Question

1. Most small companies have a problem with proper internal control. What would you do to improve the situation below?

A small company has a one person office. This person handles all inflows and outflows of monies. A separate individual makes deposits weekly. The owner has access to all records, accounts, company credit cards etc. The individual who is head of advertising can also issue checks and has access to accounting records.

Answer 1

Internal controls are the mechanisms, rules and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability and prevent fraud. Besides complying with laws and regulations, and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting.

As per given case following things can be done:

1. All should not have access to accounting record. Only the person who his handling inflow and outflow of money and the owner himself should access all records. Head of advertising has nothing to do with accounts. There are chances that he may do some unwanted changes.

2. Even if all has access to see records they should check weekly bank statement or monthly bank statement to see whether the person who is handling inflow/outflow is doing his job properly

3. Using payment cards for business expenses can simplify accounting and tax preparation. However, the more employees have company credit cards, the greater the chance of fraud. Require employees to document all business expenses with detailed receipts.

4. Company should create weekly cash flow statement. If actual cash flow falls short of projections, investigate to find out why it happened

5.If one person couldn't handle all inflows and outflows of the company than appoint a second employee to authorize all petty cash transaction.