Auditing For Retail Organisation Dealing

Information systems and its uses

Discuss about the Auditing for Retail Organisation Dealing.

ABC ltd is a retail organisation dealing in retail sector across multiple channel and often a part of group. The company operates with employee strength of 200 people who are committed in providing best quality services to its customers. ABC ltd makes the use of Enterprise Data Hub Accelerator for big data, which is build around Cloudera’s Apache Hadoop, based an open source of enterprise data management platform.

ABC Ltd information systems is based on the requirement is based on detailed consumer behaviour and purchase history. Exploiting this data to increase the basket value an optimises margin remains a challenge with traditional data were house architectures. The information systems user requirements are based on data and mobility having access to competitive prices and information. ABC Ltd aims to integrate data from online and in-store customers experience so that it can more precise and dynamic into demand planning and supply chain optimization (Lam 2014).

To provide information for costing out services, products and other objects of interest to management ABC Ltd uses both Historical data and estimated data. These data are helpful in providing measuring past operations and subjective estimates about future decisions (Moeller 2014). The management uses both historical and estimated data in directing daily operation planning and development of business strategies.

The hardware and software requirements of organisation consist of dashboard to manage ABC Ltd online store. ABC Ltd uses dashboard to track customers and sales made both online and in ABC Ltd retail location, using POS. Detailed, reporting and analytics help them to make the best choices to grow their business. On the other hand, to meets its hardware requirement ABC Ltd uses POS hardware, which is compatible with the organisation needs. Hardware includes a cash drawer, stand; receipt printer and scanner are some of the vital business needs of the company.

Quantitative risk assessment draws upon methodologies, which is used by ABC Ltd to address the risk associated with its information systems. By assigning values to information, systems, business processes, recovery costs, etc., impact, and therefore risk, can be measured in terms of direct and indirect costs.

Vulnerability Scanners:  Vulnerability scanner is software that can examine the operating system, network application and code for known flaws by comparing the system to a database of flaw signatures.

Penetration Testing: Penetrating testing is an attempt by human security analysts to exercise threats against the system. This includes operational vulnerabilities, such as social engineering.

Organisation needs, policies and procedure

A risk management strategy must be devised that reduces the risk to an acceptable level for an acceptable cost. Policies and procedures of risk management for ABC Ltd consist of mitigating the business risk (Bahr 2014). Mitigation involves fixing the information systems flaw to reduce the likelihood or impact associated with the information systems. A common mitigation for a technical security flaw is to install a patch provided by the vendor.

In order to ensure that ABC Ltd continue its success it is essential that different department collaborate and coordinate effectively. The organisation ensures compliance by communicating the work together through business process and delegating the operational functions to IT department (Goetsch and Davis 2014). In order to monitor an review the information systems requirement of ABC Ltd the legislative requirement that have a direct influence on ABC Ltd are as follows;

1. Electronic data management systems
2. Automating the compliance measures through internal controls
3. Evaluating security measures through different departments

Therefore, the information systems of ABC Ltd are transparent and outside auditors are able to trace and account for any financial interactions.

ABC Ltd makes the use of internal control systems for protection of financial and other important data from external threats. Below listed are important internal control systems, which are appropriate in their circumstances.

Levels of Approval: Requiring several signatures on a purchase order or company check may be time consuming, but it limits authority to spend the company’s money. This helps in approval of contracts, maintenance of discipline and helps in reduction of errors in certain circumstances.

Process Segmentation

Process segmentation splits sensitive processes between departments or individuals. For example, payroll processing presents opportunity for embezzlement and fraud with each pay cycle (Lam 2014). By segmenting the process between human resources and accounting, each acts as a control over the other.

The policies and procedures which is adequate for internal control for ABC Ltd are as follows;

Internal Audits

Internal audit policies and procedures are the first line of defence against employee mismanagement or quality issues (Vijayakumar and Nagaraja 2012). Instead of relying on customer complaints, recalls or external financial audits, scheduled internal audits by trained auditors catch problems before they cause harm or attract media attention.

Restricted Computer Access:  

An internet policy restricting employees from using the Internet for personal use or social networking can protect computer systems from viruses and unauthorized access. Company computer systems and databases contain confidential employee information as well as sensitive company financial and proprietary data.

Internal audit control systems have a few strength and weaknesses that business owners must address.

Risk assessment and management

Strength:

The evaluation of internal control must make a firm distinction between assessing the architecture/design of the system and measuring the effective performance/ functioning of the system.

Internal audit control systems helps in cost benefit analysis in order to proceed with the assessment of ABC Ltd performance for business governance and objectives.

Weakness:

Broad Application: Internal audit control systems can be very broad in their application and this can create a weaker internal audit control system.

Time Consuming: Creating internal safeguards is often a time consuming process. Business owners of ABC Ltd may also face the disadvantage of learning about control systems while working in the business.

With the help of internal controls systems the competencies culture and capabilities factors helps in the management of resources along with the organisational structure (Vijayakumar and Nagaraja 2012). It enables ABC Ltd to adapt itself to the changing risk environment surrounding the control.

