|
Risk Factor |
Internal Control Procedure |
|
Non-Collectability of Debts |
Mallacoota Marina Limited should review the aged accounts receivable and the invoices on a regular basis. It is also important to review the contract terms with the parties before starting the repair operation. The business needs to ensure that the debtors “signed approval of the credit department on all sales orders over a certain dollar amount” (Harwood 2018). |
|
Potential Understatement of Revenue |
Relevant entries of the invoices should be duly checked and ensured that appropriate items are included for the final revenue assessment. It is also essential to compare and confirm “subsequent cash receipts to verify collectability of the receivables”. In addition to this, the marina and slipway needs to adopt fair value measurement and revenue recognition to offset any potential understatement of revenue (Osc.state.ny.us 2018). |
|
Overpayment of Overtime to Employees |
Mallacoota Marina Limited needs to employ appropriate federal schemes to ensure that there is no ghost employee who is responsible for claiming overtime hours for the work which has been not performed. Installation of biometric device will ensure automated working hours and making the appropriate adjustment for the overtime assessment. In addition to this, maintaining a time sheet will ensure approval of overtime payment needs to be placed for audit assessment on a monthly basis (Accaglobal 2018). |
|
Inventory Being Stolen |
The internal control structure for the inventory needs to safeguard with a view to protect its valuable inventory items such as paint, along with some expensive electronic boating equipment. It needs to ensure that their actions against any theft will be dealt with compliance and company policies as per federal law. In addition to this, if the company segregates the duties of employees there will be less probability of employee stealing assets and cover up the theft. For instance, employee will not be able to steal from the inventory and go undetected unless there is any change in the inventory records cover for the shortage amount. Additionally, “the employee stealing the inventory must also maintain the inventory records or be in collusion with the employee who maintains the inventory records” (Wcacredit.org 2018). |
|
Payments Being Made Twice to The Same Supplier |
In case of any duplicate payments made to the vendors the internal control procedure needs to be maintained with regularly reviewing the vendor master files to remove any discrepancy. This can be prevented by accommodating only one vendor master file record for each supplier in the ERP system/accounts payable system. Therefore, any instance of duplicate entry in the vendor master file the payable system will automatically detect the duplicate vendor code associated to the same vendor thereby providing the bank details. Any instance which can prompt the vendor master file from an external activity, that accounts payable system will be conducive in the de-activating the old vendors were no longer in preference. Therefore, the duplicate vendors will be duly removed with this system (Zeepedia.com 2018). |
The five significant areas of control weakness are listed below are as follows:
This risk is clearly evident with finance director controlling the IT functions of BAS Limited. It is visibly stated that the day-to-day operations were the responsibility of IT manager having a significant domain experience in a large multi-user environment. This clearly shows Non-clarity in the job duties and responsibilities which may lead to internal issues in the future.
It is depicted that the key modules for the “financial management system” of the company were undergoing significant modification which suggests BAS Limited should have taken cautious decisions related to employee separation. In this case, system analyst implemented for FMS was dismissed due to lack of coherent decision-making which will pave the way for future problems in taking strategy decisions.
It is further identified that post dismissal of the systems analyst, not only he was able to again return to the IT department of the company but also make unauthorised changes to the FMS. This suggests significant loophole in the physical and logical structure which can be easily tweaked. This may lead to loss of resources as a result of damage to the assets and intruders getting unauthorised access to the equipment/software of the company. Secondly, it is understood that only the relevant IT department staff were allowed to access the IT department. However, Monica Nagpal even being a non-IT department staff was not only able to get access to the department but also review the FMS documentation and make changes via terminal which was unattended by a programmer. During this incident, she was not asked for any identity and left alone for a long duration.
It is observed that post dismissal of the systems analyst the FMS development went haywire and lost its direction. In addition to this, the programmers did not have any written procedure to progress with the ongoing task. This was mainly due to the fact that all the instruction was imparted verbally without having any record.
