WRITTEN ASSIGNMENT WEEK 4
Read the case study from the American Institute of Certified Public Accountants (AICPA) about Machine Manufacturing Company; Case studies in internal control.
From the case study, do the following analysis from your own words (use APA format):
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Submit a 2-3 pages case analysis, (excluding the title page and reference page) double-spaced in Times New Roman font which is no greater than 12-points in size. Paper and all citations should be in APA format. Send it to maggrabillo@rtu.edu.ph
After sending through email, kindly post in rich text format your case analysis by commenting on this post.
Deadline for accomplishment: November 10, 2021
1. How can Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are a tool that allows an organization to be more effective and efficient while also preventing major problems such as failures in operations and violations of the law from occurring. Internal controls are procedures, policies, and laws that are adopted within an organization to provide reasonable assurance that the management achieves its goals and performs its duties. Internal control systems that are well-designed assist the company in ensuring that their assets and data are safe and safeguarded, so making the financial accounting information more reliable and instilling greater confidence in their financials. Aside from that, internal control systems assist businesses in achieving operational objectives by increasing the efficiency and effectiveness of operations within the firm. Every business is created to achieve specific goals, but there are several risks that can prevent them from accomplishing those goals. Internal control is one method of overcoming these risks. Although having an internal control system does not guarantee that the business will experience zero loss or risk, it will considerably assist management in reducing the risk of loss and improving process performance.
2. Identify the biggest failure of the internal control of The Machine Manufacturing
Company and what will be your recommendation to improve their Internal Control that should have prevented risks?
The most serious failing of internal control at The Machine Manufacturing Company is a lack of internal control in cash, as evidenced by the failure to separate the functions of receiving cash and disbursing cash. Internal control failures in property, plant, and equipment, such as the failure to check plant ledgers by conducting periodic physical inventory, are examples of this. A lack of internal control in sales can manifest itself in the form of erroneous and incomplete shipping records. I'll recommend that all receipts be placed under accounting record management, if they are not immediately deposited, in order to increase their internal control over risk prevention and mitigation. I'll urge that their plant ledgers be examined on a regular basis, and that their assets be physically inventoried on a regular basis as a last check. As a side note, I'll urge that prenumbered shippers be prepared for any and all things that leave the factory.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
The issue regarding insufficient internal control in payroll is one that should have been stressed more heavily. Payroll is extremely important because it typically includes a significant volume of money, and it should be given more attention. A business that does not have sufficient internal control systems in place can have a significant impact on the firm. In rare cases, the company may overpay some of their dishonest employees, resulting in the loss of their assets. Additionally, if a company pays their employees late, the employee may get dissatisfied with the organization.
Reference:
Audit Board (April 17, 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program
April 17, 2018. Retrieved November 5, 2021, from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
CASAL, CHRISTIAN T.
CBET-01-503A
1. How can Internal Control help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are procedures that enable a company to protect itself and achieve its goals by reducing risk. They help reduce risks and safeguard assets, as well as maintain record accuracy, improve operational efficiency, and foster compliance with policies, laws, and statutes (Auditboard, 2018). Every business exists to achieve particular goals, but there are numerous hazards that can derail those goals. Internal control adherence is implemented to reduce risks and improve the organization's chances of reaching its goals. Internal controls that are well-designed keep the business running smoothly and successfully, and they can also aid with regulatory requirements. Because operational results and financial health are intrinsically tied, enhancing operational performance will benefit the business' overall success. This system will directly affect the performance of the organization as it will look at the operational, strategic, compliance, and reporting objectives are met (Murdock, 2016). Internal control definitely helps the organization towards achieving its goals as it will constantly regulate the business functions and operations.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
There was not any organizational chart or handbook of operating procedures which then resulted to muddled lines of authority and accountability, duplication of work, insufficient procedures, and weak internal control. Because all records kept in the branches are under the authority of the branch managers, there is virtually minimal internal control in any of the branches. It was also found that there were an inadequate amount of employees at the branches which made the daily business operations very difficult to go by successfully. To improve their internal control, I recommend them to tighten home office authority over the branches, have an organized department to focus on their detailed works, conduct regular inspections to ensure that proper and clear systems are being followed, train and educate the staffs properly, and always conduct a risk assessment and management reports.
LEYCO, PATRICIA DENISE P. (2019-101438)
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteThe auditor recommended a lengthy list of suggestions to improve and enhance the business operations of The Machine Manufacturing Company as there are also a lot of internal control issues found. The lack of internal control was so obvious that meetings with management and written proposals to the president were the most satisfactory technique of resolving the situation. I think that was the best way to address the issues. Properly report and communicate to the head of the company so that he/she may be aware of the dangers and risks that the company is exposed to and so that proper application of solutions will be administered. The proper number of workers should be emphasized more as they are the ones responsible for the completion of all the pending tasks and duties of the company. The company should look for more skilled and competent employees in order for them to sufficiently divide and allocate the tasks needed to be done. Also, with an adequate number of employees, they will achieve all of the business operations effectively. If this was not emphasized enough, the company may continue to reach its downfall. They will still encounter the old issues and would probably face newer challenges.
References:
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Murdock, H. (2016). Operational Auditing: Principles and Techniques for a Changing World. Taylor & Francis Group, LLC.
LEYCO, PATRICIA DENISE P. (2019-101438)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are one of the most important aspects of every business. Internal controls are used to help businesses achieve their objectives and missions. Management is in charge of the design, implementation, and maintenance of all internal controls, while the Board is in charge of the control environment's overall oversight. Organizations can achieve three key goals thanks to strong internal controls. Accurate and trustworthy financial reporting, compliance with rules and regulations, and the efficacy and efficiency of the organization's operations are the three goals. An internal control structure must be implemented and followed throughout the business in order to achieve these goals. Control environment, risk assessment, control actions, information and communication, and monitoring are the five components of the internal control framework (Cerini Associates, 2016).
The first component, the control environment, is critical because it serves as the foundation for the other four internal control components. The control environment establishes the tone and offers discipline and structure at the top of an organization (Cerini Associates, 2016).
Internal controls are procedures that enable a company to protect itself and achieve its goals by reducing risk. Internal controls that are well-designed keep the business running smoothly and effectively, and they can also aid with regulatory compliance (Auditboard, 2018).
Internal control guarantees that an organization's resources are utilized for their intended purposes, reducing the risk of misappropriation. When clear processes and norms are specified, it also allows for improved efficiencies (Auditboard, 2018).
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Internal control at the Machine Manufacturing Company is lacking. The company failed to isolate the function of receiving cash from those connected to Sales invoices and customer statements, Customer ledgers, Mailing or delivering checks, Bank reconciliations, Cash disbursement, and General accounting records, according to the specified check-list. They also neglected to separate the functions of disbursing cash from those of bank reconciliations, payroll preparation, approval of payment vouchers, and general accounting records. With this, we can anticipate a risk and for them to mitigate the risk, they should monitor their system in terms of receiving and disbursing cash.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
I noticed that their control of physical inventories was completely lacking. It is alarming because inventory is quite expensive. They should also focus on monitoring their inventory, and maintain complete and accurate records of their inventory to prevent losses. The risk that we can anticipate is that if the inventory was not emphasized, they might encounter a loss of inventory because they did not have accurate inventory records.
