Premium Essay

Internal Control Analysis

In: Business and Management

Submitted By jonsoel
Words 960
Pages 4
TASK 4 (Discussion Task)
“INTERNAL CONTROL ANALYSIS 1”

Main Problem :
Explain how the principle of separation of duties is violated in each the following situations. Also suggest one or more procedure to reduce risk, and exposure highlighted in each of example.
Analyzed the problems : * How the principle of separation of duties can be an internal control system ? * How to make a good principle of separation of duties ? * What is the best internal control design for the job authorities ? * How to reduce risks in posting the receipt to the customer account ?
Learning objectives : * Identify the exposure to risk that a firm faces with respecting of asset and data, including the fraud. * Understand how to reduce risk and exposure the highlighted in every situation. * Recognize how the separation of duties become a part of internal control system. * Understand about the risk exposure to business and the importance of internal control to minimize the risk.
Solution
a. A payroll clerk recorded 40-hour workweek for an employee who had quit the previous week. He then prepared a paycheck for this employee, forged her signature, and cashed the check.
Violation:
The payroll clerk only have an authority to prepare the paycheck, not to signature or cashed the checks. The signature of payroll is the duty of HR manager, while cashed the paychecks is the duties of the cashier, so, the payroll clerk has violated his/her job description and his/her authorities.
Solution:
To reduce the risk, the company must make a clear workflow, the payroll clerk must be ensured only has an authority to make the paycheck, then from the payroll clerk, every paycheck must be received to HR manager to check it, if it’s agreed, then from the HR, it will brought to finance department, and it must be received by the A/P department first, the A/P department

Similar Documents

Free Essay

Ais - Internal Control Analysis

...Student Company Internal Control Analysis |Process |Control Owner |Frequency |Documentation and execution |Control Review Process | 1. CASH DISBURSEMENTS |Approval of Vendor Invoices|A/P Clerk |Weekly |A/P Clerk collects vendor invoices, records |A scanned copy of the approved vendor | | |Purchasing Manager | |vendor invoices in the system, and gets vendor |invoices are kept in the system. Large | | | | |invoices approved by the Purchasing Manager |invoices are periodically reviewed, other | | | | | |invoices can be retrieved on an as needed | | | | | |basis. | |Printing Checks, Preparing |A/P Clerk |Weekly |A/P clerk prepares cash disbursement vouchers, |Treasurer reviews the cash disbursement | |Cash Disbursement Vouchers | | |which includes a copy of each approved invoice.|vouchers, and weekly check run prepared by| | | | |A/P Clerk prints the...

Words: 895 - Pages: 4

Premium Essay

Ais Sample Midterm

...major differences between preventive, detective and corrective control procedures. b)Why should timely reports be an essential element within a company’s Internal control system and what kind of control is it? a)Preventive control procedures are designed and implemented before an activity is performed to prevent some potential problem (e.g., the inaccurate handling of cash receipts) from occurring that relates to the activity. Detective control procedures are designed and implemented to provide feedback to management regarding whether or not operational efficiency and adherence to prescribed managerial policies have been achieved. In other words, preventive controls should be developed prior to operating activities taking place and detective controls should be developed to evaluate if operating efficiency and adherence to policies of management have occurred after operating activities have taken place. Corrective control procedures come into play based on the findings from the detective control procedures. That is, through detective controls, corrective control procedures should be developed to identify the cause of an organization’s problem, correct any difficulties or errors resulting from the problem, and modify the organization’s processing system so that future occurrences of the problem will hopefully be eliminated or at least minimized. b)From the standpoint of evaluating a company’s internal control system, a performance report is a type of report that provides...

Words: 981 - Pages: 4

Premium Essay

Research Methods

...Research Method Internal Auditing versus external Auditing When it comes to the subject of the audit, one will often find the concepts of internal audit and external audit. If these two audits are necessary for the good functioning of company, and if the collected sources agree that the skills required for these two notions are relatively identical, it remains not only tasks and the environment of the internal auditor and the external auditor differ.   In order to best support our report, we gave a point of honour to diversify sources and points of view. Our researches were principally based on key words such as: internal auditing, external auditing, differences between auditors, cooperation between auditors, similarities between external and internal auditing. The diversification of our sources has in fact been paramount and allowed us to have a global vision of the subject and the issues it implies. So we will be based on data of the IFACI and the CNCC, the point of view of a University Professor, that of an NLC internal auditor, reflections and axes of various analysis collected from the blog Be audit you can Be (http://amais5.tumblr.com/).   In the light of the evidence and their convergence on some specific aspects concerning the general question “How internal and external auditors can benefits for each other ?”, the following questions are imposed on us as problematic to treat during this report: What precisely are the differences between these two audit activities...

