THE EVALUATION OF INTERNAL CONTROL OVER INVENTORY AT PT SARMAR JAYA CEMERLANG (A CASE STUDY)

Abstract

PT Sarmar Jaya Cemerlang is a plantation company that produces nutmeg oil. There are for stages in order to make nutmeg oil, picking, drying, storing, and processing. Because it depends on the natural product, so the company has to ensure the control of making the nutmeg oil. To fulfill the company’s expectations, the company needs an appropriate internal control system on producing inventories to prevent problems occur in the process. This research is focusing on the internal control of nutmeg inventories especially in control activities. The researcher uses qualitative method and in order to gather and process the data, researcher uses literature review and field research. In the field research, researcher used three types of evidence, which are inquiry, observation, and documentation. As the results, researcher found that there is best practice and several weaknesses in the internal control of inventory at the company. The best practice is that the company has written organization structure and job description which makes the employees and farmers know their authority and responsibility. The weaknesses, first, the company does not use first in first out physically and the storing method because the company does not consider it. It will make the reduction of nutmeg quality. Second, farmers do not make any documentation of the nutmeg fruits because there is no calculation for nutmeg fruits as inventory. The action will give opportunity for farmers to do inappropriate actions. Third, there is no standard operating procedure because the company only assumes that the farmers and employees can solve any problems. The unclear procedure will be resulted on such action. Fourth, dried nutmegs are not recorded as inventory because the policy of the company say it that way. It will understate their assets. Plus, there is no documentation for storing and taking dried nutmegs because the company does not record it as inventories. In order to overcome the weaknesses in this internal control over inventory, researcher proposes some recommendations for the company. the company should use sack system. The company should weight and providing area for picked nutmeg fruits. Besides, to make sure the operation is based on the procedure, the company should make standard operating procedure. The total inventory should include the value of dried nutmegs. In addition, the company should make documentation in storing and taking out the dried nutmegs.