Internal Controls and Weakness Samples for Students †MyAssignmenthelp

Question: Discuss about the Internal Controls and Weakness . Answer: Introduction In case of any business, cash plays a very important part, because they maintain the required amount of liquidity that the company requires for its everyday operations. If the business is not maintaining the required level of internal control then there are cases of the cash being stolen or embezzled and hence it is very important the business maintains the highest level of internal control for the management of cash and its operations. In the given case study, we will study the different types of internal control weakness that are present in the company in respect of the cash operations and how the company can deal with the same for conducting its operations in a better way.( Duncan, J.B. and Flesher, D.L., 2002) Internal control weaknesses in Everyday Supplies for the cash receipts and billing functions Everyday supplies ltd is accompany that has a lot of weakness in their internal control the following weakness can be discovered in the internal control maintained by the company in respect of its cash operations- Credit manager The credit manager of the company is forwarding credit to the contractors just on the basis of his knowledge about their reputation without taking into conisation the standards terms of forwarding of credit that must be practiced by the company on the external level. Accounts Supervisor The account supervisor is entrusted with performance of many incompatible functions like cash collections, deposit of cash and recording of the same. The supervisor also has the right to make changes in the bills issued for the cash recognition, without them being audited independently. There is also no control to check whether the daily controls are getting reconciled with the total daily cash operations. The supervisor can write off any amount as uncollectible, because there is no proper authority to check the same, this gives the supervisor a lot of power, which he can misuse when he wants. The total amount standing in the subsidiary ledger is never reconciled with the total amount of the accounts receivable ledger and also not with the general ledger, thus there are chances of defamation in the same.( Doyle, J.T., Ge, W. and McVay, S., 2007 The Cashier The cashier is given the overall responsibility of collecting the cash from the people and the contractors and also to make record of the same. Initially the cash is received by the cashier who after depositing the same in the bank, gives the details of it to the book keeper who without doing any verification on his part records the entries as stated by the cashier. There are high chances that details might be incomplete and the cashier can make changes in the same as and when he wants. The company doesnt have external verification of the cash receipts and the cash account and the overall cash balance, which is why the internal control is so weak in respect of the same. Bookkeeper The bookkeeper performs the function of maintaining the general ledger and to also record the various transactions on the basis of the details provided by the cashier. The bookkeeper has been given the power to write off any amount from the general ledger as uncollectable, without doing any independent examination in respect of the same. The bookkeeper also provides extra credit to those creditors whose balances are due for long, without doing in investigation for the same. The overall terms of credit are very inflexible and the credit doesnt become due when it first arises. The book keeper is also doing certain incompatible duties that it should not have. There should be a segregation of the duties of recording the journal entries and altering the same. (Maillie.com, 2017) Sales Associate The sales associate is providing records to the cashier on pre numbered forms, independent verification of the same must be done. These are the type of internal control problems that are faced by the company in respect of maintenance of cash. There are few ways by which the company can correct the same First and foremost there must be proper segregation of duties among the various personnel; people should not be allowed to do incompatible duties. And at each level there must be proper control in place to check that each one is doing their work properly and each work is examined before being passed to the next level of operation. In the second step, the credit manager must follow the external standard while giving credit and should see that the overall credit terms are not detrimental to the affairs of the company. Before passing credit, proper verification must be done about the credit worthiness of the contractors The book keeper must not be allowed to write off any amount as uncollectible, before proper verification of the same. Proper check must be done and after proper scrutiny only the amount must be written off, and the credit manager must be informed about the same. No extra credit term must be extended to any contractor even though the amount is standing for a long time. In case of audit of accounts, the auditor must check that proper internal controls are in place and the auditor has taken proper written representation from the management in respect of the same. Each and every transaction with respect to cash and bad debts must be properly checked Proper trial balance must be made by external parties who are not involved in collection of cash or other functions and steps should be ascertained its relevance. In case of accounts in which the balance is long overdue, there must be a proper check, the respective person must be summoned and after proper scrutiny the amount must be declared as non-payable or obsolete. The most point is that the management must be efficient in their duties of creating and ascertaining of the internal controls that is very much required for proper functioning of the business. The overall credit balance of all ten accounts must be checked regularly and any decision on the basic of that must be taken after proper scrutiny of the same is done. It is very important that the management gets them audited by external parties. (Upenn.edu, 2017) Conclusion Hence after proper scrutiny e find that the company has huge misplacement when it comes to internal control for its cash transaction and it is the responsibility on part of the company to see that there is effective control otherwise it will lead to huge losses on part of the company. The company will suffer of there is theft or embezzlement of ash. The company and the management should see that there is proper audit of the books of the account, so that any deficiency can be ascertained and the company can take steps for the same. In the above case, everyday company should take the relevant steps that h been mentioned to remove all the defects, if it follows the same, the company will progress. Maintenance of internal control not in this field but in all fields is very important. If we want our business to progress we must do the same. (Georgia Center - UGA, 201) References Yourbusiness.azcentral.com. (2017). Cite a Website - Cite This For Me. [online] Available at: https://yourbusiness.azcentral.com/internal-controls-cash-important-company-13094.html [Accessed 23 May 2017]. Georgia Center - UGA. (2017). Internal Controls: Accounts Receivable and Cash Receipts. [online] Available at: https://www.georgiacenter.uga.edu/courses/governmental-training/internal-controls-accounts-receivable-cash-receipts [Accessed 23 May 2017]. Upenn.edu. (2017). Internal Controls Guidance: Penn Internal Audit. [online] Available at: https://www.upenn.edu/oacp/audit/audit101/operational-controls.html [Accessed 23 May 2017]. Maillie.com. (2017). Internal Controls over Revenues and Cash Receipts for the Government Entity | Maillie LLP. [online] Available at: https://www.maillie.com/internal-controls-over-revenues-and-cash-receipts-for-the-government-entity [Accessed 23 May 2017]. . Accruals quality and internal control over financial reporting.The Accounting Review,82(5), pp.1141-1170. Duncan, J.B. and Flesher, D.L., 2002. Does your church have appropriate internal control for cash receipts?.National Public Accountant, pp.15-19.