Internal Control Weakness And Its Impact On Manufacturing Company | Platinum Manufacturing Group

1.       Internal Control Weakness in the system

·         Internal control weakness refers to situations when the internal management of the company is not strong enough and that might lead to errors in the system. In case of the special ordering system there are certain internal control weakness that the management should take care of (Abbott & Kantor, 2017)

·         Verbal orders – Most of these orders are placed verbally by the purchasing agents to the suppliers and when the confirmation of the order is received from the vendors, the same is informed verbally to the department. So, in this way there is lack of proper documentation and proof that might be required for future reconciliation. There may be chances that there is a difference between what the buyer said and the suppliers gave. Thus, it is important that the management should try to remove this from the system and everything that is done should be properly documented and authorized.

·         No Segregation of Duties- One more major internal control issue is that there is no segregation of duties between the people in the system. The purchasing agents have been given the major responsibility of doing all the work related to placing of the order, checking with the supplier, following up on unpaid order, and informing the authorities. So in case there is any malfunctioning by these purchasing agents, the management would never be able to get hold of the same. Also, there should be proper authorization, on every step so that there is proper regulation and no party has all the powers that they can misutilised.

·         It can also be seen that the cashier has been given the duty to regulate the cheques that are less than $10,000 that are machine printed and all these machines are regulated by the cashier. So, they can misutilised the same, and get more cheques verified and signed than what is (Alexander, 2016). The cashier and the treasurer have been given the responsibility of signing cheques that are more than $10,000. So they have all the power to misutilised the funds of the company, because there is no proper authorization from the management.

·         Lack of proper books maintenance – One more internal control weakness is that the books are debited and credited before the order is paid or received. All of this is happening on an advance basis where the accounts clerk files in the purchase order as paid on the due dates even though the same has not been approved by the authorities. So, this might lead to large number of issues for the company, in case the order claimed as paid are not actually paid off

2.       Impact of Internal control weakness on the organization

Weakness of internal control system can affect the company’s overall performance in terms of people misutilising the company’s funds and that might lead to losses in the future. It also hampers the flow of system that has been specially designed for the special orders, and can affect the overall audit trail for the company. Thus, weakness in internal control system is dangerous for the long-term development of the company and its departments. (Chron, 2017)It might lead to large scale discrepancies that might affect the overall growth and development of the company in the long run.

3.       Conclusion and Recommendations

Internal Control Measures that can be implemented by the company.

·         Better documentation – The management can replace the verbal confirmation with written ones, so that there is proof for future reference and all the higher authorities must be copied in the trail, so that they are aware about the dealings between the buyers and the suppliers. When the goods are received the same should be entered into registers and not conveyed verbally, as that might lead to errors in the future. This will help to keep a check on the orders placed by the management.

·         All the cheques should be signed manually and should be verified by third parties that are not the cashier or the treasurer for the company. This will help in keeping a check on the performance of the employees and would also help them in authorizing all the payments correctly (Dichev, 2017).

·         In case the cheques are signed by machine, then that should be done by someone else, who is not the cashier or the treasurer for the company. The cashier should not be given all the responsibility of dealing with the cash with no proper supervision from the management.

·         Timely audit of the system should be conducted so that in case there are any issues involved, can be identified. The management should also see that the auditors apply the necessary amount of due diligence in performing their duties.

·         The management should also check that the purchase registers are timely updated and in case some orders are not paid by the due date, they should be entered into separate files and once the payment is done, then the equipment must be debited with that amount.

4.       Use of IT for control Procedures

Nowadays there has been tremendous development in technology and that has been made it very easy to fight with such internal control issues and get better results. Various software has been developed that can help the companies in keeping a trail of the work that is done by the management and the overall return from the same (Chariri, 2017). Application of IT helps in saving a lot of time and helps in making the system fast and generate better results for the future. In case the given company applies IT to apply the control measures the same will benefit the company for a long-term development. The various applications of IT with respect to specific control measures by the company are –

·         Electronic forms – these forms can be used in place of verbal confirmation to place orders. The authorized person can file in these forms with their demands and the buyers can then update the same with the price from the suppliers (Yadao, 2018). Once the authorities are comfortable with the prices the order can be placed by the company. This will help in keeping a record with the respect to quantity demanded and supplied and also the total price that the suppliers are charging for the goods.

·         Barcode Scanning – Barcode scanning can be useful once the goods are received in the company. They can properly tagged with their specific order numbers and this will help in keeping a trail on the total quantity of products received in lieu of each order placed by the company. It is an efficient and transparent way for the management to keep a note on the products supplied and in case there is any shortage the same can be applied and corrected by the authorities. It will also help in providing a proper trail to the auditors of the company (Maynard, 2017).

·         Electronic Fund Transfer – these are better than manual or machine signing of cheques, as this will help in keeping a record on the total amount paid to the supplier and whether it is in sync with the total price that the supplier demanded from the authorities. It will also help in segregating the duties from the cashier, as the EDI is done on the net and there is proper record, so the authorities can time and again check it to make sure that the management has not faulted in the same and it is free from all kind of errors.

·         Electronic Data Interface- It is development of systems that are free fast and transparent and that can be used to place the order through use of software rather than manually conveying the same. It will help in making the entire process of placing the order easy and comfortable and free from all kind of errors. It would also help the auditors at the time of checking the records and seeing whether there has been proper maintenance and in case there is any malfunctioning in the records the same can be easily identified by the such electronic systems (Kusolpalalert, 2018).