2

New Era Metal Forming Industry

General Santos City

Part I
Company Profile
This part presents the background of the New Era Metal Forming Industry.
This includes the history, vision, mission and goals of the company as well as the
services offered the companys logo and its description, the organizational chart
of the company and the location map.

1.1.

History

NewEra Metal Forming Industry (NEMFI) stands as the backbone of

Oliver Doors and Builders supply. NEMFI is located where Oliver started its
humble course as a business; in the quiet habitation of General Santos City. It
acts as a command centre of all Olivers business operation all over Visayas and
Mindanao.
NewEra Metal provides Oliver all of its needs as a business ranging from raw
materials, fabricated or customized products, innovation of tools and machineries
and project consultancy to sales and marketing needs, manpower, accounting
and auditing assistance.

New Era Metal Forming Industry was established on January 08, 1989 to
create a comprehensive range of metalwork products for commercial, industrial
and residential requirements. The company positions itself as leader in steel
technology continuously improving and making products relevant to the market.

1.2 Vision, Mission and Goals

1.2.1 Vision
1. To establish sales outlets on all strategic locations all over the
Philippines
2. To improve and outsource quality products and services that is in line to
construction.
3. To create a happy environment for both employees and clients.
4. To become more competitive by upgrading skills through trainings and
research.
5. To introduce new concepts and ideas in the construction industry and
deliver it to the entrepreneurs and our direct customers.
6. To constantly improve our system and ways to strengthen our
foundation.
1.2.2 Mission

1. To become the number 1 source of doors in the Philippines by 2020

that will provide security to the homes and means of living of the
growing Filipino people.
2. To provide quality jobs and innovative business opportunities to
support potential Filipino entrepreneurs.
3. To redefine the standards of building decent and economical homes for
the Filipino. To become the leading steel cabinet provider in entire
Visayas and Mindanao, with the brand name New Era Steel Cabinet.

1.2.3 Goals
1. Provide employment opportunities and stable livelihood to
Filipinos.
- To give livelihood to hundreds of Filipinos inspired by its humble
beginnings as a welder and steel shop worker.
2. Manufacture products with Filipino pride.
- Changing the perception of Filipino quality products into reliable, highcaliber products that meet the standards of construction industry. The
thrust of manufacturing locally is our contribution to boost local economy
and to pursue the legacy of Filipino pride.
3. Team of Happy Employees.
- Foster a culture of productive, enjoyable environment for our staff who
are the frontliners of our brand of quality in the industry. By making them

function as a team, we succeed as a team. We respect our co-workers,

our neighbors and ourselves.
4. All for the Glory of God.
- Through our craftsmanship and our stand in the industry, we believed we
existed to express purpose of glorifying God. We were made to glorify
God, in every business we undertake and every product we make. With
the support and guidance of the Lord, we make great strides on the
course we set ourselves. His guidance has ensured our corporate focus
and strategic objectives we set ourselves while contributing significantly to
our nation.
1.3 Services Offered
The offered products of New Era Metal are designed specifically for
household, commercial and industrial which include the following:

1.4 Companys Logo

Figure 1
NewEra Logo
NewEra is a period of time that has a particular quality or character. The
word era also denotes the units used under a different, more arbitrary system
where time is not represented as an endless continuum with a single reference
year, but each unit starts counting from one again, as if time starts again. Which
leads over its competitors for its low-cost products that are produced straight
from its plant which is equipped with modern machineries in manufacturing and

fabricating its finest products? In addition, NewEra Metal is now equipped with
machineries to innovate and fabricate engineering designs for metalwork,
sheetworks, construction and industrial equipments to provide top quality
products to fit the present needs as well as those of the future.

1.5 Organizational Chart

To ensure

quality

service

and

proper

delegation

of

task

and

responsibilities, NewEra Metal Forming Industry also follows an organizational

chart as presented in Figure 2 in the following page.