Words: 2088 - Pages: 9

Premium Essay

Assessing Risk and Internal Control

...Chapter 7: Assessing Risk and Internal Control Audit Risk Assessment: Auditing is fundamentally a risk management process. Audit risk is related to information risk that financial statements are materially misstated. -lower audit risk by performing more audit work that will give them a high level of assurance that the financial statements are correct. 1) INHERENT RISK (IR)- the probability of material misstatement occurring in transactions entering the accounting system or being in the account balances. Auditors do not created or control inherent risk. Can only assess its magnitude based on prior experiences, management bias, and the nature of the transaction. Look at characteristics of clients business, types of transactions, and effectiveness of accountants. 2) CONTROL RISK (CR): risk that the clients internal control system will not prevent or detect a material misstatement. Auditors do not create control risk, they assess probability of failure to detect material misstatements. Assessment is based on study and evaluation of the company’s control system. **Control risk should not be assessed so low that auditors rely entirely on controls and do no substantive work. 3) DETECTION RISK (DR): the risk that any material misstatement that has not been corrected by the clients internal control will not be detected by the auditor. **Auditors can control this risk by conducting substantive (balance audits) tests. (include: audit of details of transactions and balances, and analytical...

Words: 1014 - Pages: 5

Premium Essay

None

...Auditor: * To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material aspects, in accordance with an applicable financial reporting framework * To report on the financial statements and communicate in accordance with the auditor’s findings Audit Process Overview: * Step 1: Client Acceptance and Retention * Step 2: Risk Assessment (Through understanding client business environment and operations Assess risks of material misstatement Assess Audit Risk) * Step 3: Audit Procedures Planning * Step 4: Test of controls (IF reliance on controls) * Step 5: Perform substantive tests * Step 6: Audit Completion and Reporting Financial Statement Assertions: * Assertions are representations made by management, explicit or otherwise, that are embodied in F/S, as used by auditor to consider the different types of potential misstatements that may occur * Focus on assertions as: * Different risks result in different risks of misstatements affect different assertions (transactions and account balances can be misstated in different ways with different assertions being affected, eg. Fictitious credit sales Occurrence) * Depending on...

Words: 7274 - Pages: 30

Premium Essay

Internal Control

...Internal Control and Risk Evaluation Lola Knaff ACC 542 April 22, 2013 Anita Rodriguez Internal Control and Risk Evaluation The internal control and risk evaluation aspect of accounting is crucial to protect the business’ assets and resources. In addition, for publically traded companies it is mandatory for there to be internal control procedures. “Internal control describes the policies, plans, and procedures implemented by a firm to protect its assets” (Bagranoff, 2008, p. 240). The necessary procedures are in place to ensure the validity and efficiency of the data that the users input into the Accounting Information Software (AIS). The flowcharts reveal the pattern for the accounts receivable, accounts payable, inventory process, and payroll processes. Each process will generate many levels of risk factors that can be reduced by several internal control procedures. According to Hunton, Bryant, and Bagranoff (2004), the assessment of IT risks are by the managers and auditors to determine how to apply resources (p. 51). The cost-benefit analysis is crucial to ensure that the cost of the internal control to reduce the risk does not increase the monetary value of the control. The purpose of the internal control application is to create a smooth operating procedure that does not deter effectiveness and efficiency of the data. Along with the AIS internal controls, there are other controls that will assist in creating a trustworthy working environment...

Words: 1131 - Pages: 5

Premium Essay

Audit Proposal

...reliable for the preparation of the financial statements for the organization. Now that the new accounting information system has been set up it is now time to perform an audit of KFF internal controls. In order to do this we will take a look at the different types of audits that maybe used for each process. Then recommend the audit that will most fit the needs of KFF as well as give an explanation of how the audit will be conducted. KFF will also be informed of events that might prevent the reliance on auditing through the computer. An audit for IT involves evaluating the computer’s role for achieving audits and control objectives. These audits look at the components for the AIS for the users, procedures, hardware, software, data communications and the database. According to Bagranoff, Simkin, and Norman (2008) there are four main types of IT audits and they are attestation, findings and recommendations, SAS # 70 and last but not least SAS # 94. The purpose of this audit is for Kudler Fine Foods to gain an understanding of the business functions as well as to evaluate the AIS system. The audit will be linked to the accounts, the size of transactions process, and the operations system and process. The audit can be preformed by either an internal or external audit. When performing an internal audit it will review several...

Words: 1053 - Pages: 5

Premium Essay

Biltrite Bicycles Inc.

