Question

2. Also indicate those internal control measures that need to guarantee a satisfactory execution of these tasks.

Finance company

A finance company grants credits with various terms, partly on security and partly blank. Second or third mortgages are accepted as security. Collateral in the form of cars, boats and the like are accepted as well. Credits may be granted at a fixed interest percentage during the entire credit term, or at percentages which are adapted monthly to market developments. Monthly installments are either fixed amounts or annuity determined (a fixed sum of installments and interest).

Furniture store

A furniture store sells against cash payment and on account. Sale on account is offered only to clients with a valid machine-readable charge card (badge). The store uses two systems for billing sales on account: monthly invoices or (separate) invoices for each transaction. Monthly invoices are due within one month of the billing date. The other invoices concern larger purchases and are payable in three monthly installments. The store uses a microcomputer for periodic billing and the accounts receivable administration.

Answer 1

Finance Company

Calculation of instalment amount in case of interest percentages adaptable monthly to market developments should be accurate as per loan agreement. Post dated cheques are collected that can be deposited if the instalments are not paid and legal action taken. If more instalments are not paid, then notice may be given to the borrowers before taking action to recover by selling the security.

Police should be immediately intimated if the borrower relocates to another address without giving details. Complete identity proof, address proof of the borrower should be collected before giving loan to the borrower.  

Furniture store

The badge should be issued against valid address proof, identity proof and after updating the address and personal details of the buyer in the micro-computer. The badge should contain the photo of the buyer and the badge should not be allowed to be used by any person other than the photo of the person to whom the badge is issued. The badge may be misplaced / stolen and so the person to whom the badge is issued (as evidenced by photo on the badge) should accompany all purchases against the badge. Separate badge should be issued to each member of the family and purchases should be allowed only against their photo badge.  

Post dated cheques should be collected for all on account sales. These cheques should be deposited in case payment is not received on the due date. Legal action should be taken if the post dated cheques deposited are also dishonoured.  

All changes in address of the buyer should be immediately communicated to the store failing which the store may resort to police complaint if the buyer is not traceable.  

Regular visits / phone call to the buyer around the due date should be made by personnel of the store to catch early symptoms of non-payment.  

Sales should not be made to the buyer having overdue amounts against him. The buyer should be asked to make the payment of overdue amounts before further sales. The members of the same family / entity (company, business etc.) should be tracked in the micro-computer and sales should not be made if any of the members have overdue balance. Credit limits should be fixed at buyer level as well as family / entity level to ensure that sales are not made above approved limits to the buyer / entity.