CEO

ADMIN

ADMIN

HR

FINAN

OMG

PAYROLL
BENEFITS &
COMPENSATIO
N

CASHIE
R

ENCODE
R

COSTING

TRAINING &
DEVELOPMEN
T

A/R

RECRUITMEN
T

BUDGE
T
CHECK
RELEASIN
G OFFICER

PURCHASIN
G&
INVENTORY

MARKETI

ACCOUNTI
NG
DEPARTME

LOCAL
PURCHASER

PRODUCTI

PPE
OFFIC

SALES

CATEGO
RY
OFFICE

Syste
m

NATIONAL
PURCHASER

INVENTORY
OFFICER

TOOLING
DEPT

Repair &
Maintenanc
e

DISPATC
H

RUD

Sheet
Works

ACCTNG
STAFF

Figure 2
Organizational Structure

Steel
Cab

PAINTIN
G

FRANCHIS

MIS &
GRAPHI
CS

1.6. Duties and Responsibilities

CEO -is the highest ranking executive in a company whose main responsibilities
include developing and implementing high-level strategies, making major
corporate decisions, managing the overall operations and resources of a
company
ADMINISTRATION DEPARTMENT:
ONLINE MANAGEMENT GROUP is responsible for taking orders of the
customers.
ENCODERS the person who is responsible of putting information to the
system, updating the records and information.
COSTING is assigned for costing of products or projects for quotations.
ACCOUNTS RECEIVABLE updating the credit records of the customer and
evaluate the credit standing.
ACCOUNTING STAFF is responsible for the recording of transactions such
bookkeeping.
HUMAN RESOURCE DEPARTMENT:
PAYROLL BENEFITS AND COMPENSATION also known as the payroll officer
that prepares salaries and wages of the employees as well as the remitting the
employees contributions such as SSS, Phil Health, HDMF and other deductions.

TRAINING AND DEVELOPMENT - provides trainings and seminars for the

continuous employees development and also implement policy, good values and
working ethics.
RECRUITMENT - is responsible for hiring of new applicants and terminating of
employees.
FINANCE DEPARTMENT:
CASHIER - is a person who handles the cash register at various locations such
as the point of sale in a retail store. The most common use of the title is in the
retail industry
BUDGET - may be otherwise called as the Budget Director or Budget
Controller. The main duty of the budget officer is bringing coordination among
the line managers to execute the budgets.
CHECK RELEASING OFFICER - a person whos in charge for the payment of
materials purchase base on credit thru issuance of check and duly signed by the
CEO.
ACCOUNTING DEPARTMENT- is responsible for the preparation of financial
statements, reports and other related information base on the operation of the
company from the system.

PURCHASING AND INVENTORY DEPARTMENT:

LOCAL PURCHASER is responsible for the purchasing of materials needed
from the production, canvassing of materials from the supplier and prepares the
MRF and issuance of purchase order duly approved by the council.
NATIONAL PURCHASER is responsible for the purchasing of materials for the
entire branches materials from the entire available supplier.
INVENTORY OFFICER updating the inventory records from the warehouse.
PRODUCTION DEPARTMENT:
PPE OFFICER is responsible for the operations of the machineries and
equipment used in the production phase.
SYSTEM PLANNER who receive the Job Order and designed for the
fabrication of projects.
MARKETING DEPARTMENT:
SALES Also known as the sales agent, who prepares the customer project
specification, performs projects estimation and issues the price quotations. They
are responsible to assist the customer and provide product details.
MIS AND GRAPHICS they are expert of computers and technical support of
the system used of the company. Graphics are the person that creates design of
the products produce.

1.7 Location Map

The New Era main office that was visited by the researcher is located at
South Cotabato, Sarangani Road, Brgy. Apopong, General Santos city. This
information was from Google Map.

Figure 3
Location Map

Chapter II
Transaction Cycle Flow Chart

Chapter III
EVALUATION

Chapter III
EVALUATION

This chapter is the evaluation of the researcher from the data gathered
about the NEMFI transaction flow of operations. It will discuss further about the
strength and weakness of internal control, supplemented those findings by the
Philippine Standards on Auditing as a concrete basis to support the researchers
conclusion which will be the source for the recommendation. In order to gathered
the necessary information, the researcher perform a descriptive method of
research by using questionnaire as a tool and personal observation to identify
related issues and information to achieve the researchers objectives.
Because of the companys restrictions of disclosing the information which
limit the researcher in acquiring needed data, those information discuss above
from prior chapters are basically precise, so other pertinent information are being
formed by assumptions and predictions from figures, diagrams, charts and etc.
which will absolutely provide a reliable complete research paper.
As the researcher examined the research findings, the evaluation will
provide an idea to the New Era Metal Forming Industry management to review
their operating procedures to strengthen the internal control and maintain the
strength to improve the companys operations. Those strength and weakness
identified by the researchers will be focused on the revenue, disbursement and
payroll transaction cycle which is the main operation on the company.

