ERM COSO framework

ERM COSO framework

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ERM COSO framework The COSO framework of internal controls is practiced within companies around the world. The objectives of the COSO framework are closely related to its five components. For this week’s activity, please discuss these five components of the COSO framework. Be sure to include each components’ impact on each of the COSO framework objectives. What do you feel an auditor would most be concerned with during an IT audit? Lastly, discuss suggestions for integrating COSO framework compliance into a company in which you are familiar. 

978-1-5386-6589-3/18/$31.00 ©2018 IEEE

COSO Framework for Warehouse Management

Internal Control Evaluation: Enabling Smart

Warehouse Systems

Ratna Sari
Information Systems Department,

School of Information Systems,

Bina Nusantara University,

Jakarta 11480, Indonesia

Computer Science Department, BINUS

Graduate Program – Doctor of

Computer Science, Bina Nusantara

University, Jakarta, Indonesia 11480

Raymond Kosala
Computer Science Department, BINUS

Graduate Program – Doctor of

Computer Science, Bina Nusantara

University, Jakarta, Indonesia 11480

Benny Ranti
Faculty of Computer Science,

Universitas Indonesia,

Depok 16424, Indonesia

Suhono Harso Supangkat
Sekolah Teknik Elektro dan


Institut Teknologi Bandung,

Bandung, Indonesia

Abstract— There are many ways for the company to

improve its performance, one of them is optimizing the

internal control of the company’s activities. Internal

control is intended to evaluate company activities and

operations. This study took a case study at PT. XYZ

related to the evaluation of internal controls in

warehouse management using the COSO framework

approach. From 5 elements and 17 Principle, study

found, there are 2 principles that have not been applied

in PT. XYZ; enforced accountability and control over

technology. The recommendation given is system

improvement as intended the inventory system to be

more accurate and reliable to enable smart warehouse

systems inside organizations.

Keywords: internal control, COSO framework, warehouse

management, evaluation


There are many ways for the company to improve its

performance, one of them is optimizing the internal control

of the company’s activities and also implementation of the

new system to increase efficiency and effectiveness in all

business process activities [4]. Internal control is a process

undertaken by company management to assist the

achievement of operations, reporting and in accordance with

the compliance [9]. The internal optimization is needed

because it describes the overall rules and procedures used by

management to improve management effectiveness in the

business and identify lack of internal control in the business

processes that it can make the organization vulnerable and

possible risks occurs, eventually all these risks can have an

impact on a company’s financial performance [2].

In warehouse management, internal controls devoted to

optimizing the functions, including the process of finished

goods inventory, and it useful to organize the distribution

process to the market. According to Rita Makumbi (2013)

[6] the function of the warehouse management is one of a

service that can help the company’s operational functions

run smoothly as a store of raw material, unfinished goods,

until stock the finished goods or inventory. One of the

problem in warehouse management is high production of

manufacture, company must pay attention to the process

from the beginning of production, to the process of goods

delivery, and inventory calculations.

One of famous approach for warehouse management

control is using COSO framework. COSO framework is one

of tools to maintain the effectiveness and efficiency of

inventory process in organizations [12]. COSO framework

also known as integrated framework that can help company

to:(1) warehouse operation process more effective and

efficient; (2) accountable and reliable of inventory stock

calculation; (3) compliances with government law and

regulations [8].

This research took case study from PT. XYZ as one of

company who implemented the warehouse management.

Based on observing in PT. XYZ, we found that company

still difficulty to balance the production and inventory

storage in warehouse which impact to lack of inventory



Early definition of internal control is the plan of

organization to coordinate methods and measure all the

element in process business safe, accurate, reliable,

encourage the prescribed managerial policies [10]. Another

definition of internal control is philosophy of risk alignment,

risk management, ethics, policies, resources, tasks and

responsibilities according to organizational capacity to

manage risk [12].

In warehousing planning and control, company produces

various product, company needs good control over its

inventory which two main objectives such as (1) warehouse

inventory planning and control; (2) reliable inventory report

to support financial statements [11]

Related to COSO framework, basic concepts of internal

control are:(a) internal control is an integrated process and a

tool that can be used to achieve organization goals; (b)

Internal control is not only limited to policies and

procedures but should include all levels within the

organization; (c) Internal control can only provide a

reasonable guarantee, not an absolute guarantee, because

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there are limitations that can obstruct the absoluteness of the

internal control itself; (d) Internal Control will ultimately

result in achievement of goals in categories of financial

statements, compliance, operational activities [13].

Using COSO framework for evaluating the internal

control helps company to calculate the probability of risk

which can occur adversely [2]. However COSO can

maintain and support the company to maintain risk which

known can give positive feedback nor negative [12].

COSO framework is consist of five: (1) Control

environment; (2) Risk assessment; (3) Control activities; (4)

Information & Communication; (5) Monitoring activities


Figure 1. The COSO Cube [3]

Table 1. Component of Internal Control in COSO [1]


With COSO framework approach this research starting

with process business analysis as preliminary measurement

and basic analysis in PT. XYZ then continue with internal

control evaluation as follow:

Figure 2. The Research Flow for Warehouse Management

Evaluation in PT. XYZ

For detail performed as follows:

1) Meeting related to explaining flow of evaluation

2) Conducting interviews with stakeholders such as IS
team leader operations, IS analyst, supervisor factory

logistics, team leader factory logistics, warehouse staff,

forklift drivers, internal control, and IPG (Information

Protection & Governance) to observe and also learn

detail about how the business process run, systems

used and also the company’s internal control


3) Documents checking related to the process of the
finished goods inventory.

