Principal, CPA, CIA, CFE
An effective internal audit function should, at a minimum, include the following quarterly procedures:
- sample cash receipts and trace to the bank statement,
- sample test cash disbursements (checks and wire transfers) and trace to the supporting documentation,
- review the payroll register to confirm that all pay rates agree with the employees’ compensation plans, taxes and benefits are calculated accurately,
- review payroll records to ensure that vacation and sick time is applied in accordance with company policy,
- analyze vehicle sales history for employee purchases, customers with multiple purchases and any other unusual trends,
- perform deal jacket testing for the following procedures:
• trace contents of the deal jacket to the general ledger,
• ensure all required documents are present and comply with
federal privacy and truth in lending regulations as well as
• ensure that state sales tax is applied properly to all sales
- review all general journal entries for reasonableness,
- trace general journal entries to the signed journal vouchers,
- sample test repair orders for proper labor rates, parts pricing, discounting, flat rate hours paid to technicians and paperwork practices,
- review parts inventory reconciliation,
- perform parts bins check periodically throughout the year,
- verify that new and used vehicle physical inventory is performed monthly and reconciled to the general ledger,
- review accounting schedules and reconciliations,
- analyze accruals and reserves and other non-scheduled balance sheet accounts, and
- review the balance sheet and income statement.
It should be noted that an internal audit function does not eliminate the risk of fraud, waste, and abuse. However, it will contribute to a culture in which management demonstrates a zero-tolerance attitude towards fraud. Additionally, studies show that the mere presence of internal audit testing serves as a deterrence of fraud.
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