Kudler Internal Control & Risk Evaluation
In order for a company to be successful and maintain its integrity, internal controls are necessary. If Kudler should decide to utilize industry-specific software, then the company would need to evaluate the internal controls and risks associated with the four systems (payroll, accounts payable, accounts receivable, and inventory). Currently the company does not have any real controls in place to reduce risks. The following information will discuss Kudler’s current internal control risks, ways in which to mitigate those risks to the systems, and evaluate the application of internal controls to the new accounting system.
Risks in the System
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The person that approved the invoice or entered the invoice should not be the person who is signing the check.
The accounts receivable department and system should also have a segregation of duties. The person who is responsible for physically making the deposits into Kudler’s bank accounts should not be the same person who is receipting those deposits into the accounting system. Once those deposits are entered into the system, a completely different person should be confirming what was receipted into the system. This process will ensure that the information is accurate and reliable as well as ensure integrity.
Inventory has been an issue with Kathy, the owner and President of the company, for some time now, because it takes up too much of her time. Inventory should only be automatically according to updates in the system. When something is sold the new item should automatically be ordered as to keep managers and employees from having control over items. This could potentially reduce the risk of theft by employees.
Mitigating System Risks
To mitigate risks to the system, different internal controls must be designed for Kudler. First and foremost, Kudler needs to have structured policies and procedures, and the company needs to effectively communicate them to employees. To protect theft or misuse of company assets, only authorized personnel should have access to the company system. Every employee who has access to the system must have a unique username and password that is not to be shared with anyone. Also, employees need access to the modules for the department in which he or she works. For example, the purchasing department does not need access to any other module, such as the Bank Reconciliation module.
Application of Internal Controls
Implementing policies and procedures gives management the peace of mind knowing company assets are “being safe guarded and that the accounting data processed by the accounting system are reliable” (Bagranoff, Simkin, & Strand, 2008, pg. 244). Limiting computer access...