Internal Control for Inflows

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RUNNING HEAD: Internal Control for Inflows

Internal Control for Inflows

ACC/ 544

Internal Control for Inflows
Internal controls are important to a business. The internal controls provide a safeguard against errors in the accounting system as well as the detection and prevention of fraud. With the inflows of the company come many risks that need to be considered. The ways in which cash, sales, accounts receivable, inventory, and production are handled within the company are different for each division. The internal controls may vary from department to department, but the end result is to protect the company from the risks that can arise. Cash

Cash is a company’s most liquid asset and presents the highest inherent risks for fraud. Internal controls over cash are very important. Cash inflows consist of cash payments from customers in the form of both cash receipts and cash collections on customer accounts. Companies may collect cash at the time of sale, as a form of payment on accounts receivables, as electronic funds transfers, or even in a lockbox account (Louwers, Ramsay, Sinason, Strawser, 2007). When processing the payments, it is important to have internal controls to protect the company from errors or fraud. One type of control is to have two or more authorized employees in control of opening the mail and receiving the cash payments. The risk of fraud is lowered by having multiple employees responsible for opening and recording cash payments, but there is still a chance that the employees will participate in collusion. Another internal control over cash inflows is to require that authorized employees immediately endorse checks and prepare a record of all cash payments. Cash payments should be separated from the company’s bookkeeping documents. The next step is to forward the cash on to the company’s cashier’s office or company treasurer. The company treasurer or cashier writes up the proper paperwork for the deposit and sends the cash deposit to the bank for processing (Louwers et al., 2007). Daily cash deposits should be deposited so that the cash is not withheld and the daily transactions stay intact. As another precaution, the accountants responsible for posting and recording cash receipts should never handle the actual cash. Instead, the accountants should use the source documents to enter and record cash activities (Louwers et al., 2007). An independent employee should receive all source documents such as the bank deposit slips, check list, and recorded payments so that the accounts can be reconciled daily. This ensures that the cash has been received and posted to the proper accounts. Sales

Within the realm of sales, various elements go into the process from start to finish. Because of those assorted sales functions, several management concepts must be in place to ensure that the control is maintained. This section will provide various types of sales and the controls that are essential for a company in today’s business climate. The first type of sale to be discussed is purchases made with credit, as people use this type of sale for many different industries ranging from construction to retail. “Customers initiate sales orders in a variety of ways. They send in purchase orders, place orders by phone or over the Internet, or simply come to the company’s place of business and buy their goods” (Louwers et al., 2007, p. 253). To control this, the company must ensure that customer orders are accurately placed and verified by the customer. This is because without having confirmation of the order, the company needs to ensure that the customer has the credit available and has the means to pay. This will “ensure that the customer will be able to pay for the goods or service. Because various authorizations are imbedded in a computer system, access to the master file for additions, deletions, and other changes must be limited to responsible people” (Louwers et al., 2007, p. 253). The reason for...
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