AA – L2 – Q35 – Internal Control Systems

List internal controls for capital and revenue expenditure on a vehicle fleet at Countrywide Retail. List tests of control for capital and revenue expenditure on a vehicle fleet at Countrywide Retail.

Question

The transport department of Countrywide Retail operates a fleet of 100 motor vehicles. Some vehicles are purchased for cash and some are leased.

(a) List the internal controls you would expect to see in place over capital and revenue expenditure on the vehicle fleet.

(b) Set out the tests of control that the auditor might perform over capital and revenue expenditure on the vehicle fleet.

Answer

(a) Authorisation procedures for disposals.

Check that new vehicles ordered were within expenditure limits, authorised, and orders were made on official order forms.
Check that cash payments/leasing deposits/payments were authorised.
Check that disposals were authorised and that there was control over sale proceeds and the recording of disposals.
Check that the fleet register is maintained by reviewing for the recording of additions, disposals, depreciation rates etc.
Check for evidence that new vehicles are inspected on delivery.
Check that vehicles are registered, insured and regularly serviced.
Check leasing files for evidence that leasing contracts are checked prior to authorisation.
Revenue expenditure
Tests should check for authorisation of expenditure over repairs, servicing, insurance and fuel consumption. Tests might include the gathering of evidence in respect of the following:
Authorisation signatures in relation to work to be done.
The allocation of repairs and servicing to the entity’s own facilities or to approved, outside garages.
Security arrangements over drawing fuel from the entity’s own pumps or control over fuel from outside sources.
Notification of accidents, investigation of circumstances and the recovery of all possible insurance claims.

(a) Capital expenditure

Check that new vehicles ordered were within expenditure limits, authorised, and orders were made on official order forms.
Check that cash payments/leasing deposits/payments were authorised.
Check that disposals were authorised and that there was control over sale proceeds and the recording of disposals.
Check that the fleet register is maintained by reviewing for the recording of additions, disposals, depreciation rates etc.
Check for evidence that new vehicles are inspected on delivery.
Check that vehicles are registered, insured and regularly serviced.
Check leasing files for evidence that leasing contracts are checked prior to authorisation.
Revenue expenditure
Tests should check for authorisation of expenditure over repairs, servicing, insurance and fuel consumption. Tests might include the gathering of evidence in respect of the following:
Authorisation signatures in relation to work to be done.
The allocation of repairs and servicing to the entity’s own facilities or to approved, outside garages.
Security arrangements over drawing fuel from the entity’s own pumps or control over fuel from outside sources.
Notification of accidents, investigation of circumstances and the recovery of all possible insurance claims.