CASE 1 (20 MARKS)

Little Lye Sdn Bhd, a registered health facility company, provides health care services for minor health-related issues. Azhar Chartered Accountancy firm has been engaged to examine the financial statement of Little Lye Sdn Bhd for the year ended 30 November 2020. For the final audit, Azhar's senior audit manager requested the internal control documentation related to the payment and receipt system from the Head of the Internal Audit Department (IAD) of Little Lye Sdn Bhd.

The review of Little Lye Sdn Bhd's internal control documentation by the Senior Audit Manager revealed that the company's purchasing department is responsible for ordering all the medical equipment, drugs, and other health accessories for all the three departments of the health facility. Purchase orders are paid by bank transfer to the vendor's bank account. The Finance Director has the mandate to authorise the payment list's total amount at the payment date. Similarly, each department has an imprest account of RM10,000, which is held in cash and kept safe for the purchase of sundry items. The company's policy requirements for sundry items are that employees request funds from their respective Heads of the Department to purchase sundry items, return excess money release to purchase sundry items, and provide a receipt for all sundry expenses. Expectantly, the sum in the imprest account and the receipt should equal the float amount of RM10,000. Though in some cases, the IAD noted discrepancies in the book balance and the float amount.

Concerning revenue (receipt), each of the department has cash till for receiving patients' payments. Patients of Little Lye Sdn Bhd can pay either in cash or using their credit card. Each department has one account clerk that maintains the revenue that comes into the department. The accounting clerk raises sales invoices, process payment, and receives payment upon receiving an advice note from the employee that provides the service. The design of the sales system is such that the system automatically generates the bill for each patient. The head of departments close the tills at the close of work each day and record and perform the reconciliation of cash receipt and credit card voucher with the total daily reading of revenue receipt generated from the till. A significant portion of Little Lye Sdn Bhd patient uses cash as a medium of payment. The head of each department keeps all cash receipt in a password locked safe. The password of the safe is only known to the departmental heads. Cash collected over while is transferred to bank via a security company who will then issue a receipt for all the sum received. The frequency and amount limit to call the security company for cash transfer is at the departmental heads' discretion. Three days after each transaction initiation, the credit card company remits all credit card transactions directly into Little Lye Sdn Bhd's bank account.

Each department cashier keeps and updates the cash book with the cash banked and the credit card vouchers' details from the daily sales sheets. Every two months, the departmental cashier reconciles the bank statement to the cash book. The Financial Controller reviews the reconciliation done by the departmental cashier and signs the statement.

REQUIRED

(a)As a Senior Audit Manager and Reviewer of Azhar Chartered Accountants, you are responsible to explain FOUR (4) internal control deficiencies in the Little Lye Sdn Bhd cash and payment system.

(8 Marks)

(b)Recommend FOUR (4) possible controls to resolve the identified internal control deficiencies based on your answer in (a).

(8 Marks)

(c)Explain TWO (2) audit objectives of cash.

(4 Marks)