Revenue Process
Strength:
Proper separation of duties in the cash handling function (where
employees of NEMFI should not have responsibility for more than one
of the cash handling components: recording of charges/billing,
collecting, depositing, and reconciling).
There is a proper separation of duties in NEMFI so that their
employees are not performing all cash handling duties. Different
employees are responsible for accepting money, making the deposit,
recording the deposit (and customer payment), and reconciling the
accounting records. Deposit records are reconciled to the daily and
monthly accounting reports to ensure deposits have been posted to the
appropriate account for the appropriate amount. To ensure that differences
are discovered, someone who does not handle cash should perform the
reconciliation. Proper separation of duties enhances accountability and
reduces the risk of possible wrongdoing.
Philippine Standard on Auditing (PSA) 315 (Redrafted), Appendix 1
paragraph 9, states that the segregation of duties is assigning different
people

the

responsibilities

of

authorizing

transactions,

recording

transactions, and maintaining the custody of assets. It is intended to

reduce the opportunities to allow any person to be in a position to both
perpetrate and conceal errors or fraud in the normal course of the
persons duties.
Cash shortages identified, analyzed, recorded, and reported.

10

Operational cash overages and shortages are recorded by NEMFI

as part of the deposit process to provide an audit trail of these
occurrences. The deposit process should identify the amount of cash
overages/shortages. Management oversight should monitor trends and
investigate to determine the underlying cause. Appropriate corrective
action should be taken to prevent further losses or errors. Any substantial
shortage or apparent theft must be reported immediately to the
management.
Cash are physically safeguarded and deposited properly intact every
day.
Cash items are extremely vulnerable to theft and should be secured
at all times with access limited to authorized personnel. Ideally, a safe
should be used for storage of cash items until deposited, so NEMFI
secure their cash collected to a safety vault before depositing to the bank.
In order to reduce the amount and risk of loss to NEMFI, funds must be
deposited every other day from the date of collection with respect to the
cut off time of the banking hours. To ensure that all receipts are posted
properly to the bank account(s), the entire amount of receipts collected is
deposited. None of the cash collected from the collection may be used
prior to deposit.
Cash boxes and registers that are unattended are always kept
under lock and key. A cash vault or safe serves as a repository for petty
cash funds and cash boxes containing collections not yet deposited,
during non-working hours and days. Cashiers, credit collectors and

11

officers who have access to the cash vault or safe, are covered by surety
bonds. The security of the vault or safe shall be the joint responsibility of
two key officers; hence, the vault or safe door should have two sets of
control combinations. This means one officer cannot gain access to the
steel repositorys content without the others knowledge.
(http://www.brighthub.com/office/finance/articles/119173.aspx)
Weakness:
Checks are not properly endorsed "for deposit only" to NEMFI.
Checks should be endorsed immediately upon receipt "for deposit
only" to NEMFI to prevent diversion and unauthorized cashing. NEMFI
receive checks in payments of accounts, not all checks received are
properly endorsed for deposit only which might be the result of fraud.
A restrictive endorsement is made by writing For deposit only on
the first line of the back of the check and then signing your name
underneath. A check with a restrictive endorsement can only be
deposited into an account in your name. Some financial institutions also
prefer that you write your account number on the check to make it easier
to process. However, others see this as a security risk, and ask you not to
write

your

account

number

on

the

check.

(https://www.balancetrack.org/checking/ch2.html)
The

Finance

Department

is

the

one

who

prepares

the

bank

reconciliation.
Base on the information gathered by the researcher, Finance
Department is responsible for handling of cash and the one who prepares
the bank reconciliation which instead it is being performed by the
Accounting Department. There is possibility of circumvention of internal

12

control through the collusion among employees and overriding the

internal control which result to material misstatement of financial
information.
The monthly bank statement is reconciled against the general
ledgers cash in bank balance by a staff member who is not involved in
handling cash transactions or issuance of check disbursements. The
exercise will disclose if there are bank transactions not yet recorded on
the books or if there are errors or irregularities in the management of
cash deposits and check issuances. All canceled checks shall be filed
intact and in numerical order, including those that have been voided or
nullified. (http://www.brighthub.com/office/finance/articles/119173.aspx)
Philippine Standard on Auditing (PSA) 315 (Redrafted)
Appendixes

paragraph

management responsibility is to

11

states

establish

control on an ongoing basis. Managements

that,
and

an

important

maintain

monitoring

of

internal
controls

includes considering whether they are operating as intended and that

they are modified as appropriate for

changes

in

conditions.

