AMRO Ltd. is a manufacturing and trading Company of leather goods since last 10 years. You are the internal auditor of the company for the year…

(a) Internal Check System: The general condition pertaining to the internal check system may be summarized as under: (i) no single person should have complete control over any important aspect of the business operation. Every employee's action should come under the review of another person. (ii) Staff duties should be rotated from time to time so that members do not perform the same function for a considerable length of time. (iii) Every member of the staff should be encouraged to go on leave at least once a year. (iv) Persons having physical custody of assets must not be permitted to have access to the books of accounts. (v) There should exist an accounting control in respect of each class of assets, in addition, there should be periodical inspection so as to establish their physical condition. (vi) Mechanical devices should be used, wherever practicable, to prevent loss or misappropriation of cash. (vii) Budgetary control should be exercised, and wide deviations observed should be reconciled. (viii) For inventory taking, at the close of the year, trading activities should, if possible be suspended, and it should be done by staff belonging to several sections of the organization. (ix) The financial and administrative powers should be distributed very judiciously among different officers and the manner in which those are actually exercised should be reviewed periodically. (x) Procedures should be laid down for periodical verification and testing of different sections of accounting records to ensure that they are accurate. (b) Yes, in the given situation general conditions pertaining to the internal check system are violated as follows: (1) The head of procurement, Mr. Amit, having complete control over the procurement process without oversight violates the principle that no single person should control any important aspect of the business operation. (2) The lack of staff rotation for over five years violates the principle that staff duties should be rotated periodically to prevent any single person from performing the same function for too long. (3) Allowing Mr. Gupta, the store manager, to maintain inventory records while also having custody of the inventory violates the principle that those with physical custody of assets should not have access to accounting records.