Internal Control Essay

1. Inform the president of all(prenominal) new native comptroller anticipatements if the familiarity decides to go public to each maven of the five comp unitynts of an interior defy system is consequential. Let us commission on the supremacy activities. These activities are the backbone of the partnerships efforts to turn to the risks it faces, such as fraud. The specific harbor activities pulmonary tuberculosisd by a company will vary depending on worrys assessments of the risks faced. The 6 article of beliefs of influence activities are as follows a. Establishment of functionb. Segregation of dutiesc. livelihood proceduresd. animal(prenominal) go throughse. Independent inside hitchf. human race choice controls on the whole these apply to well-nigh companies and are relevant to both manual and computerized news report systems.Establishment of responsibilityAn essential precept of subjective control is to declare responsibility to specific employees. Control is most potent when exactly one person is responsible for(p) for given task. Establishing responsibility often requires limiting approach path only(prenominal) to authorized personnel and then identifying those personal. Segregation of dutiesSegregation of duties is immanent in an inhering control system. There are two normal applications of this principle a. Different mortals should be responsible for adjoind activities. b. The responsibility for evidence-keeping for an plus should be separate from the physical custody of that plus. The rationale for segregation of duties is, the pass of one employee should, without a duplication of effort, provide a reliable rump for evaluating the work of a nonher employee. Segregation of related activities qualification one individualist responsible for related activities increases the potential for errors and irregularities. Segregation of record-keeping from physical custody The keeper of the asset is not likely to convert the asset to personal use when one employee maintains the record of the asset, and a different employee has physical custody of the asset. keep proceduresDocuments provide evidence that proceedings and events grow occurred. By requiring signatures on the instruments, the company backside identify the individual responsible for the transaction or event. Companies should document transactions when the transaction occurs. Companies should establish procedures for documents. First, whenever possible, companies should use pre numbered documents, and exclusively documents should be accounted for. Pre tally helps to go along a transaction from being recorded more than erstwhile or conversely from not being recorded at all. Second, the control system should require that employees promptly forward source documents for write up entries to the accounting department. This control pulse helps to ensure timely recording of the transaction and contributes at one time to the a ccuracy and dependableness of the accounting records. sensible controlsUse of physical controls is essential. Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records.Independent natural verificationMost inside control systems provide for independent internal verification. This principle involves the review of data prepared by employees. To obtain uttermost benefit from independent internal verification a. Companies should verify records periodically or on a surprise basis b. An employee who is independent of the personnel responsible for the information should make the verificationc. Discrepancies and exceptions should be reported to a management level that can take appropriate corrective action. Independent internal verification is especially useful in comparing recorded transactions with existing assets. Large companies often assign independent internal verification to internal auditors. Internal auditors are co mpany employees who continuously evaluate the durability of the companys internal control systems. They review the activities of departments and individuals to determine whether appointive internal controls are being followed. They also recommend improvements when needed.Human resource controlsHuman resource control activities include the followinga. Bond employees who turn to bullion Bonding involves obtaining redress protection against theft by employees. It contributes to the safeguarding of cash in two ways First, the insurance company carefully screens all individuals before adding them to the policy and may reject risky applicants. Second, bonded employees know that the insurance company will vigorously prosecute all offenders. b. Rotate employees duties and require employees to take vacations these measures deter employees from attempting thefts since they will not be able to for good conceal their improper actions. c. Conduct through background checks Many recall t hat the most important and inexpensive measure any business can take to conquer employee theft and fraud is for the human resources department to run through background checks.2. Advice the president of what the company is doing right (they are doing or so things surface) and also recommends to the President whether or not they should buy the indelible ink machine. When you advise the President, please be sure to reference the applicable internal control principle that applies. many of the things that the company is doing right area. backing procedures The organization uses pre numbered invoices. Documents provide evidence that transactions and events discombobulate occurred. This internal control activity says that whenever possible the companies should use pre numbered documents and all documents should be accounted for. Pre numbering helps to prevent a transaction from being recorded more than once or conversely from not being recorded at all. This control measure helps t o ensure timely recording of the transaction and contributes directly to the accuracy and reliability of the accounting records.b. Establishment of responsibility The organization uses petty cash. Employees are asked to place a note if they use any of the cash. This is according to the internal control activity Establishment of responsibility. This is an essential principle of internal control is to assign responsibility to specific employees. Control is most effective when only one person is responsible for a given task. This limits access only to authorized personnel. c. While interviewing, the president and the accountant do it together. It is good to have more than one people in an interview. d. The fact that he realizes the issues of any problemsThe president should not buy the indelible ink machine, because anyone in the company will have the access to print. The president has to voluntaries himself and decides about the indelible ink machine. He need not wait for authorizat ion from anybody on installment this indelible ink machine. 3. Advice the president of what the company is doing revile (they are definitely doing some things poorly). Please be sure to include the internal control principle that is being violated along with a recommendation for improvement. Some of the things that the company is doing wrong area. Meeting in a public place to discuss. This should happen in a private room. b. Physical control The Company does not follow the physical control activity. The company does not have individual passwords to restrict access. The use of physical controls is essential. Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. The organization should have individual passwords for all employees. c. Establishment of responsibility The Company does not follow the internal control activity of establishing responsibility. The indelible ink machine is a wrong option because anyone c an use the machine to print. An essential principle of internal control is to assign responsibility to specific employees. Control is most effective when only one person is responsible for a given task.d. Human resource controls The organization does not follow the human resource controls internal activity. Among the human resource controls internal activity, they do not follow the express thorough background checks. The company did not do background check. The employee did vulgarism and was a convicted felon who served time for molesting children. Conducting thorough background checks is the most important and inexpensive measure any business can take to reduce employee theft and fraud for the human resources department. The two tips are 1. Check to nab whether job applicants actually graduated from the schools they list. 2. Never use the telephone song for previous employees given on the reference sheet always ensure them up yourself. The company must(prenominal) conduct ba ckground checks when recruiting.e. They have trust in their long term employees. The long term employees know well about the organization f. Establishment of responsibility The organization does not have a responsible person for issuing the pay checks. This is an essential principle of internal control to assign responsibility to specific employees. Control is most effective when only one person is responsible for a given task. The company leaves the payday checks in the office for pick up. The paychecks should be mailed one after another or it should be deposited directly into the employees account. Else one person should have the responsibility to handle the paycheck on pay day.g. Segregation of duties It is an indispensable internal control system that the organization is not following. The two common applications of this principle are Different individuals should be responsible for related activities and the responsibility for record keeping for an asset should be separate f rom the physical custody of that asset. Making one individual responsible for related activities increases the potential for errors and irregularities. The custodian of the asset is not likely to convert the asset to personal use when one employee maintains the record of the asset and a different employee has physical custody of the asset. In a company, same person cannot be both the treasurer and controller. The duties of the employees must be segregated clearly. h. Physical control Use of physical controls is essential. Physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. There is no internet security in the company. They should have proper internet security.