10.2 Check Policy Compliance

From Manual Design to Compliance Testing

After PC 1.1 produces (or updates) the internal control manual, Performance Criterion 1.2 requires that compliance is checked and validated in accordance with the internal control system. In plain language: take the written rules, compare them to what people actually did, and decide whether the firm is following its own controls.

This is not a full CPA-style external audit. It is a bookkeeper-level compliance review: practical, document-based, and focused on the policies in the firm’s IC system. On the TESDA work-related project, you may be handed a packet of sample transactions, OR stubs, approved/unapproved vouchers, timesheets, and purchase documents, then asked to validate compliance and note exceptions.

TR Range of Variables (policy compliance): The Training Regulations elaborate policy compliance to include, but not be limited to, sales policy and HR policies. In industry practice and assessment packaging, candidates are also expected to test cash handling and purchasing controls because those cycles sit at the center of MSME fraud and error risk and are inseparable from a working IC system.

What “Check and Validate” Means

Validation matters. Checking only the cashier’s verbal claim (“I always issue ORs”) is weak. Checking OR stubs, daily cash summary, and CRJ together is strong.

Policy Areas You Must Be Ready to Test

1) Sales policy

Sales policy typically covers pricing, discounts, credit limits, returns, and documentation of sales/collections.

Common policy clauses

• Cash sales require Official Receipts from a controlled OR series
• Credit sales require approved customer credit and Sales Invoice
• Discounts beyond standard rates need owner approval
• Sales returns need a credit memo / return slip and inventory re-entry evidence

How to check compliance

1. Select a sample of sales days or invoice/OR numbers
2. Trace each sale to the required document
3. Recalculate discounts and match to price list/policy
4. For credit sales, verify credit approval exists before shipment/invoice date
5. Flag missing numbers in the OR/SI sequence (possible unrecorded sales)

Example exception: OR Nos. 1051–1060 are present, but 1057 is missing with no VOID stub. Sales policy on pre-numbered ORs is non-compliant until explained and documented.

2) HR policies

HR policies in the bookkeeping IC context usually touch hiring authorization, attendance, payroll rates, overtime, advances, and confidentiality of payroll data—not the full Labor Code practice of an HR specialist.

Typical clauses to test

• New employees appear on payroll only after written hiring authorization
• Pay rates match authorized rate sheets
• Overtime has prior approval and supporting time records
• Payroll disbursements match the approved payroll register
• Employee cash advances follow max limits and recovery schedules

How to check compliance

• Match payroll register names to authorized employee list
• Sample overtime: compare approved OT form → time card → payroll computation
• Verify payroll checks/payouts equal net pay totals
• Note any “ghost” names, unauthorized rate changes, or OT without approval

3) Cash handling

Cash handling policies protect collections, deposits, petty cash, and disbursements.

High-yield tests

Worked mini-check (collections): Manual says undeposited cash must be deposited next banking day. Sample Week of June 2–6, 2026 shows June 3 collections of ₱48,200 deposited only on June 6 with no holiday explanation. Finding: delayed deposit — non-compliant with cash handling policy; risk of loss and understatement timing errors.

4) Purchasing

Purchasing policies control ordering, receiving, and paying vendors.

Classic three-way match (scaled for MSMEs)

1. Approved Purchase Order (what was ordered)
2. Receiving report / delivery receipt (what arrived)
3. Supplier invoice (what is billed)

Pay only when these agree—or document an approved exception.

Compliance sampling approach

• Sample 5–10 vendor payments from the cash payments journal or CV file
• For each, verify PO approval threshold was respected
• Confirm receiving evidence before payment date
• Check that invoice amounts match PO/receiving quantities and prices
• Flag payments made from cash collections without voucher support (major red flag)

Walkthrough vs Sampling: Two Assessment Techniques

Walkthrough

A walkthrough follows one transaction of each type from start to finish to confirm you understand the designed process and that key controls exist as described.

Example sales walkthrough:

1. Customer order received
2. Credit check / cash collection
3. SI or OR issued
4. Goods released
5. Entry in sales journal / CRJ
6. Deposit / AR update
7. Supervisory review mark

If the walkthrough shows the bookkeeper both releases goods and records the sale with no second person, you have already found a segregation weakness—even before sampling.

Sampling

Sampling tests whether multiple transactions obeyed the policy over a period. You do not need statistical audit formulas for NC III; you need a defensible, documented sample.

Record for each sample item: document ID, date, amount (₱), policy clause, result (C / PC / NC), remarks.

Building Assessment-Ready Evidence

Assessors want to see how you checked, not only a one-line opinion. Strong working papers include:

1. Policy excerpt copied or referenced from the IC manual
2. Population definition (e.g., all CRJ entries May 2026)
3. Sample list with peso amounts
4. Procedures performed (trace, recalculate, inspect approval)
5. Exceptions with document numbers
6. Conclusion per policy area

Scenario: Mixed findings

Scenario — Laguna Parts Trading. Sales OR sequence is complete and deposits match collections (sales/cash compliant). Purchasing shows three payments over ₱15,000 without owner-approved POs even though the manual requires approval at ₱10,000 (purchasing non-compliant). HR OT forms are present for sampled overtime (HR compliant). Your PC 1.2 output should not say “controls are fine overall” and stop—itemize by policy area so Element 2 can report clearly.

Compliance Status Language

Use consistent labels:

• Compliant — sample items met the policy with no significant exception
• Partially compliant — mostly met, but isolated exceptions need management attention
• Non-compliant — systematic or high-risk breaches (missing approvals, broken segregation, missing document series)

Avoid moral judgments (“staff are dishonest”). Stick to evidence: “CV-214 for ₱22,500 paid on 12 June 2026 has no approved PO; violates Purchasing Policy §3.2.”

Common Traps on PC 1.2

Closing Checkpoint

Before you move to Element 2, confirm you can answer for each assigned policy (sales, HR, cash handling, purchasing): What rule did I test? What evidence did I see? What is the compliance status? Those three answers are the raw material of a policy compliance report.