REFERENCES
AuditBoard. (2018, April 17). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Cerini Associates. (2016, February 29). Key Components of Internal Control. https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
Batjer, Jennalyn P.
2019-101439
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteEvery business exists to achieve specific objectives, but there are various risks that might prevent those objectives from being met. Internal control compliance is implemented to reduce risks and provide the business with a greater possibility of meeting its objectives. Furthermore, implementing effective internal controls may help establish the tone in a business. A business that does not effectively develop internal controls is considerably more likely to face several problems. If internal controls are established and managed appropriately, the business will be able to accomplish its overall objectives (Auditboard, 2018 & Bock, 2021).
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of the Machine Manufacturing Company is the failure to segregate the function of receiving and disbursing cash. This failure might lead to the risk of fraud or an error in the financial records. To increase their Internal Control and prevent the occurrence of risks, the company must have a proper division of duties between those who execute accounting processes and those who manage assets. The flow of processing transactions and associated activities should be organized so that the work of one employee is either independent or helps to check on the work of the other. Such structures lower the chance of risks and restrict possibilities in committing fraud in the financial statements.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The recommendation should have been emphasized more is that all bank account reconciliations should be prepared by an employee other than the chief accountant in as much as the latter is authorized to sign checks and maintains general accounting records. Every bank statement should be reconciled by someone who is not involved in the cash receipts and disbursements operations. If the recommendation has not emphasized, it might lead to fraud, unauthorized withdrawals, or bank errors. These problems might cause cash flow breaches, which can hinder the company's operations and development. For this reason, having an independent person prepare the reconciliation helps to ensure separation of duties and prevents fraud.
References:
Auditboard. (2021). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Bock, M. (2021). The Importance of Internal Controls. https://www.cpapracticeadvisor.com/accounting-audit/article/21232325/the-importance-of-internal-controls
-FRANCIA, ANGELIKA D. (2019-101440)
Internal controls are procedures that enable a company to protect itself and achieve its goals by reducing risk. Internal controls help to reduce risks and safeguard assets, as well as maintain record accuracy, increase operational efficiency, and promote adherence to policies, rules, regulations, and laws. Internal controls might be preventive or detective, automatic or manual, and all of them are influenced by individuals. In simpler terms, it is a vital field in an organization’s success. Effective internal control will help to achieve the overall objectives and strategies by providing reasonable assurance regarding the operational objectives, such as operational performance and efficiency, accurate and trustworthy financial records, and adherence to applicable rules and regulations. It will also reduce risk and will boost process efficiency. Internal control guarantees that an organization's resources are utilized for their intended purposes, reducing the risk of misappropriation. When defined protocols and norms are established, it also allows for higher efficiencies. It will also improve business and process owners' responsibility. Controls are the property of critical members of the team. These people are in charge of monitoring and implementing internal controls all year, not just during audits. Internal operations and business functions are stabilized by providing consistent and long-lasting effective measures for its operations. Effective internal control also indicates a higher level of trust in the company's financials. Stakeholders will have more faith in the company’s financial statements. Compliance with internal controls indicates a more secure investment. The company can save money and limit the number of issues during a sale by putting in place internal control systems before going public or being purchased. Organizations with well-established internal controls may be able to lower the scope, time, and fees charged by external auditors. After an external auditor review, you may be able to lessen the requirement for changes and rebuilding the software. It will be a big save for the company and will allow them to reallocate their budget to a more important thing.
ReplyDelete-----to be continued
-----continuation
DeleteThe Machine Manufacturing Company's most evident internal control flaw, in my opinion, is the lack of cash internal control, as indicated by the failure to segregate the functions of receiving and disbursing cash. The issue of insufficient internal control in payroll, in particular, should have been emphasized more strongly. Payroll is particularly important because it usually involves a large sum of money, and it deserves more attention. According to the audit list, the organization failed to isolate the function of receiving cash from those associated with sales invoices and customer statements, cash disbursements, delivering checks, customer ledgers, bank reconciliations, and even in its general accounting records. Given that they failed to properly conduct these processes, they should focus more in their system with regards to the disbursement of cash.
Out of all the recommendations provided by the respective auditor, one more thing that I noticed was the bank reconciliation statements were prepared by someone who is involved in the operations. Where, it should be prepared by someone who is not involved or connected to any participants to avoid any bias reports or even misleading information. Thus, having someone who is independent and authorized to do and prepare the bank reconciliation statements will ensure that the company is still on track and is faithful to its reporting.
References:
Audit Board (April 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved 11/05/2021. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
American institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Carlos, Leila Lauren M. [2019-101650]
An organization or a business fail to designate internal control are more susceptible to risks which caused the organization to fail. Internal controls are procedures and policies that are put in place within the organization with the aim to minimize the risks that prevents the organization to attain its objectives. According to AICPA, “Internal control comprises the plan of organization and the co-ordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.” It is designed to provide a reasonable assurance that the objectives in terms of the effectiveness and efficiency of the operation; reliability of financial reporting; and compliance with applicable laws and regulations are achieved. Through implementation of internal control, it reduces the threat of fraud since information are reliable, accurate and timely. It also improves accountability, stabilizes the operation, organizes information, and it does not only address risks but also reduces the incurrences of unnecessary cost or effort (Indeed Editorial Team, 2021). Technically, internal control plays an important role in any organization or business in attaining its overall objectives and properly execute its strategies. But do take note that only effective internal control can help the business or organization, so it is important that existing internal controls should be examined if it is still effective or not.
ReplyDeleteBased on the data given on the case study, The Machine Manufacturing Company obviously have a weak internal control but its biggest internal control failure is in the cash section, supported by the evidence of numerous failures such as the segregation of receiving and disbursing cash with regards to their function that relates to bank reconciliation, general accounting standards and other items, lack of supporting evidence for all petty cash disbursement and etc. My recommendation to their internal control in cash would be define the functions of each line item in the cash section and must be discrete in order to eliminate any confusion, segregation of duties in handling cash is also applicable. Another is to have a recording system which records all the transaction, including petty cash disbursement.
The auditor of the Machine Manufacturing Company provided a list of recommendations that would help to improve their internal control. Among these recommendations provided by the auditor, I think the accounts payable section should be reiterated more. The risk involve in this section can be internally and externally. The risk that might arise in the accounts payable section is misstatements of financial records that could lead to internal or external fraud. Another is the delay of payments that would make the supplier to send multiple invoices which could lead to duplicate payments. These are some of those risk that the Company may encounter, thus emphasis in this section is important.