4) Doing directly observations in order to learn and
understand more clearly about the working procedures

associated with the process of finished goods



Based on the results of research and interviews as

part of internal control evaluation, here are the results:
Based on the result above, total of 17 principles from

COSO framework known as 2 principles is in red area for
medium and high risk area, 6 principles is in yellow area
which “not fully adapted” for medium and high risk area
and green area for total 9 principles from low and high
risk area.

For the red area, we conducted deeply investigation
as high level evaluation for give the best
recommendation. We found incorrect procedure during
the process of inventory cycle in warehouse, due to goods
receipt in warehouse is not loaded to the shelf directly
and it put to wrong shelf. The impact, a lot of expired
inventory due to incorrect process in goods issue. The
inventory are stored in a multilevel shelf. During the
good issue and shipment for delivery, it was taken

Another issued for the red area is control activities for
control over technology. PT. XYZ not only use
warehouse management but also already used one of the
systems like robot machine systems for put the inventory
during the goods receipt. The process starts when
shipping case sent by the conveyor and the systems will
create into one pallet by robot machine then the next step
is data will be stored in the robot database, but once in
while systems went down, there is no back up so the
process will be stopped or create manually. The effect for
this case is lack of control for goods receipt.

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After we found the fact findings about internal control

evaluation for warehouse management in PT. XYZ, the

recommendation is as follow:

• Conducting customization through warehouse
management system at PT. XYZ.

• Change business processes related to system

The recommendation above expected, will support and

improved the process in PT. XYZ such as:(1) Eliminate the

manual process; (2) Provide reliable information about

location of inventory stored and retrieved; (3) Trackable

inventory; (4) Provide real-time information related to

inventory in the warehouse.

The recommendation of design architecture for

warehouse management customization is using Three-Tier

Architecture. While the warehouse management will

integrated with robot machine and the application will store

into one single application server. This design purpose with

benefit: (1) optimized the server for storage, data process

and retrieving database; (2) Reduce data duplication [5].

Figure 3. Three-Tier Architecture [5]

The business process changes purposed as follow:

Robot Machine






Interface Process Integration

Mobile Scanner (Goods Issue)

Inventory Barcode Create

Automatic Inventory Stock Calculation

Recommendation for Goods Issue

Movement (First In First Out Method


Figure 4. System Design

System design from figure 4, describes about additional

interface process integration as bridging between warehouse

management systems and robot machine systems which all

data from the systems will save into single database.

Otherwise the process will improve since the inventory

movement will follow with FEFO (First Expired First Out),

like picture describe in figure 5.

Table 2. Coso Matrix Performance in PT. XYZ

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In the figure 5 shown the inventory movement while

systems automatically will scan and check the criteria. If the

criteria of the product proper the next step systems will

input into inventory systems and robot systems will take the

product into the pallet specifically based on criteria and

create delivery notes, afterwards the inventory staff will put

into shelf storing. For the next process, PT. XYZ move the

process of inventory into FEFO System (First Expired First

Out): the systems will create the delivery note (inventory

selection based on expired date) and show which the

inventory should out and help the inventory staff find the

correct inventory.


COSO framework not only providing better internal
control but also measurement of compliance risk due to
reviewing the organization operational as well. COSO
framework can support the risk mitigation, which can give
recommendation and also solution to the company.

Through 5 elements and 17 principles, it will help
company reach the objective nor goal of effectiveness and
efficiency company operation. Another opinion COSO
framework is likely common audit that enables controls not
the business operations but also all personnel inside of


[1] COSO Framework. (2016). Retrieved from


[2] Diane J. Janvrin, E. A. (2012). The Updated COSO
Internal Control— Integrated Framework:

Recommendations and Opportunities for Future


[3] J. Stephen McNally, C. (2013, June 2013). The 2013

COSO Framework & SOX Compliance : ONE


Retrieved from



[4] Jokipii, A. (2009). Determinants and consequences of

internal control in firms: a contingency theory based

analysis. Springer Science-Business Media, 115-144

[5] Kambalyal, C. (2010). Three Tier Architecture.

Retrieved from


[6] Makumbi, R. (2013). Introduction to Warehousing

Principles and Practices. Lambert Academic


Figure 5 – The Process of Inventory Movement

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[7] Martin, K., Sanders, E., & Scalan, G. (2014). The

Potential Impact of COSO Internal Control Integrated

Framework Revision on Internal Audit Structured

SOX Work Program . Elsivier – Research in

Accounting Regulations.

[8] Mary B. Curtis, F. H. (2000). The components of a

comprehensive framework of internal control. The

CPA Journal, 64-66.

[9] Miles E.A. Everson, S. E. (2013). Internal Control —

Integrated Framework. NY: Committee of Sponsoring

Organizations of the Treadway Commission.

[10] Procedure, A. I. (2008). Codification of auditing

standards and procedures . University of Mississippi

Library. Accounting Collection.

[11] Ravee, J. M. (2009). Pengantar Akuntansi-Adaptasi

Indonesia . Jakarta: Salemba Empat.

[12] Thomas V. Scannell, S. C. (2013). Supply Chain Risk

Management within the Context of COSO’s Enterprise

Risk Management Framework. Journal of Business

Administration Research, 15-28, Vol. 2, No. 1.

[13] Tsay, B.-Y. (2010). Designing an Internal Control

Assessment Program Using COSO’s Guidance on

Monitoring. New York: The CPA Journal.

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