There are a few main principles that internal controls are built around. In order for a business to run efficiently, reliable and competent personnel must be given appropriate responsibilities in the business. A method of verifying accuracy of the accounting records such a comparing the physical asset with the corresponding record of the item must be carried out. Proper authorisation must be given to validate a particular action in the business by a qualified staff member. It is necessary that there is a separation and rotation of duties within the store’s staff, to minimise errors or fraud especially with the authorisation, recording and actual physical handling of the assets. Another factor that needs to be considered in an accounting system is correct documentation and acceptable recordkeeping, to ensure proper control of assets through appropriate procedures. Finally, safeguarding assets using methods such as secure areas to store inventories and cash, surveillance camera and fire protection is a necessary principle.
A review of the business shows that a few of your practises are correct, such selling excess stock, since this practise will not only help with storage space but also the issue of declining profits. Also, Sarah the bookkeeper is carrying out appropriate steps, by completing thorough checks on the businesses and customers in regard to transactions and credit details, thus ensuring that occurrences of bad debts are prevented. This recording of transactions is supported by the principle of adequate recording. Moreover, by documenting the business’s transactions, ensures more accuracy.
Although, the bookkeeper does practise appropriate methods in the business, there is a lack of proper distinguishing of duties. It appears that Sarah also does the accountant, Sam’s job by entering the details in the journal book she also operates the ledgers of both the customers and the suppliers. The act of one staff member carrying out different tasks, increases risk of both fraud and also mistakes from occurring. I strongly recommend that you implement the principle of separation of duties. In other words, this will ensure that the running of the business will be efficient and accurate with lower chances of mistakes or fraud from occurring.
A further observation shows that Sam deals with the banking and writes cheques for payments, he also directly handles the cash, when banking is not possible he sometimes takes the business’s cash home. This is poor business practise, because as mentioned above not only is he handling the cash while writing cheques for business payments, but the cash is not stored in a secure place when not banked intact. This will prevent the occurrence of fraud or theft.
Moreover, when the new stock arrives, any staff member available is free to handle the stock. This is not a good business practice. According to the principles of internal controls, there should be proper authorisation needed to be implemented on particular tasks within the business. In other words, a qualified staff should be assigned the responsibility of handling new stock. It would benefit the business if there is a rotation of responsibilities relating to the handing of inventories such as ordering, recording, physical handling and storage. This practise would certainly ensure that any careless mistakes or dishonesty will be detected.
In conclusion the above principles of internal controls needs to be fully implemented regarding the current issues concerning the cash, credit transactions and inventories. This not only will resolve any problems with the decline of profits or lack of policies or procedures in the business. Moreover, appropriate internal controls will encourage better performance from the staff members and the overall profitability of your store.
by
shelly55 (student)
