Internal Control and Risk Evaluation - Essay Example

Topic: Internal Control and Risk Evaluation The system has tried to analyze inherent risks that revolve around sales, account payable, wage payment and inventory. In relation to sales control do not incorporate the procedures for evaluating and classifying new clients. This creates a risk to sales department that may result to loss of revenue due to misclassification of clients; bad debtors may be classified good thus raising the dad debts percentage within the firm. The firm should identify ways of prescreening new clients, either by examining their previous bank statements, statements of financial position and consulting their business partners to establish their credit rating.

The company is relying on sale invoice as the only source document to claim payment on sales. This may create an avenue for collusion between buyer and store keepers; thus, the company should consider maintaining sales record for easier reconciliation of sales units recorded as sale out and invoice records (Kumar & Sharma, 2005). To enhance efficiency, the source document should be prepared by an independent person other than the person receiving the orders to minimize chances of collusion. All the cash collection should be recorded on cash register and deposited on a daily basis.

This should be followed by monthly reconciliation between the cashbook and the bank statement to identify any deviation for corrective actions. The firm should develop measures for making follow up of bad debts before writing off at the income statement. These measures include factoring debts as it will ensure a steady flow of revenue and limit chances of bad debts to the firm (Hightower, 2008). With analysis of the account payable data flow chart, the chart does not show the breakdown of the various stages involved in making payments.

There is only one point that satisfies all the payment claims; this posses a great risk to the firm because the company may end up paying to dummy accounts. The company should ensure segregation of duties at this point to incorporate verification stage, calculation of figures and authorization stage as it will eliminate chances of collusion. In this company payments made through internet transfer, poses great risk of money loss to the company. The company should ensure that payment to any account is authorized and that all details confine to the client specification.

The data to this account should be encrypted to ensure secure transfer. The chart does not indicate a specific time for payment; the company should have predetermined dates for payment to ensure that special arrangements are made such as security over cash payment (Hightower, 2008). The company should have a payroll flow chart that has ways of recording the total time worked. This will minimize the chances of paying for idle time. The firms are paying it wages through bank account; thus, it should ensure monthly wages reconciliation on recorded wages claimed and the bank statement.

This will enable the firm to identify the dummy workers and any fictitious payment made through the bank. It will also help in identifying the unclaimed wages, so that appropriate actions can be taken to identify the employees who never claimed their wages. The duties of preparing the payroll should be segregated and rotated on a regular basis to ensure that wages are not inflated and that no dummy workers exist. The firm should ensure that workers identify themselves as the report, when leaving and when claiming wages to detect ghost workers (Kumar & Sharma, 2005).

The firm has an inventory purchase flow chart that delineates the ordering process of goods and how they are paid for. However, the chart does not cover all the risks exhaustively; the chart does not show any recording on purchases received by an independent person for easier reconciliation. Stock always form substantial cost in most of the organizations; therefore, procurement procedures should be highlighted clearly. The chart does not show which criteria is used to award the tenders, this pose a great risk as the company may lose it money making payment to briefcase companies.

This company is dealing with portable and perishable products, implying that the stock is exposed to theft by employees or can go bad the chart does not explain on how this risk can be eliminated. The chart does not clearly identify how payment the purchases are made (Kumar & Sharma, 2005). This important because different means have different risks that the company needs to factor out for efficiency. Apart from the operating risks discussed above, there are several risks that exist in the business.

The company should consider establishing an internal control department. This department will be charged with the responsibility of ensuring the company adheres to government regulation, develop and oversees the company‘s internal control systems are up to date. The kudler fine food should also work with the food regulation authorities to ensure that they are in the required legal framework. The company should have effective internal controls that help the company to be efficient thus, operating in a healthy environment taking into account that it is competing in the food industry.

Works Cited Hightower, R. (2008). Internal controls policies and procedures. New Jersey: John Wiley & Sons. Kumar, R., & Sharma, V. (2005). Auditing: principles and practice. New Delhi: PHI Learning Pvt. Ltd.