Monitoring of controls may include activities such

as managements

review of whether bank reconciliations are being

prepared

timely basis, internal auditors evaluation of sales

personnels

compliance with the entitys policies on terms of sales

on

contracts,

and a legal departments oversight of compliance with the entitys

ethical or business practice policies. Monitoring is done also to

13

ensure that controls continue to operate effectively over time.

For

example, if the timeliness and accuracy of bank reconciliations

are not

monitored, personnel are likely to stop preparing them.

Disbursement Process:
Strength
Assign to separate people the duties of material requisition

approving

purchases and reconciling transactions.

- There is proper assignment of duties in NEMFI from the
production who request materials from the inventory personnel who verify
the request materials and to the purchaser in preparing the purchase
order. One of the key concepts in placing internal controls over a
companys assets is segregation of duties. Segregation of duties serves
two key purposes: It ensures that there is oversight and review to catch
errors; it helps to prevent fraud or theft because it requires two people to
collude in order to hide a transaction. Segregation of duties involves
separating three main functions and having them conducted by different
employees: Having custody of assets, being able to authorize the use of
assets and recordkeeping of assets
Philippine Standard on Auditing (PSA) 315 (Redrafted), Appendix
1, paragraph 2E and 2F states that, establishing a relevant organizational
structure includes considering key areas of authority and responsibility
and appropriate lines of reporting. The appropriateness of an entitys
organizational structure depends, in part, on its size and the nature of its

14

activities. The assignment of authority and responsibility may include

policies relating to appropriate business practices, knowledge and
experience of key personnel, and resources provided for carrying out
duties.

They ensure that disbursements are supported by appropriate

documentation

which

includes

MRF,

purchase

authorization,

invoices, and delivery receipt/evidence that goods were received

prior to payment.
- Source document serves as an audit trail when auditor performs
an audit. Basically, NEMFI provides its every necessary document in all
their operations. Source documents may include the following but not
limited to material requisition form, purchase order, delivery receipts,
charge invoice, disbursement voucher and billings.
Stated in Philippine Standard on Auditing (PSA) 500
(Redrafted) paragraph A14, that Inspection involves examining records or
documents, whether internal or external, in paper form, electronic form, or
other media, or a physical examination of an asset. Inspection of records
and documents provides audit evidence of varying degrees of reliability,
depending on their nature and source and, in the case of internal records
and documents, on the effectiveness of the controls over their production.

NEMFI didnt use signature stamps to authorize transactions.

15

- To verify the authenticity of approval by each department, they are

obliged to review the documents and signed manually by their hand a
signature of their name that the transactions or request are approved by
the designated personnel. This is to eliminate the forging of signature that
leads to unauthorized approval of transaction. To increase the internal
control in the purchasing of inventory materials this has a high risk of theft
and loss.
Stated in Philippine Standard on Auditing (PSA) 500
(Redrafted), Paragraph A6 which states that, audit evidence is necessary
to support the auditors opinion and report. It is cumulative in nature and is
primarily obtained from audit procedures performed during the course of
the audit. It may, however, also include information obtained from other
sources such as previous audits (provided the auditor has determined
whether changes have occurred since the previous audit that may affect
its relevance to the current audit) 6 or a firms quality control procedures
for client acceptance and continuance. In addition to other sources inside
and outside the entity, the entitys accounting records are an important
source of audit evidence.

Weakness:
There must be a Receiving Department to be established which will
perform the duty of receiving of inventory materials.

16

- Based on the transaction flow chart of NEMFI, the requisition of

materials starts from the Production Department and the receiving of
purchase materials is performed by the latter. There is a high risk of fraud
may happen depending upon the declaration of the inventory purchase
and received.

PAYROLL PROCESS
Strengths
The NEMFI used automated AUB Time Management System.
They generate a payroll report from the system that identifies active
employees, and confirm that these employees actually work for the
company. Prepares a report to identify terminated employees, and ensure
that they are not getting paid. This helps NEMFI recognize ghost or
phantom employees, which is a type of payroll fraud. The ghost employee
may be a terminated employee who has not been taken out of the payroll
system or a fictitious employee who does not work for the company.
Automated payroll systems minimize errors in computing the salaries and
wages from the records of the employee when logging in and out which
increase the accuracy of payroll processing.
Stated in Philippine Standard on Auditing 500 (Redrafted),
paragraph A5, appropriateness is the measure of the quality of audit
evidence; that is, its relevance and its reliability in providing support for the
conclusions on which the auditors opinion is based. The reliability of

17

evidence is influenced by its source and by its nature, and is dependent

on the individual circumstances under which it is obtained.