ABC Ltd put into use the strategies to monitor effective use of resources are

Compliance: verification of compliance helps in monitoring and enact adjustment to the systems in order to ensure assurance of the accountability of resources for better performance at all levels of activity.

Verification: Verification of internal control asserts that resources of ABC Ltd is effectively utilised for achieving the objective of providing reliable managerial data and physical inventory.

Monitoring cost:

Cost benefits analysis:

The best way to monitor cost is through cost benefit analysis. Evaluation of controls helps ABC Ltd in cost effectiveness for subsequent assessment of organisational design and performance. With the implementation of cost benefit analysis, it helps ABC Ltd to determine the reasonableness of the entire balance between effectiveness of controls and cost of controls (Ayagre and Osei 2015). Cost benefit analysis helps ABC Ltd with cost of controls to measure both fixed and non-fixed cost. Dedicated resources, operational costs and cost of maintaining the information systems are some of the examples of cost benefit analysis.

ABC Ltd need to have an appropriate systems, policies and procedures which reflect the unit’s support for and importance of proper behaviour for administrators and professional staff.

The systems policies and procedures should be so designed that the policies and procedures should provide appropriate mechanisms for addressing the breaches of ethical behaviour.

The criterion should relate to the general procedure of accounting standard.

It should be noted that it is difficult for Auditors of ABC Ltd to determine the future usage levels however, resources that need to be determined by employees while attempting to determine future usage levels are as follows;

1. Raw Materials
2. Subassemblies
3. Finished goods
4. Work-in-process centre

Compliance management

It should be noted that there is no difficulties determining the future forecasting of resources for ABC Ltd. Inventory is used to smooth demand requirements in a market where it is not realistic to ascertain requirements at earlier periods (Peterson and Silver 2012). Demand forecast and production schedule allows ABC Ltd to maintain steady rate of output.

	January	February	March	April	May
Demand	50	50	40	125	225
Production	125	120	125	200	325
Month end Inventory	75	70	85	75	100

Table 1: Represent forecasted use of future resources of ABC Ltd.

ABC Ltd uses following methods for future forecasting of resources in following ways

1. ABC Ltd uses granular method of safety stock management to forecast the future stock levels of  the supply chain
2. ABC Ltd employs inventory planning for sales and operations for specific inventory decision.
3. Through using statistical analysis and management, input ABC Ltd builds multi-period forecast plan.

ABC Ltd uses the following methods for stock and order material and inventory items are as follows;

Setting up of various stock levels: In order to avoid over-stocking and under stocking of materials, the materials, the management has to decide the maximum level and re-order level and danger level to be kept in the store.

Re-ordering level: ABC Ltd uses the methods of re-order level for the desired amount of supply of materials  when  the quantity of  materials falls below minimum level (Peterson and Silver 2012).

Preparation of inventory budgets: For an organisation like ABC Ltd, having huge material requirement normally prepares inventory purchase budgets for production and consumable materials. Inventory budgets often provide the basis for the preparation of production plans.

For an auditor it is not an unreasonable to anticipate the employees within an organisation to maintain appropriate stock and inventory level. It is worth mentioning that with the implementation of stock level assessment, inventory budgets an adequate stock, and inventory level can be maintained by ABC Ltd. The findings of this study suggest that setting up inventory management and control will lead to sufficient maintenance of inventory level.

Reference List:

Ayagre, P. and Osei, V., 2015. An Evaluation of Internal Control Systems: Evidence from Ghana’s Cocoa Industry. MERC Global’s International Journal of Management, 3(1), pp.01-15.

Bahr, N.J., 2014. System safety engineering and risk assessment: a practical approach. CRC Press.

Chen, Y. and Shi, C., 2016. Joint Pricing and Inventory Management with Strategic Customers. Available at SSRN 2770242.

DeCroix, G.A., 2013. Inventory management for an assembly system subject to supply disruptions. Management Science, 59(9), pp.2079-2092.

Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. pearson.

Heizer, J., Render, B. and Munson, C., 2016. Principles of operations management: sustainability and supply chain management. Pearson Higher Ed.

Kuratko, D.F., Hornsby, J.S. and Covin, J.G., 2014. Diagnosing a firm’s internal environment for corporate entrepreneurship. Business Horizons,57(1), pp.37-47.

Lam, J., 2014. Enterprise risk management: from incentives to controls. John Wiley & Sons.

Mehra, S. and Inman, R., 2014. Inventory management and efficiency of manufacturing firms. Journal of Operations Management, 1(2), pp.1-4.

Moeller, R.R., 2014. COSO Internal Control Components: Risk Assessment.Executive’s Guide to COSO Internal Controls: Understanding and Implementing the New Framework, pp.59-71.

Peterson, R. and Silver, E.A., 2012. Decision systems for inventory management and production planning (pp. 799-799). New York: Wiley.

Vijayakumar, A.N. and Nagaraja, N., 2012. Internal Control Systems: Effectiveness of Internal Audit in Risk Management at Public Sector Enterprises. BVIMR Management Edge, 5(1).