UOPX ACC 544 - Proposal of Controls for Inflows

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Proposal of Controls for Inflows Every company needs an adequate internal control system to minimize the risk of errors in the company’s accounting figures, attempts of fraud, and to ensure that the company abides to their production and managerial policies and procedures. Promoting employee efficiency remains important and helps keep investors apprised of the operations within the company and ensures they understand the company’s financial standing with regard to the integrity of its internal control system. Following is a proposal depicting a design of the internal controls for the inflowsof a company that include cash, sales, accounts receivable, inventory, and production. Cash Key areas for the design of cash controls include: • Cash Security • Acknowledgement of Cash Receipts • Separation of duties • Review and Reconciliation Cash or cash equivalents are the most liquid asset a company owns. Cash is easy to transfer and not uniquely identifiable. Proper internal controls are crucial for inflows of cash, as cash is harder to trace. Cash Security proves the most important. Cash should remain in a secure location at all times whether in a safe, vault, or locked drawer or file cabinet. If combinations areused to secure cash, they should be changed frequently. Performing the proper background checks on perspective cash handlers remains a simple and effective method to control cash. Access to cash should remain limited and an access log should be kept for tracking purposes. To keep the environment safer for people handling cash, a buddy system made be used when transporting cash (UC San Diego, 2009).Written acknowledgement of cash receipts documents the transaction when it happens. Two copies of the acknowledgement should be produced; this provides documentation to both parties involved in the transaction. The acknowledgement of cash should include identifiable information, such as name of payer, date cash was received, account number or posting account, reason for the payment, and the name of the person receiving the cash. Separation cash handling duties proves an important step to protecting cash inflows. Different people should each be responsible for each step in the cash process. A separation may include one person receiving and recording the cash, another person who verifies the cash and makes the deposit, and another person to reconcile the records against bank records. Reviewing and reconciling cash receipts frequently, leaves less room for error and fraud. It provides sufficient checks and balances that transactions are recorded properly and accurately. Review and reconciling covers comparing receipts to deposit records, ensuring cash is recorded when received, counting, and balancing cash daily, and performing surprise random cash counts. Reviewing and reconciling activities assist in reducing errors, discrepancies, and irregularities, including the loss or theft of cash receipts, and inaccurate application of cash receipts (UC San Diego, 2009). Sales controls Key areas for the design of sales controls include: • Revenue recognition • Collect ability of accounts receivable • Customer returns and allowances • Receiving and processing customer orders, including credit granting • Delivering goods and services to customers• Billing customers, and • Accounting and accounts receivable Revenue is recognized when it is 1) realized or realizable, and 2) earned. The Security and Exchange Commission (SEC) has stated that revenue is recognized when all of the following criteria have been met: • Persuasive evidence of an arrangement exists • Delivery has occurred or services have been rendered • The seller’s price to the buyer is fixed or determinable • Collect ability is reasonably ensured (Staff Accounting Bulletin No. 104, “Securities and Exchange Commission.”) Customer orders and shipping document should be pre-numbered so that sequences can be checked to verify that all transactions are accounted for and no duplicates exist. No sales order should be entered without a customer order. Controls for receiving and processing customers order should include an authorization for credit, if applicable. The authorization should either be from a computerized system that the sales rep/order takers have limited access to or should be approved by someone other than the sales representative. A credit check code or manual signature should be recorded for the authorization.A master price list should be used to ensure authorized and consistent pricing is applied. Someone other than the sales representative should approve any variation from the master price list. The master price list should have limited access to change records. Physical custody of inventory should be controlled and documented to that any inventory released is authorized by a sales order and delivery of the good to customer is also documented. Access to inventory and shipping area should be limited to authorized personnel.Once delivery is completed the transaction should produce a final invoice for the customer, for the records in recording the sale and account receivable. Access to billing systems and blank invoices forms should be limited to authorized personnel. Accountants should be required to onlyrecord sales and account receivable when all supporting documentation of a shipment is presented. Dates are important and should be re3viewed to ensure the transaction is in the correctrecording period. Any system access to customer files, master price lists, shipping addresses, inventory, accounts receivable, or credit files should be restricted to those with authorization. Any changes made should be logged to show the ID of the person authorizing the changes. Any errors found should be documented and corrected to enable the prevention of future similar errors. An internal control questionnaire should be used to ensure that management’s design is accurately implemented as documented, or that corrections are make to either the documentation is it needs to be updated, or to the practices of the employees if they have varied from prescribed procedures without authorization. Accounts Receivable Controls Key areas for the design of accounts receivable controls include: • Billing practices • Deposits • Returned Checks • Collection process • Bad debt expenseBilling practices are based on established procedures. Billing statements should be recorded in a designated accounts receivable


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UOPX ACC 544 - Proposal of Controls for Inflows

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