Question

QUESTION
During the examination of internal controls for a client’s accounting system, the following issues were
encountered. In each case, using the table below, explain why each represents a weakness in internal
control and propose changes to improve internal control. Situation Why a weakness? Suggested improvement Duplicate debtor records were identified in the accounts received master file. There is no requirement for users to change their passwords regularly. Several debtor records have no name and address fields. During the entry of sales transactions, the operator miskeyed debtor number, and the transactions were posted to the wrong debtor records. Occasional changes are made to computer programs on the production system (used for daily transaction processing).

Answer 1

Sl No	Situation	Why a weakness?	Suggested Improvement
1	Duplicate debtor records were identified in the accounts received master file.	Debtors Management is a critical process in accounts management as debtors constitute one of the prominent current assets for every company. Duplicate Debtors records can lead to less efficiency in debtors management and poor recovery of the due amounts. It causes a good amount of revenue loss for the company.	Seggregation of duty:- Assigning a particular accounting staff to manage the debtors alone which improves the overall efficiency of the accounting department of the company.
2.	There is no requirement for users to change their passwords regularly.	The requirement for changing passwords is essential to improve the internal security of the company. Passwords if not changed at regular intervals are prone to threats of unauthorized access from employees within a company or from outsiders	The need to change passwords every 3 months need to be mandatorily implemented throughout the organization. There should also be a policy not to disclose the passwords to another staffs.
3.	Several debtor records have no name and address fields.	Debtors management is a critical area in the accounts department. Debtor records without critical information such as debtor name and address makes it difficult to track the payments and order details corresponding to that particular debtor in future.	Seggregation of duty:- Assigning a particular accounting staff to manage the debtors alone which improves the overall efficiency of the accounting department of the company.
4.	During the entry of sales transactions, the operator miskeyed debtor number, and the transactions were posted to the wrong debtor records.	It causes confusions in debtors payment tracking and order tracking. It will also lead to providing incorrect debtor balance confirmations at the time closing of accounts.	Seggregation of duty:- Assigning a particular accounting staff to manage the debtors alone which improves the overall efficiency of the accounting department of the company. Obtaining balance confirmations with the debtors on a monthly basis can ensure the correctness of accounting and makes it easy to track any mistakes or omissions in accounting.
5.	Occasional changes are made to computer programs on the production system (used for daily transaction processing).	Occassional changes can lead to instability in accounting of production costs and inventory tracking.	By only allowing authorized and experienced personnel to effect changes to the computer programs is required to reduce the effects happening out of such changes.