Inventiry_Control

Internal Control and Risk Donica Campbell ACC542/ Accounting Information Systems February 1, 2011 Professor Linda Juniel Introduction Learning Team A has been assigned the task of evaluating the flow chart process that was assigned in week 2 of Kudler Fine Foods. This paper is to analyze the risks in the systems that Team A analyzed. Identify all risks and internal control points by incorporating the controls and risks into the flowcharts, design internal controls to mitigate risks to the systems, evaluate the application of internal controls to the systems and discuss other controls, outside the system that Kudler Fine Foods may need. The assessment will be for inventory, payroll, accounts receivable and payable. Risk Assessment and Internal Controls The purpose of risk assessment is to identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and install those controls whose projected benefits outweigh their costs. (Axia College, p.243) Internal controls are the process of placing procedure and policy on order to reduce risk. In week two, Team A created flow charts for the below departments of Kudler Fine Foods. Assessment of risk and internal controls are now important to make sure the flow charts created can be properly supported. Theses are the departments below: Inventory Kudler’s Fine Food’s inventory process does not have a systems paper trail. Inventory receipts should be handled and verified by two people. One employee is to input the receipt into the system and another to secure the goods. The person responsible for ordering inventory should not be the same person to receive it. Inspect receipts to ensure they are accurate and not damaged. Inventory should be stored in secure areas. Access to these areas should be restricted also. Physical inventory counts should be taken periodically by someone independent of purchasing and custody using blind counts. Missing items should be investigated and analyzed for possible control deficiencies. (SyracuseUniversity.edu). Kudler’s Inventory Database should reflect every transaction allowing the end user step by step as to the products origin. Mitigating risk by scanning all transient designations until it reaches one of Kudler’s locations. Payroll Currently, Kudler’s payroll process is done by one person. There needs to be a separation of duties. The store manager should be the one that approves time for his/her store employees. The payroll personnel should be the one that update employee files to make sure they are following state laws and regulations. Hours worked are usually submitted by the employee to his or her urgent overseer for signature. Senior management may also review them periodically, it should not be a primarily role.. Preparing paychecks is not the task for the person who authorizes an employee's hours. (payrollwatch.com) Accounts Receivables The accounts receivables department should only deal with goods and services provided to customers. Adding more responsibilities to this department would only end with careless mistakes. The risks involved with this process would need to be handled by more that one person. The internal controls should include: The maintenance of the receivable accounts and related subsidiary ledgers should be separated, wherever practicable, from the functions of establishing the charges to the receivables accounts, recording cash receipts and preparing the deposits, and the approval of any adjustments or write-off to any receivable accounts. When necessary, subsidiary ledgers should be established. A trial balance of the subsidiary ledgers should be taken at the end of each fiscal period and reconciled with the related control account. Differences should be investigated and adjusted promptly. All charges, collections, and adjustments to the accounts pertaining to a fiscal month should be recorded for an appropriate cut-off at the end of the fiscal period. Billings should be issued in a timely manner. Billing and collection transactions should be reviewed periodically to ensure compliance with established procedures. Past due accounts should be reviewed monthly and follow-up collection efforts made. (DukeUniversity.edu). Accounts Payable Kudlers Fine Foods Accounts payable system is poorly structured. The company has one person for this role, but this employee handles more that one responsibility and in other departments. Implementing a separation of duties would be of great value to Kudler Foods. For example, “additional duties performed by the employee include backup functions for accounts payable and payroll when the employee is not available to perform their responsibilities.” (Kudler Fine Foods Intranet). The internal controls that would keep risk low would include but not limited to: One employee has responsibility for the daily and monthly bank reconciliations. The ability to quickly and easily match vendor invoices to received purchase orders. Validation of vendor invoices so that no invoice can be entered or paid twice. Invoice payment approval – full, partial and/or by vendor type. Check printing – single, batch, manual or payment via wire-transfer. Internal Control Application The application of internal controls for the inventory department would include: Forms that would describe all products with vendor numbers , paying with a credit card or check, to ensure the money can be traced. A signature from all involved in transporting all shipments. Managers should sign in all inventory then allowing a stock person to place it on the shelves. This should reduce risks of misplaced food or making the careless mistakes not counting inventory correctly. Managers should verify the inventory through reports. Application of internal controls for payroll internal controls, would allow the payroll only to verify hourly pay as manager should have already done this step once employee hours were submitted. Payroll responsibilities would only involve payroll activities along with adhering and complying to state and federal laws. The application of the account payable and account receivables would both include invoices that have either Kudler’s balance owed or the vendors owes them. Both will have systems that would pay or receive partial payments allowing the end user to see profit or loss. Other areas that need internal control would be their security system, due to the rolling outages in California; there is no policy or procedure in place. A backup generator or some type of back up system should activate if a black-out occurs. Another area is their legal department. It’s non existent. If the cost of an attorney is too expensive then an executive software should be in place to guide Kudler Fine Foods to make the right decisions. Conclusion Kudler Fines Food has a many internal controls to put in place. These controls should be tried out and tested over and over for effectiveness. Once these processes show their value; Kudler Fine foods will be on the road to success. References Axia College, Chapter 8. page 243. Bagranoff, N.A., Simkin, M.G., & Strand Norman, C. (2008). Core concepts of accounting information systems (10th ed). New York: Wiley & Sons. Retrieved on February 1,2011 Duke University (1994).Financial Services, General Accounting Procedures. GAP NO. 200.035 Accounts Receivable Control Procedures.http://www.finsvc.duke.edu/gap/m200-035.php Retrieved from February 2, 2011 Payrollwatch.com. (2007) Internal Control for Payroll. http://www.payrollwatch.com/payroll-business/internal-controls.htm. Retrieved on February 1,2011 Syracuse University.edu (2009), Audit and Management Advisory Services. Retrieved from http://amas.syr.edu/AMAS/display.cfm'content_ID=%23((%25*%0A. Retrieved from February,1,2011