REFERENCES:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Chambers, A. & Rand, G. (2010). The Operational Auditing Handbook: Auditing Business and IT Processes. John Wiley & Sons, Ltd. ISBN 978-0-470-74476-5. Pp 117
Indeed Editorial Team. (2021, March 18). 12 Reasons Why Internal Controls Are Important in Any Business. Retrieved November 06, 2021, from https://www.indeed.com/career-advice/career-development/importance-of-internal-controls
Tandayu, Lexter M. (2019-106755)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control, which is synonymous with management control, is a major part of managing an organization. It comprises the plans, methods, and procedures used to meet missions, goals, and objectives; and in doing so, supports performance-based management. It also serves as the first line of defense in safeguarding assets. Internal control prevents and detects errors and fraud. It helps government program managers achieve desired results through effective stewardship of public resources. Systems of internal control provide unmodified assurance that the following objectives are being achieved Effectiveness and efficiency of operations, the reliability of financial reporting and at last the compliance with applicable laws and regulations.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of The Machine Manufacturing Company for me is that they failed to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts. And my recommendation to them in order to improve their Internal Control that will eventually prevent risks is that to the company should review their operation measure applied and improve in their system of internal control by training their staffs and changing the corrupted ones.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The recommendation should have been emphasized is that all blank checks should be accessible only to persons preparing, in order to locate that exact person who did this kind of controversy and fraud and also to enhance the accountability of every employees especially the accountant to ensure the proper procedure of every transaction that they are going through. And if this recommendation has not emphasized, it is hard for an external and internal auditor to locate the main cause or the person behind this anomalies , which eventually lead to a downfall of a company, because of the losing trust they receive from the customers and also the government.
Dayola, Charls Daniel L.
2019-107001
Reference:
IRM 1.4.30, Monitoring Internal Control Planned Corrective Actions.
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteA firm seeks profit and improves its marketing, but as it grows, it meets flaws in its cash flow, anomalies in reports, a lack of consistency in its security, and so on. All of these are obstacles that a company must consider while organizing its entrepreneurship competition. The objective is to first train its employees to know every corner of the room. This brings us to the significance of internal control; being in control is a duty that comes with a lot of authority. This power is only useful if you make an attempt to execute, even if you are in a little business. Internal Control is important for a business since it evaluates what, how, and where it should improve during the course of its existence. From the perspective of an employee, you must be aware of who your managers are. Without knowing who your superiors are, the flow of work may be disturbed, and vital information, such as data or assets, may be misdirected to other ranking positions. This can lead to major problems in the business, possibly leading to the failure of the entire organization. It is recommended that you offer your employees an organizational structure that will help them know where to go and who to consult with. This stresses the need of internal control; as previously said, without control, the firm and its stakeholders would be perplexed, and everyday operations will be inefficient. In contrast to having the suggested organizational structure, an employee will know who to respect and who to follow. Internal control differs depending on the policies in place at a company. It may be used for specific findings that are immediately investigated by auditors to assist the business in dealing with its shortcomings. The overall goal is to enhance the workplace and ensure that all assets, accounting data, and so on are protected from internal benefit.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
In the study, it demonstrates that they do not have proper control over anyone in their organization. Another blunder is the mishandling of cash and its receipts or ledgers. According to the researchers, the company is struggling to segregate the operation of accepting cash, some of which were that the statements to customers which weren't forwarded month by month were all those covering multiple smaller balances of less than $5 that remains largely on the financial accounts after "the last" agreement of the accounts. These quantities often reflected discounts taken by consumers at the time of purchase and not written off by the company as discounts. This had an effect not only on the cash flow, but also on the personnel, since they had to supervise and regulate the distribution of home office employees' salary for one payment period. Based on the research, I believe I agree with the suggestions made, which are that all transactions should be subject to accounting record management if they are not deposited promptly. The banks should stamp any duplicate deposit slips. Prenumbered checks should be used for all checks. The main office should perform all reconciliations, with all branch checks submitted directly to the home office by the depositories each month. All branches should have two bank accounts: one for receipts and one for disbursements, both of which should be paid by the home office on an imprest basis. All canceled checks should be kept. Only those preparing checks for signatures should have access to blank checks. Because the chief accountant is permitted to sign checks and keep general accounting records, all bank account reconciliations should be prepared by someone other than the chief accountant. All petty cash distributions must be accompanied by a fully completed petty cash voucher.
Jerick E. Guasin ; 2019-105702 (CBET-01-503A)
... continuation
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
The most significant advice made by the auditors, in my opinion, is that the Vendors' statements be reconciled to the accounts payable data and stored in the business files until the next statements are received from the vendors and reconciled. Exceptions should be investigated and fixed. As we all know, reconciling our vendors' statements ensures that there are no errors or discrepancies between what the vendor charges us and the goods, services, or supplies we got. This procedure is critical because it guarantees that any unexpected transactions caused by fraud or accounting mistakes are identified. Reconciliations should be conducted on a regular basis to verify that all account balances are consistent and to provide you with a clear picture of your financial situation. When you haven't reconciled on a continuous basis, it gets considerably more difficult to recollect information. Occasionally, a transaction, such as an expense or the sale of a product or service, may be overlooked and never recorded in your ledger. This might be due to invoices being misplaced or lost. Such omissions might be difficult to spot. If Machine Manufacturing had not performed regular bank reconciliations, they would have been vulnerable to fraud, unlawful withdrawals, or bank mistakes. Furthermore, without doing monthly bank reconciliations, the company is more likely to lose checks and have online payments denied, which generally results in the company going out of business.
References:
American Institute of Accountants. (1950). Machine manufacturing company; case studies in internal control. Case Studies in Internal Control, Number 2. https://egrove.olemiss.edu/cgi/viewcontent.cgi article=1103&context=aicpa_comm
Jerick E. Guasin ; 2019-105702 (CBET-01-503A)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteThe Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as a process, affected by an entity's board of directors or trustees, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in different categories such as effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. From this definition, we can conclude that internal control is established to improve the overall efficiency and effectiveness of financial and operational activities of the entity, enhance the reliability of the information, safeguard assets and ensure the resources are efficiently utilized. One of the purposes of implementing internal control is to help the organization to accomplish its various objectives and strategies. In fact, the structure of internal control consists of five components.
The first one is the control environment. It sets the tone of an organization and influences the control consciousness of the people involved in the entity. Next is risk assessment. It analyzes and identifies all the relevant risks that need to be prioritized in determining how they should be managed or how to minimize them. The next component is control activities. These are the various procedures and policies implemented by the company. Some examples are the security of an entity's assets, segregation of duties, verifications of different documents and authorization. Another component of internal control is information and communication. Information systems provide financial and operational reports and other information about compliance with certain laws and regulations. The last component of internal control is monitoring. Systems performance are required to be monitored and its quality must be evaluated. It can be done through monitoring activities and separate or combined assessments.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The case study on Machine Manufacturing Company illustrates its lack of good internal control within the organization. There are several failures listed in the case study that proved the worst condition of their internal control. However, out of these failures, the most problematic one is the failures under the poor internal control in cash. Cash is the most liquid item in the financial statements so it can be easily stolen by anyone if there is no proper control and security over it. Moreover, since there is a lack of internal control in cash, various cash fraud schemes can be done without difficulty. Aside from those recommendations given in the case study, I recommend them to record immediately all cash receipts they received so that there is evidence that such cash receipts are actually received by the company. After they received the cash, they need to deposit all cash receipts in the bank on that day or the next business day to avoid misappropriation. Also, segregation of duties is important so they need to remind their employees what is job is assigned solely to them and the limitations of their duty.
