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Justification for an Internal Control System - Essay Example

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Justification for an Internal Control System

If the organization already has controls in place with the insurance and portfolio approach, the controller has chosen to develop a system to enable determination of intended operations within the organization. The system chosen focuses on the function of inventory management. At present, the company has an insurance policy that covers theft from both employees and outsiders. This system will evaluate the effectiveness of inventory management processes with the objective of facilitating a reduction in insurance premiums to the company. It will, therefore, complement the existing policy on insurance, while at the same time saving the company money. The proposed system Receiving goods The system recommends that the stores department receives the good that the company purchases. It also recommends that suppliers invoice on delivery and provide delivery notes, lest the stores department declines to accept the goods. Additionally, the stores attendant in conjunction with the company security do the verification that the goods that the delivery invoiced are the ones it delivered. The finance department is to carry out occasional random spot checks to verify the case. The stores department then books the goods into the information system. ...
Then the head of finance on a daily basis should confirm that the inventory is booked on the right cost centre to help in distinguishing between cost of sales and operating expenses. If the booking is correct, the inventory controller gives approval and the general ledger is updated. Breakages With regards to items that are spoiled or broken for various reasons and are rendered unusable, a transfer form is filled with the details of the spoilt items and is signed by both user and manager. The transfer forms are then issued to the cost accountant who books in the general ledger after approval by the Chief finance officer. Physical Stock Units Reconciliation to the General Ledger Stock counts are to be done on a monthly basis. Staff and head of Departments are involved in this exercise. The quantity of inventory in the information system is updated by this stock counts. Variations are usually charged to individual departments or written off depending on their materiality (Wright, 1980). The deviation reports are approved by the head of finance. Writing off of inventory has to be approved by head of finance. Writing off is done when an equipment is found to be totally unusable. Monthly inventory to cost of sales reconciliation Upon requisition of items from the store, the attendant books the requests after the user collects the goods. This is an automated process such that the moment an item is booked the finance department gets a notification. It then verifies that the right procedure has been followed by counter-checking the requisition form. The department then interfaces the inventory management system to the departmental information system and ...Show more

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Justification for an Internal Control System Name Tutor Institution Subject Code Introduction Internal control systems are processes produced by an organizational structure, authority and work hierarchy meant to help an enterprise achieve specific objectives…
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Justification for an Internal Control System essay example
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