Internal control Flashcards
Define administrative controls
Efficient office practices such as separating the duties of employees so that two employees would have to work together to commit fraud
Define Accounting controls
Accounting procedures that are designed to protect the assets of a business, such as, only paying out a tax invoice received after the contents of the tax invoice have been checked against the related purchase order and the inventory actually received
Internal control over cash
- Handling of cah should be separate from recording cash transactions, as employees can’t steal money and make also entries in accounting records
- All cash receipts should be banked daily to ensure that as little money as possible is left on the business premises, money in bank is safer
- All payments should be approved by a senior employee and made by cheque or bank transfer. All payments over a preset limit require a signature of two employees on the cheque, to make sure that payments are properly authorized
- Cash register cleared of excess cash regularly during the day, to reduce the amount of money that could be stolen
Internal control over Accounts Payable (creditors)
- Tax invoices checked against original purchase orders and delivery notes before payment is made, to ensure that a business doesn’t;t pay for inventory that’s not delivered or services that weren’t ordered
- Payments to creditors should be made by cheque and should be approved by a senior employee, to ensure that all payments are properly authorised
- Recording of creditor transactions separated from handling of cash, so an employee can’t steal cash nd make false entries to cover theft
Internal control over accounts receivable (Debtors)
- statement setting out all transactions that occurred each month sent to every debtor, ensure that debitors check for any mistakes and remind them that they owe money
- Only senior employees have to approval write off of amount owing to reduce the possibility of fraud
- Recording of debtor transactions separate from handling of cash so employees can steal it
- Debit accounts reviewed monthly, debitors who haven’t paid their accounts within an agreed time-limited , are to be contacted and asked to pay, and ensure that money owing is paid as soon as possible
Management of debtors
Businesses to ensure rules in place to ensure that only reliable customers are sold products on credit and money owing from debitors are collected in an efficient manner
Conduct credit checks
A business may choose to conduct a credit check on potential customers before agreeing to provide them with a service or credit or to sell them inventory on credit. Business may consider history and employment history of potential customer
EFTPOS
EFTPOS ( electronic fund transfer at point of sale) is a system that allows a customer to use a debit card to pay for products and with agreement of the retailer,to withdraw cash
Advantages of EFTPOS
- Generate more sales as most customers prefer to shop at businesses that offer this service
- Reduce amount of cash held on premises of business as customers pay by depositing funds in bank account of business
Disadvantages of EFTPOS
Fee charged for providing service to customers
Credit cards
A credit card allows the owner of the card to purchase goods and services up to a set limit. A business has to set up a credit card facility in order for customers to use this service
Advantages of credit cards
- Generate more sales as customers prefer this service
- Reduces the amount of cash on premises
Disadvantages of credit cards
Fee charged for providing this service
Direct Debit system
A direct debit system enables a business to transfer money from its bank account to the bank account of a supplier in exchange for goods and services that have been supplied to the business
Direct debit system advantages
Saves time taken to process payment and sends cheques to supplier