After the systems analyst was terminated from his duties the company did not take any initiative to review the procedures. This created major problem among the programmers as they lost their work progress.
|
Risk Factor |
Internal Control Procedure |
|
Job roles and responsibilities not clearly defined |
The company should take the basic initiative of assigning the job roles and responsibilities in a clear written format. This will be able to specify supervision of certain operations of the company only by the assigned/authorised personnel. This will be conducive in using the overall process and separating the duties. Moreover, in case anyone employee joins they can always refer to the responsibilities and understand their roles in a better way (Heise, Strecker and Frank 2014). |
|
Lack of coherent decision making |
The decision-making within the teams should be supported with logical arguments and should not be relied on hasty decisions which will be detrimental in future the company. The decision-making process needs to be enhanced with promoting positive work environment that will enhance the cooperative behaviour in the inter-department staffs (Aziz, Said and Alam 2015). |
|
Lack of physical & logical security |
There have been two instances where the security of IT department has been compromised. In order to ensure that such risks do not come up in future the company needs to improve its firewall and protect its devices with improved software is which will prevent any instance of security breaches. The company should particularly pay attention to any breach of personal information/identity by maintaining a close surveillance with advanced security cameras (Ge et al. 2017). |
|
Inadequate documentation / record |
The various instructions and work in progress should be duly fetched seamlessly into the “Management information system of the company”. This can be done with the use of cloud computing services which will ensure that not only any new instructions are seamlessly stored in the Internet but can be accessed by any authorised personnel at a given time. In addition to this, any document related to the procedures need to be maintained with appropriate numbering hyperlinked headings for future reference (Mahadeen et al. 2016). |
|
No oversight and review |
This problem needs to be resolute at by reviewing of operational procedure on a yearly basis. This will ensure that the financial data are held for assessment on a constant basis to ensure that even in case of any loss of data the company will have an adequate disaster recovery system to maintain continuity in the business (Aramide and Bashir 2015). |
References
Accaglobal A. (2018). Audit evidence and specific considerations for certain items | ACCA Global. [online] Accaglobal.com. Available at: https://www.accaglobal.com/in/en/member/discover/cpd-articles/audit-assurance/specific-considerations.html [Accessed 21 May 2018].
Aramide, S.F. and Bashir, M.M., 2015. The effectiveness of internal control system and financial accountability at Local Government level in Nigeria. International Journal Of Research In Business Management, 3(8).
Aziz, M.A.B.A., Said, J. and Alam, M., 2015. Assessment of the practices of internal control system in the public sectors of Malaysia.
Ge, W., Li, Z., Liu, Q. and McVay, S.E., 2017. When does internal control over financial reporting curb resource extraction? Evidence from China.
Harwood, B. (2018). 10 Common Internal Control Deficiencies Found in Small Businesses. [online] Lbahs.com. Available at: https://www.lbahs.com/blog/bid/397513/10-common-internal-control-deficiencies-found-in-small-businesses [Accessed 21 May 2018].
Heise, D., Strecker, S. and Frank, U., 2014. ControlML: A domain-specific modeling language in support of assessing internal controls and the internal control system. International Journal of Accounting Information Systems, 15(3), pp.224-245.
Mahadeen, B., Al-Dmour, R.H., Obeidat, B.Y. and Tarhini, A., 2016. Examining the effect of the Organization’s Internal Control System on Organizational Effectiveness: A Jordanian empirical study. International Journal of Business Administration, 7(6), p.22.
Osc.state.ny.us. (2018). [online] Available at: https://osc.state.ny.us/audits/allaudits/093006/06s3.pdf [Accessed 21 May 2018].
Wcacredit.org. (2018). [online] Available at: https://www.wcacredit.org/WriteOffProcedures.pdf [Accessed 21 May 2018].
Zeepedia.com. (2018). Control Procedures over Sales and Debtors Fundamentals of Auditing Commerce Auditing . [online] Available at: https://www.zeepedia.com/read.php?control_procedures_over_sales_and_debtors_fundamentals_of_auditing&b=25&c=24 [Accessed 21 May 2018].
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