BALAYSOCHE, STEPHANIE 2019-101856
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteAll recommendations provided by the auditor are indeed helpful for the company to manage effectively its daily operations. However, among these recommendations, there should be more emphasis on which employee should be assigned primarily to prepare all bank account reconciliations. We presume that transactions are more vulnerable to any fraud or errors if one employee has access or responsibility on more than one duty. The person in charge might commit fraud and can easily manipulate the transactions with malicious intent. Therefore, if segregation of duties controls is effectively implemented by the company, it can minimize the risk of internal fraud or any potential errors.
References:
Cash and internal control. (n.d.). Lumen Learning. https://courses.lumenlearning.com/sac-finaccounting/chapter/cash-receipts-and-disbursements/
Internal Controls. (n.d.). UCSF. https://audit.ucsf.edu/internal-controls
What are internal controls? (n.d.). WIU. http://www.wiu.edu/internal_auditing/internal_controls/
BALAYSOCHE, STEPHANIE 2019-101856
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteAmong the many roles of board of directors, the establishment of strong internal control on the overall aspects and part of the organization is one of the crucial and essential steps to ensure the achievement of their objectives. They are the managers that are accountable to issues or problems that may arise if the grip in internal control policies and standards loosened. The company's board of directors along with its specific managers should seek professionals that will provide competency and a diverse range of perspectives when performing their jobs as auditors. The past discussion provided us the importance of hiring auditors that will meet the criteria of the organization and will provide perspectives with objectivity and unbiased insights, might be an internal or an external auditor, based on what the entity prefers. An internal control that is established strong, with good reputation, and reliable is a strong foundation for an organization to achieve their goals and objectives in the current and future operations. A company's good internal control is characterized by having a good accounting system and procedures along with its employees and managers integrity to accomplish the tasks and avoid any fraudulent activities inside the organization. The auditors should have a checkk-list internal control system to monitor the movements in detail and to check if the transactions of the business are recorded in a fair manner. This will eliminate the misstatements of records in the financial statements of the entity. To effectively and efficiently utilize the resources of company, it is suggested to follow the auditing phases, such as the (1) planning phase or the overall planning of the step by step procedure, (2) the fieldwork phase or the application and conducting of plans, (3) the reporting or the communicating of documented operations and transactions, and lastly (4) the feedback phase or the continuous monitoring of the whole process. These mentioned internal control procedures will help the business to achieve their overall objectives and strategies.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
DeleteThe audit program of the Machine Manufacturing Company stated an obvious poor internal control in the overall fields and part of operations. In the first part of the case study conducted in the entity, it is clearly stated that the responsibility of establishing the strong internal control in the organization starts with its authorities and board of directors. They are accountable for providing policy to determine the extent and effectiveness of the internal control at the beginning of the audit. The accounting policies, systems, and procedures should be followed thoroughly in order to achieve the overall objectives of the organization. In the Machine Manufacturing Company case, its internal controls resulted in poor implementation and failure on its different accounts and transactions are very evident. Among these failures, I think the biggest failure of the internal control of the company is the cash internal control. As we can see, cash is one of the most important and liquid assets in the entity, affecting almost all of the transactions done in the operations like the inflow of sales, through cash receipts or receivables, cash disbursements like expenses, payrolls, or payment to creditors, and bank reconciliation like management of checks outside or inside the organization. Since the company opted to segregate or divide the jobs to its staff, it is important for the organization to require background checks for each employee involved in the operation. This will ensure that the risks in hiring personnel are eliminated through hiring trusted staff for the job. Another control is to safeguard all cash and assets in secure locations, and use a lockbox to accept cash payments from customers. Daily bank deposits are also recommended and bank reconciliation every month is a good practice to monitor the inflow and outflow of cash from a bank and in the entity's book.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
In the examinations conducted by the authors of the said case study, they were able to produce recommendations in such internal control practices that resulted in failures in its execution during the operation. These general suggestions and recommendations are relative to possible improvements of the accounting procedures and internal control based on their analysis. According to the analysis, the authors were not entirely satisfied that the management's way of segregating personnel is not considerably good for the operation especially when it comes to the accounting works because this will need intensive application of policies and standards. By this way, it will avoid confusions to its accountants and auditors to compile or record the transactions. If this setup is applied continuously, the same risks and failures will certainly arise in the future.
REFERENCES:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Garcia, T. (2021, January 11). What are Internal Controls for Cash? Reciprocity. https://reciprocity.com/resources/what-are-internal-controls-for-cash/
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. Taylor & Francis Group, LLC. pp 33-56.
BANDOLA, ERICA C. (2019-105307)
This comment has been removed by the author.
ReplyDelete1.) How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is vital for every firm or organization in any aspect and every way possible. Internal Control Compliance (2018), stated that internal controls are processes designed to help safeguard an organization and minimize risk to its objectives. Internal controls minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws.
In line with that, having good internal control will benefit the whole firm or organization because every aspect is controlled and in good state. The accuracy of every employee in doing their assigned duties will result in efficiency and effectiveness of the totality of their work and the betterment of the company. Another thing is when dealing with business risks, having a good internal control will lessen the burden of everyone and will easily mitigate the possible detrimental effects that might affect the whole firm or organization's wealth, properties, and various aspects such as their relationship with others, and their image and standing in the business or corporate world.
To sum up everything that has been stated so far, these things, the list of advantages of having internal control, will likely help the firm or organization in attaining their overall goal or objectives since everything is well-guided and planned satisfactorily.
2.) Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Basically the biggest failure in the internal control of The Machine Manufacturing Company is the lack of an organization chart and manual of operating procedures resulting in confused lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. There is practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches.
I would certainly recommend that first of all, they should have hired an employee that's capable of handling business matters in an accurate and precise approach in the first place. Having an employee who's suitable and adept would have been able to make all things right, and no problem or any complications would have taken place. Also, if this company had had correct internal control and right people in handling such matters, all the transactions would have been properly identified and accounted for. And all risks could have been mitigated or the effects could have been less worse to what actually had occurred.
Delete3.) Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
I have thought that the recommendations such as manuals of operating procedures should be prepared, and the presence of internal control should have been emphasized more. Because as we all knew upon reading the case study, all the accounts were not properly documented and accounted for. That's why I thought that the same risks might occur if having manuals for operating procedures was not emphasized. Same with having internal control, everything would have been prevented if things were done properly and accordingly.
References:
Internal Control Compliance: 7 Reasons to Maintain Your Program. Auditboard. Retrieved November 07, 2021 from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/#:~:text=Internal%20controls%20are%20processes%20designed,rules%2C%20regulations%2C%20and%20laws.