...Requirement 1. Biltrite bicycles Inc. was incorporated in 1970 and since then it has successfully added many bikes to its production line. The company has experienced steady growth in sales and profitability of all product lines from the date of its incorporation. The following strengths in the organizations structure can be attributed to this success. The company follows segregation of duties in the accounts and the finance department. The audit staff consists of well experienced and trained personnel. The CEO is aware of the importance of risk assessment procedures and is in the process of establishing of risk assessment team. The description shows adequate separation within the CBIS function, i.e. systems analysis and programming are separate from data processing and control. There are areas where the reporting procedures are very strong and carried out very efficiently. The weaknesses consist of the dominant role played by the CEO, Mr. Trevor Lawton who is very aggressive and wants that the staff should focus on what he thinks is important. His philosophy is that the financial statements should look good. The controller of the company was at one time an employee of the auditing firm. So he is familiar with the firm’s auditing procedures and on that basis he can cover intentional misstatements The answers to requirements 2-5 can be found in the Excel file which has been attached separately. Requirement 6 The purpose of applying analytical procedures in planning the audit...

Words: 3316 - Pages: 14

Premium Essay

Final Exam

...Chapter 9 Introduction to internal control systems Internal controls: the controls established to protect the assets of an organization. Internal control: describes the policies, plans, and procedures implemented by the management of an organization to protect its assets, to ensure accuracy and completeness of its financial information, and to meet its business objectives. Four objectives of internal control system: 1. Safeguard assets, 2. Check the accuracy and reliability of accounting data, 3. Promote operational efficiency, 4. Enforce prescribed managerial policies. Sarbanes Oxley Act of 2002 piece of legislation with respect to internal controls Section 404: reaffirms management is responsible for establishing and maintaining an adequate internal control structure. 1992 Coso report: established common definition of internal control for assessing control system, as well as determined how to improve controls. An internal control system should consist of the five components: 1. The control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring Control environment: foundation for all other internal control components and provides discipline and structure. Top management oversight, integrity, and ethical principles that guide the organization Risk assessment: identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and implement only those controls whose projected benefits...

Words: 1409 - Pages: 6

Premium Essay

Internal Control and Other Risk

...Title: Internal Control and Other Risk Internal Control and Other Risk University of Phoenix Internal Control and Other Risk Kudler Fine Food is very concern with the company internal control and risk evaluation. The company has put much time and money into ensuring Kudler is well protected. The company has hired an accountant firm to ensure the company has covered all their bases in dealing with risk an internal control. The company is fully concerns with making the most of what technology has to offer them as a company. Management needs an analysis on the risks in the system, which also identify of the risks and internal control points, which should be incorporate through the controls and risks into the flowcharts. The flowchart has been design to include and mitigate the risks associate with internal controls. An evaluation relate to the application concerning the system internal controls will be review and a full discussion of the other controls that may be need which are outside the system. Analyze Risk in the System The first risks in the system that was identified as directly related to software that would provide much more control over Kudler...

Words: 1154 - Pages: 5

Premium Essay

Rjet 1

...TASK 1 – FINANCIAL STATEMENT ANALYSIS AND CONTROLS Requirements for Task 1: A. Prepare a summary report in which you do the following: 1. Evaluate the company’s operational strengths and weaknesses based on the following: In order to evaluate company’s operational strength and weaknesses accurately it is important to have access to more than one year worth of data. The company, of course, will not be evaluated on the basis of couple of ratios, it is very important to analyze all the available information to put pieces of puzzle together to see the overall impression of the company and its attractiveness to creditors, investors and stockholders. To be able to compare company’s performance we will be evaluating three years period from year to year, for which Horizontal technique will be used; and comparing it with results of company’s biggest competitor. Vertical Analysis technique will be used as a standard way for comparison. Then to see how company does in comparison to the competition, we will use Ratio Analysis in which biggest competitor’s numbers will be reviewed. It is important to have several different analyses to see the entire picture and later to be able to understand where company is and what actions shall be chosen for the improvement of financial situation. a. Review the horizontal analysis, analyze the results, and discuss operational areas of concern. First we will use Horizontal Analysis, which is a study of percentage changes in comparative financial statements...

