Internal controls and weaknesses report - Essay Example

Internal controls and weaknesses report Executive summary Audit and assurance are important accountingfunctions which seek to check the completeness of financial records. These two functions are mandatory for businesses that operate as public limited companies. However, other business establishments, including sole proprietorship, can opt to conduct an audit of their business processes so as to ensure that their businesses are operating optimally. This voluntary action will go a long way in ensuring that the interest of the owner of the business is safeguarded. The purchase and sales functions of this business happens to have some weaknesses which can be remedied by the implementation of the recommendations that have been tabulated. Audit and Assurance Introduction The purchase and the sales function of a business are very important to a business. These functions ensure that the assets of the business are well taken care of. It is very important to ensure that these functions are operating optimally to ensure that the business operations run smoothly. Audit and assurance is the business function that maintains control on this processes. This function ensures that the correct books have been kept and the right transactions have been recorded. It also ensures that proper authority has been obtained for any business transaction to occur. The purpose of this report is to discuss the purchase and payment and the receipt and sales functions of a business enterprise. Purchases and Payments Controls / Weaknesses Related audit objective / Recommendation 1: An accounts payable clerk (AP) and purchasing officer (PO) are employed in addition to the accountant and assistant accountant. This is a control because it will ensure that transactions do not just pass through the hands of one person Objective: Cut-of 2: PO orders all the fashion items, agrees the delivery docket to the purchase order and initials these documents to indicate that she has checked the delivery docket against the description of goods on the purchase order, and that the goods listed on the delivery docket have been received. The AP will not pay any invoices that do not have a matching delivery docket. This is a weakness, the PO should only order the goods but a different officer should check the goods received. Recommendation: Employ a gatekeeper or a clerk to check the goods received with the purchase order and ensure completeness 3: AP is responsible for purchasing the office supplies as required and on receiving the invoice she checks it for reasonableness. She raises a query with the supplier if there are any invoices for office supplies she cannot remember ordering. This is a weakness, the AP should not be engaged with any purchases, she should leave the purchasing functions to the PO and she should instead conduct the book keeping and checking functions. Recommendation: The Purchase functions should be left to the PO for accuracy purpose 4: All mail is opened by the secretary and all invoices are passed on to the AP. This is a weakness because the secretary might misappropriate the monies received via mail Recommendation: All mails should be opened in the presence of two responsible officers this will prevent occurrence of theft. 5: All invoices are given an account classification, entered into the accounts payable system and stamped as entered. This is a control as it prevents double entry of invoices. Objective: Ensures that all transactions are well recorded to ensure their completeness. 6: Invoices are filed in due date order. This is a weakness because there is likelihood that the invoices might be misplaced. Recommendation: enter or record the invoices on the day they are sent out to customers. This will ensure completeness. 7: Cheques for payments due are manually drawn by the AP. Two cheque signatories are required. This is a control because no payments can be made without the two signatories Objective: All transactions are properly authorized, this promotes the cut-off objectives. 8: Invoices are stamped as paid and the date and cheque number are recorded on them. This is a control because it prevents double entry of invoices and timely payment of cheques. Objective: Ensures that all transactions are properly recorded and thus promote completeness. 9: Payments are recorded on a standard payments journal and entered into the accounts payable system by the AP. The journal is stamped as entered. This is a control because it ensures that all transactions are well recorded in the books of original entry. Objective: Ensures that all transactions are properly recorded this ensures the completeness of the transactions. The AP leaves the cheques with the owner Ms Olson, who signs them and then returns them to the AP. A remittance advice is attached by the AP and sent to the secretary for mailing. This is a control as it ensures that multiple officers are responsible for the payment process. Objective: Ensures that all transactions are well authorized and thus prevent the occurrence of theft and misappropriations. 11: At month end, Marge the accountant obtains an accounts payable listing from the AP and prepares the bank reconciliation, which is reviewed by Ms Olson. This is a control as it ensures that multiple officers are responsible for the payment process. Objective: Ensures that all transactions are well authorised and as thus ensure that the cut-off objective is met. Sales and Receipts Controls / Weaknesses Related audit objective / Recommendation Each sales clerk has her own sales book This is a control because it allows the clerks to record their transactions Objective: Ensures correct recording of transactions, this helps in meeting the classification objective. The cash register is located at the store entrance This is a control as it helps prevent pilferage of goods from the store. Objective: Secures all assets of the business and ensures the completeness of records. The sales book is filled in triplicate This is a control as it ensures that all transactions are checked by more than one person Objective: ensures that transactions are well recorded and that they are accurate. Sales clerks receive cash payments on sales This is a weakness; the person making the sale should not be the same person receiving the payments. Recommendation: all cash sales should be received by the cashier to ensure correct classification of the transactions. Supervisor rechecks cloths to be packed with invoice and also rechecks calculations This is a control as it prevents pilferage of goods Objective: This serves to ensure that the business assets are safeguarded Supervisor checks cash sales and receipts at the end of the day This is a control as it helps in preventing internal theft. Objective: This serves to ensure that the business assets are safeguarded. Supervisor banks all daily sales with the bank This is a control as it ensures that the business cash is transferred to secure custody Objective: This serves to ensure that the business assets are safeguarded. The accountant receives all sales summaries and files them in the computer. This is a control as it ensures that transactions pass through the hands of more than one officer. Objective: Ensures the completeness of the transactions. The secretary opens the mails daily and records cash takings and banks them This is a weakness because the secretary might misappropriate the monies received via mail Recommendation: All mails should be opened in the presence of two responsible officers. Conclusion The business should engage its accounting machinery in improving the areas of weakness so as to prevent the occurrence of losses. The business owner should employ the PO and AO who will help improve the accounting function of the business. She should also move to ensure that the transactions are organized such that the transaction initiated by one officer is checked by another or others. This will go a long way in ensuring that there is an internal check mechanism. The sales and receipt function should also be controlled to ensure that all the objectives are met. References Kumar, R., & Sharma, V. (2005). Auditing: Principles and practice. New Delhi: Prentice-Hall of India. Whittington, R., & Delaney, P. R. (2010). Wiley CPA exam review 2010-2011. Hoboken, N.J: Wiley. Duchac, J. E., Reeve, J. M., & Warren, C. S. (2007). Financial accounting: An integrated statements approach. Mason, OH: Thomson/South-Western. Read More