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
AIRON NICOLE T. JADRAQUE
2019-101826
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are one of the most essential elements within any organization. Internal controls are put in place to enable organizations to achieve their goals, missions and objectives. Management is responsible for the design, implementation, and maintenance of all internal controls, with the Board responsible for the overall oversight of the control environment. Strong internal controls allow for organizations to achieve 5 general objectives. These five objectives are: Safeguard assets; Check accuracy and reliability of accounting data; Ensure economical, efficient and effective operations; Comply with laws and regulations; and Adhere to managerial policies. In order to achieve these objectives an internal control framework needs to be applied and followed throughout the organization. Internal control is built in rather than built on. By building in internal control, it is embedded with the management processes of planning, organizing, budgeting, staffing, implementing and monitoring. This way, an organization avoids unnecessary procedures and costs by not adding separate controls, but integrating controls instead into the management and operating activities.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
In my opinion, the biggest failure of the internal control of The Machine Manufacturing Company is the absence of internal control in cash. Since cash is the most liquid of all assets, a business cannot survive and prosper if it does not have adequate control over its cash. Cash is the asset that has the greatest chance of “going missing” and this is why we must ensure that we have strong internal controls build around the cash process. Of all the company’s assets, cash is the most easily mishandled either through theft or carelessness. To control and manage cash, I recommend to account for all cash transactions accurately so that correct information is available regarding cash flows and balances. The need to control cash is clearly evident and has many aspects. Without the proper timing of cash flows and the protection of idle cash, a business cannot survive.
Ticala, Joylyn L. | 2019-103552
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
DeleteOf all the recommendations provided by the auditor, as per the case study, the recommendation that should have been emphasized more is that all bank account reconciliations should be prepared by an employee other than the chief accountant in as much as the latter is authorized to sign checks and maintains general accounting records. Every bank statement should be promptly reconciled by a person not otherwise involved in the cash receipts and disbursements functions. The reconciliation is needed to identify errors, irregularities, and adjustments for the Cash account. If this recommendation has not emphasized, this may result to fraud and theft.
References:
Cerini, K. (2016). Key Components of Internal Control. Cerini Associates LLP. Retrieved on November 7, 2021 from
https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
NATIONAL GUIDELINES ON INTERNAL CONTROL SYSTEMS. (n.d). https://www.dbm.gov.ph/wp-content/uploads/2012/03/NGICS-body.pdf
Ticala, Joylyn L. | 2019-103552
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ReplyDelete1. How can Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control was described as “the plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to pre scribed managerial policies.” The purposes of the public ac countant’s review of internal control were stated to be twofold: “first, it enables him to formulate an opinion as to the reliance he may place on the system to the end that, by adjusting his audit procedures accordingly, he may express an opinion as to the fairness of management’s financial statements; and secondly, where the review indicates apparent weaknesses, recommendations for possible corrective measures may be conveyed to management.”
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks?
The biggest failure of the internal control of The Machine Manufacturing Company was caused by the lack of Internal Audit Control. The principal weaknesses in the system of internal control are comprised of Cash, Notes and Accounts Receivable and Customers' Deposits, Inventories, Securities, Property, Plant and Equipment, Accounts Payable, Capital Stock and Dividends, Sales, Purchases and Expenses, Payroll, and General lack of an organization chart and manual of operating procedures resulted in confused lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. There is practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches.
If I were to recommend a suggestion, I’d tell them that in order to improve internal controls, you should build a strong foundation first. How? Assess what’s already in place and what there is to build on, like risk assessment, control environment and activities, monitoring, and information & communication. I’d also suggest that they should control activities because if one or more are faulty, an organization may be at risk for an internal control system failure. Lastly, they shouldn’t disregard even the smallest detail in the organization because it may create a bigger problem over time.
– CRUZ, IVY FRANCESCA SN (2019-103873)
(2/2)
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
Of all the recommendations provided by the auditor, as per the case study, I’d like to emphasize more the General. The absence of internal control was so pronounced in The Machine Manufacturing Company that conferences with the management and recommendations in writing to the president were felt to be the most satisfactory method of correcting the situation. With the limited number of office personnel, internal control in the company will never be entirely satisfactory and it was not considered practicable to segregate the accounting functions adequately. However, it was felt that the internal control of the company could be materially strengthened by the adoption of the foregoing recommendations. Internal Control, again, is the foundation of an organization.
If the recommendations for General isn’t emphasized, things would possibly get worse. Lack of internal controls typically results in the lack of ability to track performance against budgets, forecasts and schedules. These internal controls weren’t there in the first place if it has no purpose. It is there because it minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws.
Reference:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company: Case Studies in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
– CRUZ, IVY FRANCESCA SN. (2019-103873)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are procedures that enable a company protect itself and achieve its goals by reducing risk. It helps to reduce risks and safeguard assets, as well as maintain record accuracy, increase operational efficiency, and promote adherence to policies, rules, regulations, and laws. Internal controls might be preventative or detective, automatic or manual, and all of these are impacted by people. Every business exists to achieve particular objectives, but there are several risks that might disrupt those objectives. Internal control compliance is implemented to reduce risks and improve the organization's chances of meeting its objectives. Internal controls that are well-designed keep the business running smoothly and effectively, and they may also aid with regulatory compliance. Organizations can achieve three primary objectives due to strong internal controls. Accurate and trustworthy financial reporting, compliance with rules and regulations, and the efficacy and efficiency of the organization's operations are the three objectives of having internal control. Its structure must be implemented and followed across the business in order to achieve these objectives. It also follows five components, namely: control environment, risk assessment, control activities, information and communication, and monitoring.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Based on the case study, Machine Manufacturing Company is clearly lacking in internal control. The company even failed to handle its cash properly resulting to backlogs and misappropriate recordings of checks, payroll, bank reconciliation, and delivery. Being an accountant, we are aware on how important cash flow is, to maintain the smooth and harmonious business. A stable cash flow might allow business to invest in growth. Building more sites, investing in Research and development activities, updating infrastructure, increasing technology, offering more training, and acquiring more assets and inventory are just a few of the ways a company may expand and improve with significant positive cash flow. I would recommend to strengthen their internal control through development of policies and procedures, performing reconciliations regularly, conduct a risk assessment, provide adequate training to staff, and perform a self-evaluation of internal control.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
The recommendation should be emphasized more on sales. Recording sales is a vital part to have a reliable and accurate financial statement. They should focus more on maintaining good records to maintain the progress of the business. It is necessary to safeguard this aspect of accounting transaction to mitigate the risk of misstatements in recordings that can arise to possible fraudulent actions inside the business.
