Inventory Cycle – Risks and Controls

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Inventory Cycle – Risks and Controls

Apr 13, 2021

The typical phases of the Inventory Cycle for Manufacturers are as follows:

1. The ordering phase: The amount of time it takes to order and receive raw materials.

2. The production phase: The work in progress phase relates to time it takes to convert the raw material to finished goods ready for use by customer.

3. The finished goods and delivery phase: The finished goods that remain in stock and the delivery time to the customer. The inventory cycle is measured in number of days.

Masters

Risks and Control Objectives (Masters-Inventory)

	Risk	Control Objective
1	Invalid changes are made to the inventory management master file.	Only valid changes are made to the inventory management master file.
2	Invalid changes to the inventory management master file are input and processed.	All valid changes to the inventory management master file are input and processed.
3	Changes to the inventory management master file are not accurate.	Changes to the inventory management master file are accurate.
4	Changes to the inventory management master file are not promptly processed.	Changes to the inventory management master file are promptly processed.
5	Inventory management master file data is not up to date.	Inventory master file data management remain up to date.
6	System access to maintain inventory masters has not been restricted to the authorized users.	System access to maintain inventory masters has been restricted to the authorized users.

Transactions

Risks and Control Objectives (Transactions-Inventory)

	Risk	Control Objective
1	Adjustments to inventory prices or quantities are not recorded accurately.	Adjustments to inventory prices or quantities are recorded accurately.
2	Raw materials are received and accepted without valid purchase orders.	Raw materials are received and accepted only if they have valid purchase orders.
3	Raw materials received are not recorded accurately.	Raw materials received are recorded accurately.
4	Raw materials received are not recorded in system.	All raw materials received are recorded.
5	Receipts of raw materials are not recorded promptly and not in the appropriate period.	Receipts of raw materials are recorded promptly and in the appropriate period.
6	Defective raw materials are not returned promptly to suppliers.	Defective raw materials are returned promptly to suppliers.
7	Transfers of raw materials to production are not recorded accurately and are not in the appropriate period.	All transfers of raw materials to production are recorded accurately and in the appropriate period.
8	Direct and indirect expenses associated with production are not recorded accurately and are posted in an inappropriate period.	All direct and indirect expenses associated with production are recorded accurately and in the appropriate period.
9	Shipments are not recorded in the system.	All shipments are recorded.
10	Shipments are not recorded accurately.	Shipments are recorded accurately.
11	Shipments are not recorded promptly and are in an inappropriate period.	Shipments are recorded promptly and in the appropriate period.
12	Inventory is reduced when goods are not shipped and made based on unapproved customer orders.	Inventory is reduced only when goods are shipped with approved customer orders.
13	Costs of shipped inventory are not transferred from inventory to cost of sales.	Costs of shipped inventory are transferred from inventory to cost of sales.
14	Costs of shipped inventory are not accurately recorded.	Costs of shipped inventory are accurately recorded.
15	Amounts posted to cost of sales does not represent those associated with shipped inventory.	Amounts posted to cost of sales represent those associated with shipped inventory.
16	Costs of shipped inventory are not transferred from inventory to cost of sales promptly and not done in the appropriate period.	Costs of shipped inventory are transferred from inventory to cost of sales promptly and in the appropriate period.
17	System access to process inventory related transactions has not been restricted to the authorized users.	System access to process inventory related transactions has been restricted to the authorized users.