Internal Controls Essay
Accounting 1010 section 6
Let’s first talk about what “internal control” means. It is a process that helps to protect the assets of a company whether that asset be money, equipment, or merchandise.
What are the objectives of internal controls?
• Safeguard assets (accounting) such as cash or merchandise from loss or theft
• Compliance (administrative) of laws and regulations
• Accomplishment of goals (internal) of sales, profits
• Reliability and integrity of data (accounting)
• Economics (administrative)
The two most important are the accounting controls
There are five areas of internal control:
• Control ...view middle of the document...
I would make it too easy to steal from the company ! If the owner reconciles the records it keeps people honest or accountable.
recording and monitoring transactions to safeguard the assets of the company
For every transaction there should be documentation to show what happened. There also needs to be documentation to “prove” the asset amount in the accounting records. It is best if the company has an off site electronic storage system. The best controlled document system is the old fashion system with purchase requisitions, purchase orders, receiving reports etc. But today the modern approach is approved vendors are given access to the bill of material file and the production schedule and then a blanket order agreement is entered. The vendors ship and bill based on the above rather than waiting on specific orders.
3. Personnel policies
Control activities of policies and procedures put into place by management
Sound personnel practices such as background checks, bonding employees who handle cash or inventory, rotating key people among different jobs and insisting employees take their vacations are key to a successful internal control program.
4. General atmosphere
Is created by management’s overall attitude, awareness and actions
Top Management need to reinforce policies and back up mid-managers as needed. There needs to be a “walking boss” as we like to say at Erlanger. A good manager observes what is going on with his people – pops into different areas at different times of day to keep employees accountable. A company should show the employees that they are diligent in maintaining internal controls with internal audits, computer controls and physical controls such as locks, alarms, fences.
5. Risk Management
identifying areas in which risk of loss is high so controls can be implemented
The risk management team can be accounting people or risk management people
They help the company determine probabilities of bad events occurring and what the probable cost would be if it occurs. Different methods of dealing with risk are assuming the liability or doing things to reduce the risk of the event like installing sprinkler systems in buildings or installing a security system to guard against theft, or insuring the company against the risk.
Specific Objectives for Cash and Receivables
Safeguard your assets (accounting)
Use bank accounts, maintain control over the use of bank accounts, keep the minimum amount of required cash on hand.
Compliance with regulators and laws that are in place (administrative)
Create policies like: Not Classified as cash unless ______________________
Not classified as cash equivalent unless ____________________
Reliability and integrity of the data
Financial statements as close to accurate as possible, no inflating or deflating numbers to impress or persuade investors or stockowners.
Efficient and effective use of resources. For example keeping too much cash on hand is not...