References:
Importance of Cash Flow to a Business. (2020, October 13). Retrieved from Chron: https://smallbusiness.chron.com/importance-cash-flow-business-57376.html
Internal Control Compliance: 7 Reasons to Maintain Your Program. (2018, April 17). Retrieved from Auditboard: https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Yuga, Rhea Mae D. (2019-103574)
(1/3)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
For businesses to flourish, certain objectives and strategies are implemented by the organizations for the overall purpose and aims of the organization to be more precise and will be inclined to its existence. Internal control is one of the major factors affecting the objectives and strategies of an organization. Michigan Technological University (n.d.) noted that internal controls function to minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. It can be said that is the spine or framework of the whole organization where its businesses depend on for its internal procedures to create promising external products or services.
Internal control (IC) helps achieve the overall objectives and strategies of the organization by making sure that everything in the internal side of the business is under their control and nothing is missing on what should be done and should exist. Internal control is the one that minimizes the risks taken in every process and the one that maximizes every opportunity available and beneficial to the business. It also ensures that every record is intact and complete to be faithfully presented and relevant to the decision-making bodies in the business. Moreover, it ensures operational efficiency with no wasted materials and does not compromise the products or services offered by the entity. It is also the one to evaluate if the business’s operations and processes are in adherence to its established policies, rules, and regulations as well as in assessing if every compliance done by the organization is following the existing rules and laws.
Internal control is the lines of checklists that make sure that every aspect in every department as well as in every part of the business is by the overall plans that are established by the business. This way, the overall objective can be achieved smoothly and strategies can be implemented and established precisely for the success of the business.
TALABONG, ELA RAIN
2019-102788
(2/3)
Delete2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Internal control is one of the biggest factors considered in the operations of the different businesses. It holds the biggest part in ensuring the proper flow of the operations and processes of the business. A poor internal control can doom a company, and if a company started with poor internal control, its success will not be even possible.
With the case study given, the biggest failure of The Machine Manufacturing Company is its lack of an organization chart and manual of operating procedures resulted in confusing lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. The lack of an organizational chart confused the roles and responsibilities of the employees and key persons of the company resulting in poor performance of the company as a whole. Also, the lack of manual procedures provided poor delegation of work and waste of the resources the company has during the period.
To improve the internal control of the Machine Manufacturing Company creating an extensive and elaborated organizational chart for all the personnel and key persons in charge of the processes in every part of the business. This way the roles and responsibilities can be efficiently distributed and done by the right personnel responsible for them. Also, this will be a way to align the tasks and things that needed to be done in every process and operation. Furthermore, providing comprehensive and detailed manual procedures for every transaction, process and operation will result in more effective and efficient performance of every person involved. This way, risks that are threatening the business can be eliminated thoroughly as every person will now have a focus on their proper responsibilities and at the same time, every emerging risk in the business will be immediately recognized.
TALABONG, ELA RAIN
2019-102788
(3/3)
Delete3. Out of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
The case study presented a lot of reasonable recommendations for the company to take to improve their internal control. Out of all the recommendations provided, I think what should be emphasized more is the establishment of an elaborated organizational chart and detailed manual procedures as these will be the key to having proper delegations of tasks and responsibilities so that confusion and waste of resources will be avoided in their operations. Emphasizing these can yield a good result in the structure of the processes and flow of the operations and information.
If these recommendations will not be emphasized the failure of the organization will only repeat. The delegation of responsibilities will not be clear and the flow of the information in the organization not be fixed resulting in wasted resources and will result in a sum of losses for the business. There will be also a risk in the flow of operations and at the same time, it could bore more complications like there could be fraud if the assessment of every operation is not thorough, there could also be falsifications of information and the business will have difficulties in compliance as their information is not intact like any other businesses. Overall, if these recommendations will not be emphasized there is a huge risk to the overall failure of the business resulting in its bankruptcy and subsequent liquidation.
References:
Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. In AICPA Committees. American Institute of Certified Public Accountants. https://egrove.olemiss.edu/aicpa_comm/104/
Michigan Technological University. (n.d.). What Is Internal Control? Michigan Technological University. https://www.mtu.edu/internal-audit/control/what-is/
TALABONG, ELA RAIN
2019-102788
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteThe primary objective of an organization is to be successful; may it be financially or operationally. In order to achieve their primary objective, a set of rules must be made to ensure their success. As a result, internal control is implemented by the Board of Directors, management, and other key employees to promote efficiency and effectiveness, assure the implementation of the policies made, ensure the integrity of financial statements, promote accountability, comply with laws and regulations, and prevent fraud.
Organizations which failed to design an internal control are more exposed to risks which may be deteriorating and may lead to their failure. It is like the backbone of an organization. Without it, companies would stumble and fail as it acts like a foundation and pillar. Attaining efficient internal control may be difficult, but it is never impossible. Through the implementation of an effective internal control, possibilities of fraud may be reduced because the financial statements presented are accurate, reliable, and made with due professional care.
With proper regulations and designation of tasks, it can be achievable, however, it needs a lot of hard work and consistency. Through this, all employees must contribute to the organization as their acts affect internal control, therefore, making it everyone’s responsibility. If all employees are geared towards the same goal, it would be much easier for an organization to achieve its objectives. However, the implementation of the said controls will only serve as a guide and can never guarantee success as it would only serve as the key towards success.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
According to the American Institute of Certified Public Accountants (AICPA), the Machine Manufacturing Company had a lot of shortcomings in their business operations. The presence or lack of internal control provides the auditors a basis on which they may determine to expand or limit the examination procedures. AICPA created a “Checklist - Internal Control,” which helped the auditors identify the failures of the company in implementing their internal control. It served their preliminary work which was conducted before the end of the fiscal year. Through the information gathered, the principal weaknesses in their system were identified in which it includes Cash; Notes and Accounts Receivable and Customers’ Deposits; Inventories; Securities; Property, Plant, and Equipment; Accounts Payable; Capital Stock and Dividends; Purchases and Expenses; and Payroll. Among the failures mentioned, they failed miserably in controlling the organization’s cash. Cash, being the most liquid instrument that a company owns, affects the transactions made whether it may be in receipts or disbursements.
Barabicho, Thea Sofia A.
2019-106912
Keeping cash on hand in business is also a good idea, however, an organization should have a safety net. Amaral (2021) mentioned that there are five key internal controls to strengthen internal controls over cash - Safeguarding Assets, Segregation of Duties, Accountability, Reconciliation, and Monitoring. An organization must place their cash on hand by placing them in a locked cabinet or vault with limited access. They must assign only trusted employees to maintain custody over cash in order to lessen possible problems which may arise. The said employee should authorize all cash transactions and make sure that all of these have been accounted properly. After all the transactions have been made, reconciliations should be regularly done to ensure checks and balances. All of these are strengthened by the review process or monitoring, it is done to assure that internal controls are rendered effectively. Managing the daily transactions will help the company monitor and investigate any unusual activities and decide whether these policies should be revised or updated.
