or forecasting the outcome of a situation at any given time.

The control objectives of what can happen incorrectly and what is proposed so that it does not happen are established.

The control strategy is defined to prevent, detect, prevent, correct the identified risk.

Instruments have been identified to carry out control strategies to reduce exposure to risk.

Audit questionnaire to review and evaluate the Control Activity component and its standards

The archiving of the documents is correct.

Performance evaluations are performed at the end of the harvest period.

The company's internal auditor monitors the proper functioning of the operations cycle and reports the results of the work carried out to the top management in a timely manner.

Know through the review of the weight vouchers that:

• No smudges and erasures.The calculations are done correctly.The name of the producer appears.It knows the type of cane, block, and cutting field.It takes the consecutive number of the computer and another of the weigher.Excess penalties apply of impurity in the cane that is received. The awarding area is informed of the percentages of impurity detected. The cane that the ripener received is reported. The date, the time when the cane is burned is stated in the voucher.

The Roman shooting and railway are certified by specialized and competent bodies.

The cane weighers in the Romans (field and batey) were duly selected and meet the conditions to occupy the position.

The de-stemming staff was selected and instructed on how to carry out their work.

The destemming is carried out to determine the percentage of impurity that the cane brings.

The de-stemming results are also used to deduce excess impurity from sugarcane producers.

The Control Room is informed of the impurity percentages detected daily.

The amount of impurity is determined by each reception center and these are reported to the adjudication area so that they are taken into account in the partial settlement.

Knowing through the "Estimated and Average Plan" model, whether the cultivators' link to each reception center appears according to a previously signed purchase-sale contract.

• The model is issued by the sugarcane production management. There is evidence of analysis of the behavior of the programming by tens. The reasons for the differences between the estimate and the actual obtained are reported.

It is known through the model ¨ car cards if:

• The model squares are correctly filled and their data is rectified. It can be seen if the bottom of the model is filled by the batey weigher. The batey weight is reported to check the variation against the field weight per car allowing to know the percentage of The model collects the hours of transportation from the reception center to the batey, to know the compensation to be paid for this concept.Check that the car cards contain the number of the car, the reception center and the date it is fill the car.

The following is known through the »reed carriage model»:

• Control is maintained by each reception center of the cane carts that are brought and sent to the plants, as well as the record of the field and batey weights.The model is made and issued by the weigher of each reception center. serves as the basis for accounting for the amount of cane in stock on the last day of each month as established.

Verify through the model Daily log of the cane received that:

• The model is issued by the weigher of each reception center The cane received at each reception center is assumed daily in this model. At the end of the day the weigher issues an additional model summarizing by each producer the tons of cane awarded received on the day.

The automated programs of the model ¨ cane cart reports by growers are being applied and this is interrelated with the models of the manual system.

Using the Model ¨ Report of heavy cane cars in batey check that:

• The result of the weight of the cane carts in the batey before it is milled is duly registered. The model provides the data of the heavy tons necessary to issue the model "daily report of cane cane" and "remission model of cane carts »With a view to preparing the« Ten-year summary of losses »and« Notice of Roman inspections «Verify in the Accounting Department if it checks related cars whose cane was not ground, against the« Jogger Report »Model, leaving evidence of these operations.Check whether this model is issued by the head of the batey car dumper, serving as a counterpart to the weigher.

Verify if due attention is paid to the care of considering the tare of the cars at the beginning of the harvest, making a relationship and determine the tares of those not included.

Know through the Model ¨ Jogger Report the following:

• If there is effective control over all rail cars and motor vehicles tipped during each shift, check if cars have been weighed twice or if they have not been weighed, check if the model is issued by the person in charge of the jogger shift.

Know through the Model «Daily report of ground cane ¨

• If carried manually or automatically Verify if the model collects the information related to the ground cane per shift and for each day of accumulation to date Check if details are reflected regarding the form of transportation of the cane, the averages of weights transported by type of vehicle, burnt ground cane and type of cut. Check if there is evidence of information to the director and especially to the laboratory. Verify if this model is made on the basis of the information contained in the Model »Report heavy cane cars in batey »

Learn through the Model ¨ Report of cane movements between companies ».

• If it is implemented manually or automatically, if there is control of the movement of sugarcane between companies, if the necessary data for the purposes of the award are known, as well as the determination of the rules, compliance with estimates and averages, check whether it is offered in the model, the information regarding the detail of the name and password of the growers who send cane directly and who respond to other companies.Check whether the weight of the vouchers includes the previous data, both in manual cutting and in mechanized, when it is for purchase-sale in addition to being included in the Model »Remission of cane cars».