Words: 8408 - Pages: 34

Premium Essay

Web Design

...Volume: 6 | Issue: 4 | Page No.: 181-189 | | Impact of Internal Control System in Banking Sector in Nigeria | | Olaoye Clement Olatunji |   | Abstract: The Central Bank of Nigeria reported that the backward development in Nigeria was attributable to weaknesses in the internal control systems of the banks. This has clearly pointed out the picture of how fraud has been penetrated in the financial strength of Nigerian Banks. In a nut-shell, the damage which this menace, called fraud has done to the banks is innumerable and needs urgent attention. Therefore, the attempt to put an end to this economic degradation, gave rise to the topic of this research study the impact of internal control in the banking sector in Nigeria with Wema Bank of Nigeria PLC as a case study. However, this study is aimed at verifying the conception that an effective and efficient internal control system is the best control measure for preventing and detecting fraud, especially in the banking sector. Data captured for this study, were analyzed through descriptive and inferential statistical methods. The descriptive analysis involves the use of percentages, tabulation and graphical presentation. While the inferential statistical method involved the use of the chi-square. The functions of fraud prevention, detection and control are interwoven, as the three works together to eliminate fraud and fraudulent tendencies. Therefore, internal control is highly significant in fraud detection and preventions...

Words: 5433 - Pages: 22

Premium Essay

Acct Unit 3 Ip

...Unit 3 IP Shante Patterson ACCT205 AIU Online December 1, 2013 The internal control system should be intended to distinguish and prevent deception, mistakes and oversights, and material misstatements; then again it can only provide sensible assurance that the financial statements are at liberty from material misstatements. The best designed internal control system will not avert management override or collusion. The internal controls system is only as good as the management backing behind the system; this comprises training employees and dynamically observing the controls. The cost of applying a specific control should not surpass the probable benefit of the control. On occasion there are no out-of-pocket costs to institute an acceptable control. Internal control procedures are the duty of the management. Every single control must be assessed based on risk and a cost/benefit inquiry. Several operational low cost procedures can be applied. These control procedures, when in service effectively, will arrange for a sensible assurance that mistakes will be either prohibited or identified. Instances of controls that would have make sure that the prepaid tunings were made would be to gather a check-list of cyclical monthly journal records, than as a part of the financial report evaluation procedure, this check-list ought to be looked over by the management. At each financial statement date, each balance sheet account is resolved; this will guarantee that every single balance...

Words: 532 - Pages: 3

Premium Essay

Jet2 Task 1

...Financial Statement Analysis and Controls A1. Based on a cursory examination of the horizontal analysis in the financial data provided, Competition Bikes, Inc.’s financial position improved from years six to seven and declined between seven and eight. The sales forecast in the scenario indicates an economic downturn as the reason for 15% decline in Net Sales. The specific analysis follows. A1a. The Comparative Income Statements for Competition Bikes, Inc. shows a 33.3% increase in net sales between years six and seven with a gross profit increase of 37.5%. This is a significant increase. Comparing percentages from years seven and eight for the same data shows a change in net sales of -15.0% and a decline in gross profit of -16.3%. It is obvious that any increase in net sales and/or gross profit is a sign of strength while a decrease could indicate weakness and year seven to eight shows a significant decline. However, year eight remains an improvement over year six comparatively. Cost of Goods Sold (COGS) increased 31.8% from year six to seven and decreased -14.5% between years seven and eight. These changes are consistent with the net sales changes and do not point to the COGS being the reason for change between the years being compared. Operating expenses show that money spent on advertising increased 37.5% from year six to seven and then management decreased the budget by -16.3%. The savings in advertising could be part of the reason for the...

Words: 4902 - Pages: 20

Premium Essay

Jet2 Financial Analysis Task 1

...Following is a comprehensive analysis of the financials of the profitability, competitiveness and overall stability of the Competition Bikes, Inc. based on their finance statements. This analysis provides information based on working capital, horizontal analysis, vertical analysis, ratio analysis and trend analysis. This analysis provides essential information on forecasting budget limits and overhead expenses based on overall sales potential. The analysis is based on the last three fiscal years of data provided by Competition Bicycles, Inc. A.1.A. : Horizontal Analysis A horizontal analysis is used to see variations in account line items from year to year. Strictly speaking, according to Accounting for Management (2014), a horizontal analysis “shows changes in the amounts of corresponding financial statement items over a period of time.” The formula utilized to calculate this change is Dollar change = Comparison Year Balance – Base Year’s Balance. The percent change is, therefore, calculated as the dollar change / Base Year’s Balance and multiplied by 100 for a strict percentage. At Competition Bikes, the numbers tell an interesting story. Sales dramatically increased 33.3% between years 6 and 7 before taking a loss of 15% in years 7 to 8. This still puts Competition Bikes at a solid increase of 13.3% in sales from years 6 to 8. Gross profits show a similar trend, increasing by 37.5% between years 6 and 7, while dropping by 16.3% between years 7 and 8 – the net profit increase...

Words: 4486 - Pages: 18