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Every recommendation made is indeed helpful for the organization to effectively operate their daily business transactions and operations. However, among all of the recommendations provided by the auditor, the person to conduct the bank reconciliation should be emphasized more. Every bank statement should be reconciled by an employee which is not concerned with the cash receipts and cash disbursements function in order to maintain objectivity and independence. Businesses that do not conduct bank reconciliation will be vulnerable to fraud, unapproved withdrawals, and bank errors. Bank reconciliation is a very keen responsibility of an accountant because they need to identify errors, irregularities, and proper adjustments for the cash account. Knowing such discrepancies in accounting will help the organization adjust their internal control and know what policies are effective and ineffective. Through this, accurate financial statements can be achieved and fraud can be detected and prevented, all of which are a big step towards achieving an efficient, effective, and successful organization.
Barabicho, Thea Sofia A.
2019-106912
REFERENCES:
Amaral, L. (2021). Five Internal Controls for Handling Cash in Your Organization.
https://kahnlitwin.com/blogs/business-blog/five-internal-controls-for-handling-cash-in-your-organization
American Institute of Certified Public Accountants. (1950). Committee on Auditing Procedures.
Machine Manufacturing Company: Case Studies in Internal Control. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
ReplyDelete1. Internal controls are processes that are designed to help an organization safeguard itself and minimize risk to its objectives. Internal controls reduce risks and protect assets by ensuring record accuracy, promoting operational efficiency, and encouraging adherence to policies, rules, regulations, and laws. Every organization exists to achieve some goals, but there are numerous risks that can derail those goals. Internal control compliance is implemented to reduce risks and give the organization a better chance of meeting its goals. Internal controls that are well-designed keep the organization running efficiently and effectively, and they can help maintain regulatory compliance. Internal controls are intended to provide reasonable assurance about the achievement of operational goals. It ensures that an organization's resources are used for their intended purposes, reducing the risk of misuse. It also allows for greater efficiencies when clear processes and guidelines are established.
2. The Machine Manufacturing Company has obvious weaknesses in its overall internal control, but its most serious flaw is in its cash internal control, as evidenced by numerous failures such as the separation of receiving and disbursing cash by function, which includes bank reconciliation, general accounting standards, and other items, and the lack of supporting evidence for all petty cash disbursements. To avoid confusion, the organization should justify all cash flows and be discrete; segregation of roles in cash management is also appropriate. Using a system that records all transactions, including petty cash disbursements is also encourage.
3. Of all the recommendation provided on the case study, the explanation on the accounts payable should be emphazise more. This section only includes the 'Vendors’ statements should be reconciled to the accounts payable detail and retained in the company files until the next statements are
received from the vendors and reconciled. Exceptions should be checked out and corrected' which might cause the internal and external risk. Accounts payable is the section of a company's financial records where internal or external fraud could occur. Misstatements of financial records are a risk that could develop in the accounts payable area. Another factor is payment delays, which force the supplier to send several invoices.
References:
American institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
- BERTIZ, COLINE B. (2019-100749)
As Benjamin Franklin quotes, "An ounce of prevention is worth a pound of cure". Internal control is defined by University of California San Francisco (2021) as a process that is effected by board of directors, management and other personnel to further provide a reasonable assurance on the reliability, accuracy, and timeliness of information in financial statements; and that the company is in compliance with applicable laws, regulations, contracts, policies and procedures. These controls serve as prevention in committing errors, irregularities, and poor decision making. Aside from those, good internal control helps the organization in achieving overall objectives and strategies by safeguarding its assets, efficient usage of resources, and making sure that there is a reliable management whose duties and responsibilities were properly executed.
ReplyDeleteEvidenced by the checklist attached in the case study, The Machine Manufacturing Company (TMMC) failed to administer the roles of its employees. One of the characteristics of cash control system is the segregation of duties for handling cash and recording cash transactions yet TMMC failed to enforce it. Due to lack of employees under the accounting department, illustrated in the organizational chart, it is seen that those persons directly supervising and receiving the cash seem to be the same personnel performing sales invoices, vouchers, credit memos, and bank reconciliation. By this, auditors can foresee the possibile misappropriation and manipulation of accounting records added by the fact that TMMC failed to have separate bank accounts for receipts and disbursement for three out of four branches and the bank reconciliation was not properly utilized. Cash, being the most liquid asset, is significant to be properly monitored as it is used in meeting expenses and repayment to investors or shareholders, when there is an excess. In addition, non cash assets, liabilities, and equity needs to be reviewed periodically or even monthly.
Of all the failures stated, we can determine that the root is poor internal control resulted from lack of office personnels, which consists of 65 out of 350 employees or just 18.57%. These personnels also seem new to the job and company, whose duties are significant as they control the General accounting records, receivables, withdrawals, reimbursement of cash, and all branch operations. On-site visits are as important as these records, to further ensure the reliability or amounts and information being audited and proper flow of manufacturing through checking of inventories, securities of procedures, and efficiency of the machines being manufactured.
As an auditor, I will recommend The Machine Manufacturing Company to develop its manuals of operating procedure and further development and periodically monitor the organization's chart. Lot of risks, such as poor communication, distorted accountability, and slow results, that could have been prevented if the responsibilities of each employee were effectively utilized. Though there are companies who use a flat organizational structure, being informal in nature as every employee can rely directly on each other regardless of position, proper implementation still results in a favorable outcome.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case
studies in internal control" (1950). AICPA Committees. 104.
https://egrove.olemiss.edu/aicpa_comm/104
University of California San Francisco. (2021). Internal Controls. Retrieved from
https://audit.ucsf.edu/internal-controls
BATALLER, ERICA ANN R. (2019-103327)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteAs defined in Internal Control - Integrated framework (2013), internal control is a process carried out by an entity's board of directors, management, and other personnel designed to provide reasonable assurance regarding operational, reporting, and compliance objectives.
Internal controls are considered as the fundamental aspects of an internal control system, which is the totality of all internal controls and policies to protect the whole performance of an organization. A properly designed internal control system aims to ensure asset integrity, allows for reliable accounting information and financial reporting, improves organizational efficiency, and provides guidelines and potential consequences for dealing with breaches. A well-designed internal control system will not eliminate all the risk of loss, but it will significantly reduce it and increase the chance of identifying the responsible department that will enable them to achieve their overall objectives.