To know through the Model »Ten-year decline summary», the following:

• If this model collects the data related to the field weight and the batey weight, as well as the variations determined from the difference between them. Verify if this model is supported by the information provided in the Model "Report of heavy cane carts in batey ”and the“ Carriage Cards ”Model. Check if the data recorded in the model are the basis for drawing up the“ Notice of Roman Inspection ”Model, in cases where an increase in the planned loss rates is determined.

Know through the "Notice of Inspection of Romana" Model.

• If the data is completed to achieve the quickest and most efficient attention to the checks and adjustments necessary to the Roman ones. If the variations detected in accordance with the revision of the Models are reported daily through the reception centers » sugarcane and ten-year summary of losses ". Verify that the employee in charge of completing this model issues the information of the Roman that requires verification and adjustments. Verify if the Romans with problems are informed to the superiors and those responsible for said verification. Verify if there is control by the sugar factory on the losses due to the indirect influence on production costs.

Get to know through the model ¨ Record of tares and challenges.

• If the tare of all the equipment is carried out before the harvest begins, if all the shooting equipment is labeled for its identification, there is evidence of the accomplishment of the challenges of the agricultural shooting equipment in a daily and surprising 10%. 100% of the equipment will be challenged on rainy days. The railway cars are repaired after having been repaired. If the workshop where these equipment are repaired, they are delivered without first repairing them. If the initial defects of cane shooting equipment. Check if there are conversion tables for each reception center, with a copy of this in the area.

Knowing through the Model "Partial liquidation of sugarcane."

• If the program is automated, if the partial liquidation is carried out on the basis of the cane purchase-sale contract, in the payment method section, if all the cane is liquidated according to the price per approved ton, that the Cane space Liquidate »the net cane is used without deducting the energy cane (as proposed in the final liquidation). If the liquidation is carried out on the basis of previous agreements between the sugar company and the producers and is communicated to the economy area by the management of the company.

Knowing through the model "Final liquidation of cane to producers".

• If the complementation of the model is automated. If each producer is liquidated by a single company (UBPC, CPA, CCS). If there is control over the compliance of the cane estimate and to evaluate the real behavior of the same. If there is any duplication in the liquidation of sugarcane. The control that is exercised over the payments of the debtors of the sugar company and the Bank. Verify the requirements of some compensatory measures of the MFP. liquidation.

Questionnaire to review and evaluate the Information and communication component and its rules

• The information is available in a timely manner, making it possible to provide a timely solution to any problem presented during the harvest period. The information that is issued allows officials and workers to fulfill their obligations and responsibilities. There are mechanisms that provide information to adequate people, with sufficient detail and at the right time. The information system is designed according to the Company's strategy and operations program for this task. There are communication channels for all the organizational assets that participate in this activity. Workers understand how their tasks affect the performance of the entity or affect other workers. Workers know the objectives of their activity and how they contribute to its achievement. Sufficient meetings,contacts or moments of exchange, where workers receive information and have the possibility to express their opinions.

Questionnaire to review and evaluate the Supervision and monitoring component and its standards

• There is a system of supervision and monitoring of internal control associated with the sugarcane adjudication process, during the harvest period. The Internal Control Committee, among its objectives, includes the supervision of the proper functioning of the internal control system and its continuous improvement. Managers periodically evaluate the effectiveness of existing internal control for this activity. A special audit is included in the internal audit plan for the issue related to the award of sugarcane to producers. The deficiencies detected are reported to the highest management of the entity. The effectiveness of the activities carried out by the Internal Auditor is evaluated.

Conclusions

The quality of the information, the accuracy in the weighing of the products, and the degree of responsibility with which they are executed, depend on the correct and adequate application of the cane price system for its quality, allowing obtaining economic results. desired as well as guarantee, among others: the stimulation of sugarcane producers to deliver more and better quality raw materials and increase the efficiency of the mill and the increase in sugar production required by the country.

Bibliography

• National Assembly of People's Power. Law 107 "Of the General Comptroller of the Republic of Cuba" Havana, Cuba, 2009. General Comptroller of the Republic of Cuba. Resolution No. 60 "Standards of the Internal Control System" Havana, Cuba, 2011.Ministry of Audit and Control: Auditor's Manual. Volume I and II, Havana, Cuba, 2003. Ministry of Finance and Prices: Resolution 235/05, Cuban Accounting Standards, Havana, Cuba, 2005. Guidelines for the economic and social policy of the party and the revolution. VI PCC Congress. April 18, 2011. CECOFIS: Internal Control, Economic Preparation Program for Tables. Reference material. Havana, Cuba, 2005. CECOFIS: Study Manuals. General Audit Diploma. Volume I and II. Editorial (MES), Havana, Cuba, 2007. Communist Party of Cuba:Economic Resolution of the V Congress of the PCC. Political Editorial. Havana, Cuba, 1997.