CABAHUG & RIVERA LLP

202 Junquera St., Cebu City 6000

Tel: (632) 8561 0709
Fax: (632) 6839 0975
cabri.com/ph
 

September 23, 2020

The Board of Directors

Forever You!, Inc.

FYI Building

Osmeña Boulevard

Cebu City 6000

Re: Audit of 2019 Financial Statements

Dear Members of the Board:

We conducted this audit with the goal of providing a reasonable assurance that the financial statements were free of
material misstatements. Please note that our audit was not designed for the purpose of identifying matters to
communicate. Hence, our audit would not identify all matters that may be of interest to you, and it is inappropriate to
conclude that no such matters exist.

During the course of our audit of Forever You!, Inc. for the period ended December 31, 2019, we identified the
following deficiencies in internal control that, in our opinion, are significant. A significant deficiency or combination of
deficiencies in internal control is one that, in our professional judgment, is of sufficient importance to merit the
attention of those charged with governance.

Kindly refer to the report below for the list of deficiencies that we have identified, including the implications of each
and our recommendations to resolve the deficiencies.

I. The level of inventory is solely determined by the purchasing manager without considering the opinions of the
store and sales manager. The purchasing manager may not be adequately knowledgeable of the market condition
surrounding each store which can result into procurement of goods not fit for the customers’ demands.
 
We recommend that the purchasing manager should attain a deep understanding on the market conditions of each
store and set the inventory levels only after having a discussion with the store and sales manager.
 
II. The purchasing director is the only one who is tasked to review and authorize all of the country orders which
are specified by regions. These aggregated orders may lack the necessary details to be examined in order to
come up with a proper assessment.
 
We recommend that a review and authorization of the orders should be made in the country and regional
levels before they are passed on to the purchasing director. The purchasing director should also connect with
the purchasing managers to have a deeper picture of each store’s market condition.
 
III. Goods are re-ordered by store managers as they are sold, hence prompting store managers to check
inventory levels from time to time. If re-orders are done late, out of stock cases might arise because it takes
four weeks for goods to be received in the store.
 
We recommend using a system or software that automatically updates inventory levels and notifies when it
reaches the reorder point.
 
IV. If a customer demand is currently unavailable in a particular store, it is not allowed to order it from other
branches. Instead, customers are told to contact other branches through the telephone number and company
website provided. This can result in losing the potential sale because the process could be very inconvenient
for the customer.
 
We recommend allowing branch-to-branch transfer of goods especially when a particular branch still has
enough supply of the goods demanded. This could help minimize out of stock problems and maximize sales.
 
V. Only the quantities of the goods received are checked by the sales assistant and not the qualities. This
might result in acceptance of wrong or damaged goods.
 
We recommend that sales assistants should verify the quantity, quality and other specifications of the goods
before accepting them from the supplier.

VI. Sales assistants are responsible in checking the receipt of goods against the supplier’s delivery note and
also the one who produces the GRN. However, GRN may possibly consist errors, mistakes and omissions
during the process of creating the note, if the said assistant lacked the sufficient experience on the job. This
can affect the processing of payment as the amount may be under or overcalculated.

We recommend to solve this deficiency by placing the appropriate and knowledgeable personnel who will be
the one responsible to produce the GRN using the information from the supplier.

VII. The checking of quantities of the goods received by the sales assistant is only based on the supplier’s
delivery notes without matching the transaction to the purchase order itself. This action may cause an
overpayment in which the company pays for excessive goods not included in the order.

We recommend that a copy of the authorized purchase order should be sent to the receiving department so
the sales assistant can use it as an additional reference in checking the goods. The said document can also be
used as a reliable information for the making of GRN.
 
VIII. Manual process was used in matching the purchase invoice against the large quantity of GRN received
from the other branches of the stores. Manual process is time consuming and it increases the possibility of
errors, resulting into some invoices being overlooked.

We recommend that instead of manual processing, electronic purchasing system should be used in placing the
GRN to automatically match it with its corresponding purchase order and then to the purchase invoice once it
is received from the supplier for payment request.
 
This communication is prepared solely for the information and use of management and the Board of Directors
of Forever You!, Inc. and is not intended to be and should not be used by anyone not specified. The use of this
communication by a third party shall not hold us responsible.

Yours Truly,

Cabahug, Eugel Mae &

Rivera, Jireh Mae LLP