Questionnaire for Reviewing Internal Control System

During the GST Audit, one of the key tasks of the GST auditor is to thoroughly check and examine the internal control system in an organization. The GST Audit Manual prescribed by the government of India and the GST Council have clearly stated questionnaire to be asked while reviewing the internal control methods used in the company. The questionnaire is as followed-

  • Purchases related to Inward Supplies: The auditor uses the following questions while reviewing internal control in the purchases related to inward supplies are-
  1. Whether the purchases have been centralized or de-centralized properly. An in-depth study of the purchases is required in cases where all the purchases have been authorized by some of the key persons in the organization such as Managing Director or owner.
  2. Whether all the purchases carried on in the company have been made only after issuing the purchase order. Whether issued purchase order have different series. If there are any cases or situations where purchases have been done without issuing a purchase order.
  3. Is there a system for the authorized Vendor list? In case a system is absent, then what method or procedure is used for the approval of a particular vendor? Cases and incidences where substantial purchases have been done through vendors who are unauthorized.
  4. At which stage the Input Tax Credit was availed.
  5. Whether any set procedures were followed for the inward supplies that have been rejected.
  6. Whether the company separately stores the rejected inward supplies. What accounting system is used for them?
  7. Whether there are any items that have been supplied by the customer for free of cost.
  8. Whether debit notes have been issued for the purchase returns.
  9. Whether there is an ITC reversal done on monthly basis or on basis of invoices, related to the received short quantities or rejected inward supplies.
  • Outward Supplies: In the Reviewing of internal control process, the auditor has to check the following-
  1. What is marketing pattern? Is the marketing done through stocks, depot or directly by the registered person?
  2. How many series of outward supply and Goods and Services Tax invoices have been generated?
  3. Who authorizes the outward supplies dispatch?
  4. Whether any charges for erection or commissioning were collected?
  5. Whether Tax invoices have been issued for the composite supply of goods and erection & Commissioning or both?
  6. Whether the recipients have been supplied with any materials at free of cost?
  7. Whether any type of amount for advertisement, marketing expenses, handling charges, royalty, Packing Charges, Warranty, services provided after sales and Insurance received from recipient in any manner?
  8. Whether commercial and outward supply invoices are same or different from each other?
  9. Who is authorized for fixing the price of outward supplies and whether circulars for any printed price have been issued?
  10. Who has been authorized for making supplementary outward supply invoices or debit note for price variation and/or additional recoveries?
  11. Whether the figures of outward supply filed in GSTR1 are properly tallying with the registered person’s maintained records?
  12. Whether on return by the recipient, any goods were received for repair?
  13. What types of discounts were provided or given and how are they have been accounted for in the relevant records.
  14. Whether the accounts of the recipient have been debited with the gross amount or the net amount of invoice?
  • Stores: The questions related to the store management to be asked during reviewing the internal control system of organization are-
  1. What is the frequency of stock taking of all the items? How the basic difference between the two is accounted for? What related reports are prepared?
  2. What is the procedure for filling claim for inward supplies covered by insurance? Whether such inward supplies have been entered in the store register or whether these have been shown in separate account. Whether the company has prepared any register or report for all such claims.
  3. What are the inward supplies records maintained and sent out for Job Work? Whether job work is adjusted properly? Whether scrap is received back?
  4. How the in the books of accounts reflect the defective or damaged inward supplies?
  • Tax Accounting: While reviewing the internal control process, these questions related to taxation and accounting have to be asked-
  1. Whether separate entries were shown for the GST paid on the inward supplies in the purchase account?
  2. Whether full value of the inward supplies invoices have been entered. Whether credit notes and sales return invoices have been prepared for the rejected or stock quantity of goods.
  3. Whether separate entries were made in the outward supply account for the GST paid on outward supplies.
  4. Whether GST payable on outward supplies made and shown separately in outward supply account?
  5. Whether deducted GST in case of capital goods have been written off from the expenditure account fully.
  6. What is the system followed for comparing the GST liabilities with the GST financial records. Whether any reconciliation statements have been made for any differences between the both.
  • Job Work: The questions that the auditor has to ask related to the job work while reviewing the internal control are as followed-
  1. Whether there has been determination of any input/output ratio for sending the input for job work.
  2. Maintaining the records for sending inputs for the job work. Whether these record properly show the sent inputs quantity.
  3. Whether periodic statements or monthly statements have been prepared for the job work each time. Whether the taken corrective actions for the accuracy of the statement and its level have been verified.
  4. Whether the finished goods from the premises of the job workers have been supplied after job work.
  5. Whether outward supplies have been made after transferred them to any other place from the premises of the job workers
  6. Whether the inward supplies processed after converting them into outward supplies have been sold directly by the principal. Whether the same have been made from the job worker’s premises?

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.