Controls for Outflows
November 12, 2012
Controls for Outflows
Small, midsized, and large businesses need effective controls to ensure that the business has the lowest risk rate possible. The lower the risk, the less likely that fraud would occur. In this analysis, Learning Team B will provide a proposal for appropriate controls to cover cash, sales, accounts receivable, inventory, and production. The team will discuss some prevention techniques to reduce these risks and make recommendations in areas that will help controls within the organization. Cash Controls
Internal controls for cash is essential to ensure that transactions are properly recorded, fraud risk is managed, and management have given the proper authorization for the cash transactions. Internal control objectives also include employees understanding their responsibility and accountability within the company. Each of these controls will allow the company to mitigate any losses. The following are recommended internal cash controls:
Segregation of duties - No one person should control the transaction from start to finish. Example - if a check is received for payment, one person will enter the payment, a separate person will record the payment and a final person will reconcile the canceled checks with monthly bank statements.
Authorization – A fixed price list is an authorization for the proper price for items to be sold. Any difference in the pricing must be authorized by management. Example – A salesperson must get authorization from management to give a customer a 15% discount for a slightly damaged inventory item.
Recording – Sales receipts, invoices, and other sales documents must be pre-numbered and consecutive. Any deviations from this must be approved by management. Example – If the salesperson needs to void an order and re-issue with a new receipt, the reason must be written and documented for management approval.
Physical Control – Sales registers and computers that record cash transactions must be secure with passwords and back up protection for ease of recovery and to mitigate fraud. Example – A salesperson must login to their register with a password before starting their shift. Internal cash controls within the company should be detailed within the company’s policies and procedures. As issues arise during this process, it is essential for management to provide any updates or changes needed to these procedures. Sales Controls
Controls over sales procedures are important for several reasons. Controls over sales help make sure information regarding sales transactions are recorded correctly. More important for the company, controls help guarantee collectability of compensation. These controls also help to ensure the company receives accurate and timely payment from customers (Zeepedia, 2012). Sales controls also help to encourage employee integrity to help prevent fraud. Sales controls also benefit the customers by ensuring they receive correct pricing and receive their invoices in a timely fashion. Following are some suggestions of appropriate sales controls:
Buyer credit checks should be performed before accepting buyers, as authorized customers to ensure payment for goods are collectible.
Customers granted credit accounts should have credit limits to prevent overextending credit amounts.
Customer orders should be authorized and recorded in a timely manner.
Invoices, credits, and returns should be authorized to ensure accuracy of receivable and sales return accounts.
All sales should be recorded on pre-numbered documents or in software with pre-numbered documents.
Invoices should be examined for accuracy and correctness.
Daily price checks of inventory to guarantee accurate prices on invoices.
Invoices copies should be kept on file.
Invoice cancellations should be documented accurately with detailed information. Each control plays a part in the sales procedures that help mitigate risks. These...
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