Impact of Internal control system over customer service in financial aspects

Definition of Internal Control?

Internal control or an internal control system is the integration of the activities, plans, attitudes, policies, and efforts of the people of an organization working together to provide reasonable assurance that the organization will achieve its objectives and mission.
Four Purposes of Internal Control

1. To promote orderly, economical, efficient and effective operations and to produce quality products and services consistent with the organization's mission; 2. To safeguard resources against loss due to waste, abuse, mismanagement, errors and fraud; 3. To ensure adherence to laws, regulations, contracts and management directives; and 4. To develop and maintain reliable financial and management data, and to accurately present that data in timely report

FOUR COMPONENTS OF INTERNAL CONTROL

1. CONTROL ENVIRONMENT

Control environment is the attitude toward internal control and control consciousness established and maintained by the management and the employees of an organization. It is a product of management's philosophy, style and supportive attitude, as well as the competence, ethical values, integrity, and morale of the organization's people. The organization structure and accountability relationships are key factors in the control environment. 2. COMMUNICATION AND INTERNAL CONTROL

Management should ensure that good communication channels exist to carry information to people who need it throughout the organization. The organization's management and staff should be able to use these established channels to communicate relevant information to the right people in a timely way. 3. RISK ASSESSMENT

Significance is a measure of the magnitude of the effect on an organization if the unfavorable event were to occur. When determining the significance of each risk, management should consider the effect of the risk. The effect is the ultimate harm that may be done or the opportunity that may be lost. Managers should quantify this if possible, or at least state the effect in specific terms to help define the significance of the risk. 4. CONTROL ACTIVITIES

Control activities are tools - both manual and automated - that help prevent or reduce the risks that can impede accomplishment of the organization's objectives and mission. Management should establish control activities to effectively and efficiently accomplish the organization's objectives and mission.examples of control activites proper documentation, Approval and Authorization, Verification, Supervision, Separation of Duties and Safeguarding Assets etc.

What are the Control Objectives of a customer service?

One person is not responsible for taking orders, recording sales and receiving payment

Recorded sales transactions represent goods shipped

Goods and services are only supplied to customers with good credit rating

Goods and services are provided at authorised prices and on authorised terms

Customers are encouraged to pay promptly

All revenue relating to goods dispatch is recorded

All goods and services sold are correctly invoiced All sales and adjustments are correctly journalised summarised and posted to the correct accounts

Transactions have been recorded in the correct period

All transactions are properly classified in accounts

What are the Controls that can be put in place in a customer service?

Segregation of duties

Sales recorded only with approved sales order form and shipping documents

Accounting for numerical sequences of invoices

Monthly customer statements sent out and customer queries and complaints handled independently Authorisation of credit terms to customers

Authorisation by senior staff required for changes in standing data

Orders not accepted unless credit limits reviewed first

Authorised price lists and specified terms of trade in place

Shipping documentation is matched to sales invoices

Sales invoices are reconciled to the daily sales report

An open-order files is maintained and reviewed regularly

Sales invoices and matching documents required for all entries

All shipping documentation is forwarded to the invoicing section on a daily bases

Daily invoicing of goods shipped

Chart of accounts in place

Codes in place for different types of products or services

What are the tests of controls for the customer service?

Observe and evaluate whether proper segregation of duties is operating

Test a sample of sales invoices for authorised sales order form and shipping documentation

Examine application controls for authorisation

Review and test entity’s procedures for accounting for numerical sequences of invoices

Review entity’s procedures for sending out monthly statements and dealing with customer queries and complaints

Review entity’s procedures for granting credit to customers

Examine a sample of sales orders for evidence of proper credit approval by the appropriate senior staff member

Examine application controls for credit limits

Review all new customer files to ensure satisfactory credit references have been obtained

Compare prices and terms on a sample of sales invoices to the authorised price list and terms of trade

Examine application controls for authorised prices and terms

Review and test entity’s procedures for accounting for numerical sequences of invoices

Trace a sample of shipping documents to the sales invoices and ledger

Review a sample of reconciliations performed

Inspect the open-order file for unfilled orders Vouch recorded sales to supporting documents

Compare dates on sales invoices with dates of corresponding shipping documentation

Compare dates on sales invoices with dates recorded in the sales ledger

Review sales ledger for proper classification

Examine a sample of sales invoices for proper classification

Test application controls for proper codes