Payroll are directly deposited to each employees personal payroll

bank

accounts.
- A systematic transferring of funds to the banks from the
salaries and wages of the employees. They use transferring slip instead
of depositing cash which prevent the payroll officer from theft or in case of
unintended loss of cash due to miscarriage. It is considered that NEMFI
has a high internal control with regards to the disbursement of
employees salaries and wages.
Because many payroll transactions involve electronic fund transfer
(EFT), it provides an added layer of security for the companys other bank
and savings accounts. Only specific people have access to the payroll
account and it could be set up in such a way that funds transfer directly
from the main account to the payroll account only as needed. The prime
reason for having a separate payroll account is for internal controls. A
payroll bank account separates funds as well as those who have access
to payroll funds. A person reconciling accounts payable isn't a good
candidate for handling payroll. In accounting, to protect both company
and employee, duties and access to certain areas are kept separate for
control and security. Setting permissions and privileges based upon

18

duties is inherent in the accounting structure and reduces error and

potential theft or embezzlement.
(http://smallbusiness.chron.com/advantages-using-separate-payrollbanking-account-21006.html)
Weakness:
Instead of using the voucher system, they prefer to use transfer slip.
- Disbursement voucher is considered also a source document that
an auditor need in order to follow an audit trail.
A voucher system can be highly effective in helping a small
business manage and maintain cash controls. Vouchers not only create
an efficient system for making cash payments but also provide for critical
aspects

of

internal

control,

including

segregation

of

duties,

documentation, division of authority and limiting access to cash. A

complete voucher system encompasses payments made from both petty
cash and accounts receivable by the business to a third party.
(http://yourbusiness.azcentral.com/voucher-system-control-28662.html)

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CHAPTER IV
RECOMMENDATION

Part IV
RECOMMENDATION
The following recommendation is based from the evaluation of the
researcher regarding the revenue and collection, purchase and disbursement
and payroll processes of New Era Metal Forming Industry (NEMFI). From the
weaknesses mentioned the researcher recommends that the company may take
into consideration in order to improve its internal control as well as the company
operations.

Revenue Process:

20

The sales and collections cycle in a business refers to the set of

processes that begin when a customer purchases goods or services and ends
when the company receives complete payment for the purchase. As part of the
year-end audit of a company's financial statements, external accountants test
sales transactions and the internal controls over those transactions to ensure that
the company is not materially misstating its revenues or accounts receivable.
Base on the evaluation on the prior chapter, the researcher recommends
focusing on the weakness on the revenue and collection which the researcher
identified and that NEMFI would suggest their client or customer to endorsed
restrictively the check in payment of outstanding accounts balances so as to
ensure the intact collection of payment as well as the intact amount to be
deposited to the bank. Also, although there was a proper segregation of duties in
handling of cash, the preparation of bank reconciliation must be assigned to the
Accounting Department to prevent an error which results to material
misstatement. The strength mention from the company should be maintain to
developed a high internal control and minimize fraudulent acts related to revenue
recognition and collection process.

Disbursement Process:
- The objectives of internal controls for cash disbursements are to ensure
that cash is disbursed only upon proper authorization of management, for valid
business purposes, and that all disbursements are properly recorded. Grantees

21

will find this resource useful when maintaining internal control for cash
disbursements.
Base on the transaction cycle of disbursement, they have a minimal
problem on related issue on the purchasing of materials and the payment for the
payables. Despite the fact that the internal control is high, the researchers
suggest the if possible to assigned a personnel who is in charge on the receiving
of purchases instead of establishing another department to minimize the cost and
other expenditures which will possibly exceed the benefits from the company.
This could be a remedy for the weakness found on the inventory to eliminate the
occurrence or happening of inventory loss or theft.

Payroll Process:
Internal control procedures, the practices and guidelines a business
follows to protect its resources, are especially important when recording,
preparing and distributing the payroll. Having proper procedures in place protects
the company's assets by reducing the risk of fraud and eliminating errors.
The most effective recommendation to this area is to maintain the level of
internal control which the company possessed. Voucher system may be relevant
as a source document for the auditor but there is a low risk that the fund has
potential for theft and loss because of the systematic procedures of transferring
funds to the banks.