Internal controls safeguards the assets of a business through the implementation of administrative and accounting procedures. The aims of internal control are to prevent theft and fraud; prevent errors from being made in the first instance; Detect errors if they are made; Increase efficiency.
There are Accounting and Administrative controls which should exist in a business. Some of these include Separation of duties; Physical controls and sound accounting practises. Each of these will be explained in this report. In this report the internal controls over cash that are presently being addressed and those that are require attention to improve the current situation will also be addressed.
The duties of personnel should be separated so that the work of one employee acts as a check on the work performed by another. The possibility of theft or fraud is minimised as collusion would have to happen for this to occur. Physical controls ensures that financial records and assets are safeguarded. Physical controls ensures safeguard financial records and assets by using safes and secured storage areas within locked buildings, keeping keys secured and employing surveillance equipment and/or security staff. A system designed with sound accounting practises of check and balance offer control and security over all types of accounts. Routine and random independent checks should be made to verify the accuracy of the accounting records and physical location, condition and number of assets held. The use of pre-numbered source documents, a chart of accounts and comparative analysis are examples of sound accounting policies and practises that aid internal controls in a business.
Currently, the business has established a safe which acts as a physical control for all small items of expenditure. This is a positive control being implemented by the business as it ensures that the items remain intact. The business has ensured that they have records of every transaction via the use of receipts. This use of receipts shows positive controls being implemented throughout the business. By having a safe and cheques it ensures that sound accounting practises are being followed.
The business is currently not writing receipts at the time of the transaction, which can lead to fraud. The business only has one person who is handling the money, therefore there is no rotation of duties and there is no separation of duties. Sally is the only person who handles the money and therefore she can only bank the money when she has time, money should be deposited every transaction. Ms Russell only banks the larger amounts of cash, and therefore places the smaller amounts of money in the safe for future use, which means that the money is never making it to the bank. By not banking intact there is no correct statistic showing what money they are making. Petty cash funds are vital in a business to all the business to pay small amounts of expenditure. Leaving bank cheques already signed, increases the chance of fraud and also means that anyone who walks into the business can take it. The business does not currently have a bank reconciliation statement prepared and because of that the business is at risk of not having correct…