Internal_Control

Internal Control Practices A bullet point summary of the internal controls you would typically expect in the following areas Purpose of Internal Control • To promote orderly, economical, efficient and effective operations and to produce quality products and services consistent with the organization’s mission • To safeguard resources against loss due to waste, abuse, mismanagement, errors and fraud • To ensure adherence to laws, regulations, contracts and management directive, and To develop and maintain reliable financial and management data, and to accurately present that data in timely reports Internal Control for Cash Management • The entity maintains records of payments on accounts by customers • Cash receipts are deposited intact and in separate bank accounts when required • People who handle cash are adequately bonded • Someone other than the person responsible for maintain account receivable opens the mail and lists the cash receipts • Cash are posted to general ledger on a timely basis • Standard journal entries are used to post cash receipts • The people who enter cash receipts to the accounting system are independent of the physical handling of collections • Timely bank reconciliations are prepared or reviewed by someone independent of the cash management function Internal Control for Cash Disbursements • Initiating cash disbursements - All disbursements except those from petty cash are made by check - All checks are recorded - Supporting documentation such as invoices and receiving reports are reviewed before the checks are signed - Supporting documents are canceled to avoiding duplicate payment • Processing cash disbursements - Cash disbursements are posted to the general ledger on a timely basis - Cash disbursements are posted to accounts payable subsidiary ledger on a timely basis - Standard journal entries are used to post cash disbursements - Timely bank reconciliations are prepared or reviewed by the owner or manger or someone independent of the cash receipts function Internal Control for Revenue (including Accounts Receivable) • Initiating Sales Transactions - Make sure credit limits are clearly defined and communicated - The credit of prospective customers is investigated before it is extended to them - The company has clearly defined segregation of duties - All credit memos are approved and accounted for - The company has clearly defined policies and procedures for acceptance and approval orders - All shipping documents are accounted for - Prenumbered credit memos are used to document sales returns • Processing Sales Transactions - Information necessary to prepare invoices (e.g. prices, discount policies) is clearly communicated to billing personnel on a timely basis - Prenumbered invoices are prepared promptly after goods are shipped - Quantities on the invoices are compared to shipping documents - The prices on the invoices are current - Invoices are posted to the general ledger on a timely basis - Invoices are posted to the sales and accounts receivable subsidiary ledgers or journals on a timely basis - Procedure exist for determining proper cut-off of sales at month-end - The sales and accounts receivable balances shown in the general ledger are reconciled to the sales and accounts receivable subsidiary ledgers on a regular basis Internal Control for Fixed Asset Acquisitions • All purchases over a predetermined amount are approved by management • Non-routine purchases are approved by management • A purchase order system is used, prenumbered purchase orders are accounted for, and physical access to purchase orders is controlled • The company has clearly define segregation of duties between Purchasing, Receiving, Invoice processing and Cash disbursements functions • Fixed asset acquisitions and retirements are authorized by management • The company maintains detailed records of fixed assets and the related accumulated depreciation • The general ledger and detailed fixed asset records are updated for fixed asset transactions on a timely basis • A process exists for the timely calculation of depreciation expense for both book and tax purpose • The general ledger and detailed fixed asset records are updated for depreciation expense on a timely basis • Management identifies events or changes in circumstances that may indicate fixed assets have been impaired Internal Control for Productions • The company has clearly define segregation of duties between Purchasing, Receiving, Invoice processing and Cash disbursements functions • All goods are inspected and counted when received • The receiving reports or log indicate the date the items were received • Invoices from vendors are matched with applicable receiving reports • Invoices are reviewed for proper quantity and prices, and mathematical accuracy • The company budgets its planned inventory levels • All releases from storage of raw materials, supplies, and purchased parts inventory are based on approved requisition documents • The cost accounting system interfaces with the general ledger • The company clearly apply segregation of duties on the people responsible for maintaining detailed inventory records and the people physical custody and handling of inventories • Production cost budgets are periodically compared to actual costs, and significant differences are explained • Inventory records are periodically reconciled to the general ledger and to a physical inventory count • Management is able to identify excess, slow-moving, or obsolete inventory Internal Control Issues related to Apollo Shoes • Lack of internal control of cash management and cash disbursements - Loans and advances to employee - • Lack of internal control of revenue - • Lack of internal control of fixed asset acquisitions • Lack of internal control of production   Reference: Cash: http://blink.ucsd.edu/finance/accountability/controls/practices/cash.html Cash Disbursement: http://eclkc.ohs.acf.hhs.gov/hslc/tta-system/operations/Fiscal/Program%20Management/Risk%20Management/WhatInternalCon.htm FA: http://books.google.com/books'id=-Q6FsqgwPbIC&pg=PT18&lpg=PT18&dq=internal+controls+over+fixed+assets+acquisition&source=bl&ots=6zQYWjU9wO&sig=filFNoqUbD5su49j7b5HRiJpglI&hl=en&sa=X&ei=oZZiUIjHHciViQLKrYHYCg&ved=0CC4Q6AEwAzgU#v=onepage&q=internal%20controls%20over%20fixed%20assets%20acquisition&f=false