INTERNAL CONTROL Flashcards
Sales System:Sales Order Function
1. Segregation of Duties (order, and credit limit) 2. Authorization of credit limit (by separate dept.) 3. Check credit limit. 4. Check inventory balance. 5. Prenumbered orders. 6. Use authorized rates. 7. Despatch every sales order.
Sales System:Despatch Function
1. Prenumbered GDN for every despatch. 2. Cross-check with sales order and Sign GDN. 3. Acknowledgement of customer. 4. Daily transfer of GDN to record in accounts.
Sales System:Invoicing/Billing Function
1. Segregation of duties (order, despatch, invoice). 2. Prenumbered Invoice. 3. Recalculation/Cross checking of invoice with Order & GDN. 4. Prenumbered and authorized credit notes (cross check with invoice)
Sales System…GL/Accounts Function
1. Segregation of duties (invoice, recording, collection). 2. Batch Totals. 3. Control A/C reconciliation 4. Monthly Account statements. 5. Aging analysis to identify overdue & follow up. 6. Authorization of bad debts.
Purchases System:Purchase Order Function
1. Segregation of Duties (user and order dept.). 2. List of approved suppliers, with Access controls. 3. Order only to approved suppliers at lowest quotation. 4. Authorization of all purchase order. 5. Prenumbered orders.
Purchases System:Receiving Function
- Segregation of duties.
- Prenumbered GRN for
every receipt. - Cross-check with purchase
order and Sign GRN. - Daily transfer of GRN to
record in accounts
Purchases System»Invoicing/Billing Function
1. Segregation of duties (order, receiving, invoice). 2. Recalculation/Cross checking of invoice with Order & GRN. 3. Check discount allowed by suppliers. 4. Prenumbered and authorized of debit notes
Purchases System:GL/Accounts Function
1. Check complete audit trail is available (PO, GRN, Invoice). 2. Batch Totals. 3. Control A/C reconciliation 4. Monthly Account statements. 5. Prenumbered and authorized debit notes
Payroll System»>Calculating Gross Wages and
Salaries»>Only for real employees
1. Segregation of duties (HR & Payroll & Payment) 2. Authorization of Appointment & pay by HR. 3. Pay authorized by HR. 4. New employees authorized by HR. 5. Communication of resigned employees
Payroll System»>Calculating Gross Wages and
Salaries»>Only for real work:
. Prenumbered and authorized Time Sheets (or clock-card system with monitoring). 7. Approval of overtime & bonus. 8. Use authorized time sheet and rates
Payroll System»>Calculating Gross Wages and
Salaries»>Calculated correctly:
- Range Tests.
- Recalculation and approval
of payroll by independent person
Payroll System»>Calculation of tax and other
deductions
- Use latest rates of tax.
- Authorization of voluntary
deduction by employees - Recalculation and approval
of deduction by
independent person.
Payroll System»>Payment of wages and
salaries
1. Authorization of payments by CFO (total as well as individual). 2. Confirmation of identity before payment (for cash, as well as bank transfer) 3. Reconciliation of salaries payable with salaries paid. 4. Timely payment of deductions
Payroll System:Recording payroll in
accounts
- Use authorized payroll.
- Timely recording.
- Reconciliation of
payroll file with
general ledger.
Inventory System»>Recording Inventory
- Segregation of duties (ordering, custody,
recording) - Inventory records.
- Accurate and timely recording of receipts
- Accurate and timely recording of issues
Inventory System»>Physical Safeguarding
of Inventory
- Restricted physical
access. - Inventory count and
reconciliation
Inventory System»>Valuation of
Inventory
- Updated Standard
Costing. - Identification of slow
moving items.
Inventory System»>Management of Levels of
Inventory
- Inventory levels.
Fixed Assets System:Authorization of additions/deletions
- Authorization of purchases and disposal.
- Approval of invoices.
- Sequential numbering on fixed assets.
- Updated fixed assets’ register
Fixed Assets System:Recording of expenditures
- Marking of invoices for correct classification.
- Recording in appropriate accounts.
- Reconciliation
Cash and Bank System:Cash Receiving
1. Segregation of duties (receiving & recording) Controls over cash received through Post: 1. Monitor mail-opening process. 2. Listing of cash received by independent person. Controls over Cash Sales (at counter): 2. Restricted employees to receive cash. 3. Till roll or cash receipts for every transaction. 4. Reconciliation of cash received and recording by independent person. Controls to ensure all money received is banked: 1. Prompt banking. 2. Match deposit in bank with receipts and cash book
Cash and Bank System»_space;>Cash Payments
1. Supporting documents 2. Cancellation of documents 3. Authorization of payments 4. Prompt Recording
Cash and Bank System:Cash Balance»Controls over Cash in hand:
- Restricted employees to
receive cash. - Heavy locked box in
secured place
Cash and Bank System:Cash Balance»Controls over Bank
Balance:
1. Established procedures for new bank account. 2. Segregation of duties. 3. Secure cheque book. 4. Bank Reconciliation Statement. 5. Control over devices used to prepare cheques electronically
Cash and Bank System:Petty Cash
- Set reasonable limit.
- Keep petty cash in a heavy
locked box (or locked drawer)
in secured place. - Spending on pre-approved
expenses only. - Spending should be supported
by documents and recorded
on petty cash voucher. - Surprise checks of petty cash
by independent person. - Petty cash expenses should be
periodically recorded in
general ledgers, after review
by finance manager. - When petty cash is ‘topped
up’, the amount of withdrawal
from bank should be equal to
total of petty expense
recorded.