Moreover, effective internal controls are critical for ensuring that goals and objectives are met. They provide reliable and efficient financial reporting to management for decision-making. They ensure that applicable laws and regulations are followed in order to avoid public scandals. Internal controls that are inadequate or excessive reduce productivity, increase the complexity of processing transactions, lengthen the time required to process transactions, and add no value to the activities. Thus, internal controls help to ensure efficient and effective operations that achieve the organization goals while also protecting workers and its assets.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Inaccurate financial recording and reporting of company transactions. Also, lack of an organizational chart and operational processes manual resulted in unclear lines of authority and responsibility, duplication of work, insufficient procedures, and poor internal control. Having an effective internal control provides reasonable assurance concerning reliability of financial reporting and the preparation of financial statements. If the organization has one or more material weak points, its internal control over financial reporting cannot be found efficient just like in the case of The Machine Manufacturing Company. To improve their internal control, they must ensure the duties are properly segregated. Controls should be put in place to secure and protect vulnerable assets such as cash, inventories, and equipment that may be at risk of loss or unauthorized use. These assets should be counted and compared to control records on a regular basis. Furthermore, develop written policies and procedures as it serve various functions. It provides written notice to all company staff regarding the organization’s expectations and practices, as well as guidance on how to process transactions correctly. Perform reconciliations regularly. Reconciliations provide a strong control in identifying and correcting errors on a regular basis when it is performed correctly and frequently. All funds and accounts should be reconciled at least monthly, and any necessary adjustments should be recorded in a timely manner. Lastly, evaluation of internal controls can help identify possible risks before they become problems and will lead to the implementation of more effective controls.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteThe organization chart that was created should be reviewed on a regular basis and continuously updated. Operating procedure and policy guidelines should be created and properly followed by the different departments so that each segment will operate align with the given objectives. Also, they should have been emphasized more the segregation of accounting duties and increase company oversight. The processing of cash receipts and payments should ideally be separated, with different people approving invoices, preparing checks, signing checks, and reconciling bank accounts. Requiring one person to handle all those processes recording and posting in the system increases the risk of fraud. Individuals should be separated from these processes. Finally, internal controls without supervision and control are useless. Business owners must adhere to policies and procedures in order to prioritize reviewing financial reports and understanding the trend and changes in the company's financial data. Understanding month-to-month or quarterly changes, as well as budget-to-actuals deviations, should be a top priority. Following these recommendations will help The Machine Manufacturing Company to assess and mitigate possible risks just like risks that their company previously faced. As stated in the report, auditors believed that implementing the preceding recommendations would materially strengthen the company’s internal control.
References:
Internal Control - Integrated Framework. (2013). Committee of Sponsoring Organizations of the Treadway Commission (COSO). Accessed October 31, 2021, from
https://na.theiia.org/standards-guidance/topics/documents/executive_summary.pdf
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
- MENDOZA, RHEA LYN B. (2019-101819)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control are procedures and practices utilized in the operation to assure that risks are minimized and objectives are achieved through relevant frameworks to manage the dynamic result systematically (Murdock, 2017). Internal control are essential practices an organization should have in order for effectivity and efficiency of overall system to work in sync. Having said that, only having internal control does not suffice the idea of making the system effective or efficient, it must be stabilized and strong internal control system for it to govern the overall performance of the organization to be intact and well-founded. Thus, to have a strong internal control system means to have a clear and onerous procedures or practices that will be the guide for every people in an organization. Also, the mission and vision as well needs to be emphasized in order for everyone in an organization to aware of the objectives. Subsequently, these practices will definitely help the organization to be goal driven and to attain not only personal goals but to attain the objectives of the company as well. Ultimately, as long as the system is stable and intact, everything will follow. Hence, every objective will be achieved in accordance with how the system are stated and implemented.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Based on the case study, the Machine Manufacturing Company has an evident poor internal control system. It was stated there that authorities in the company lack stability and effectivity to control the system resulting to fraudulent acts by people with position in the company. Also, as what I have mentioned earlier, everything will start on the top of the company. If there is instability and confusion on the part of the board of directors or the committee of audit, then definitely it will all follow. Aside from it, another failure on its internal control would be the control over cash which is the most liquid asset of a company wherein its much prone to fraudulent acts especially with a poor internal control system. Moreover, inadequacy of cash will really affect the company in bad situation. Hence, in preventing this type of risks in the company, establishing a good company’s foundation in terms of people and system will be the best solution. To start with how the people, work in the higher position will greatly affect how the other workers work as well. Also, creating a complete and well-founded system will definitely be the turning point to make sure everything is within its capabilities. Having strong founding principles and practices on internal audit will minimize the risks of fraudulent acts.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
I believe that out of all the recommendation provided by the auditor of the case study is truly complete and concise. However, to add a highlight to one of which, the creation of well-balanced organizational chart would really be the best recommendation due to the fact that everything would definitely start with a good first ground. And for me, the establishment of who’s who would indeed make everything easier specially to account for those people who are in-charge of something to make sure that there would be accountability and responsibility on every act along the way.
References
Murdock, H. (2017). Operational Auditing. Florida: CRC Press.
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteIn that report, internal control was described as “the plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.” –AICPA. The internal control is important to the organization in the way of addressing risk in preventing for future damages, because when we address this risk, it will be a big contribute in the effectiveness and efficiency of the operation in the organization, in which is one of the objectives of the organization. Internal control also safeguard the organization by protecting the assets, ensuring the proper compliance with the standards, checking data and information whether if it is for accounting purposes or purely for management if the data is accurate, useful, reliable and not out-dated to promoted operation efficiently. In safeguarding the organization, this will achieve two of the organization’s objectives which is reliable financial reporting and compliance with applicable laws and regulation. Risk appetite is the ability of the organization in accepting or rejecting the risk. It is the capacity of the management to act orderly in mitigating the risk. In this way, the management can assess the organization on what risk are can be controlled and not. Internal control can help the organization’s overall objectives and strategies if the will implement right internal control that suit to their organization, just like the COSO or Committee of Sponsoring Organization. This has five components; Control environment, Risk assessment, Risk activities, Information and communication and Monitoring activities. In this internal framework, this will help in achieving the organization’s objectives and strategies because this will serve as guide or set of actions in the organization in assessing the work environment, assessing the risk in the environment, to conducting risk activities that will result in gathering relevant information that will now communicate inward or outward to mitigate the risk and finally to monitor the action that has been done and for improvements.
- Don Luis M. Villanueva (2019-102313)
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteFor me the biggest failure of the internal control of The Machine Manufacturing Company is the proper handling of their sales especially in the involvement of cash and other financial instrument. Because they have the main office, branch store, warehouse and home office, it sets confusion to them and the management didn’t anticipate the risk that they are facing now. They failed in receiving cash from those relating to: a. Sales invoices and customer statements. b. Customer ledgers. c. Mailing or delivering checks. d. Bank reconciliations. e. Cash disbursements. f. General accounting records. they also failure to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts and failure to segregate the function of disbursing cash from those relating to: a. Bank reconciliations. b. Payroll preparation. c. Approving vouchers for payment. d. General accounting records. They failed in utilizing the use of checks and banks.
Failure to pay distributed to employees by persons other than those regularly making the pay-off and supporting evidence for all petty cash disbursements.
Overall the biggest failure of the internal control of The Machine Manufacturing Company is first, proper organization of the company. I suggest that they should reorganize the work flow so that they don’t have confusion in handing the cash or sales whether if it is in the main store, branch or home office. They must study first the operation to have proper and effective work flow to have smooth transaction for all. The company also failed in financial reporting, they have mistakes in the receiving the cash, payment, utilizing the check and have separate bank account. I would suggest that they hire a competent internal auditor and an external auditor to properly guide and comply with the proper conducting of business.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Of all of the recommendations provided by the auditors, the “Manuals of operating procedures should be prepared” should have more emphasis because for me, it is essential for every business to have for them to recalibrate the operation if they have problems in the operation. Manuals of operating procedures is a guide in the operation to prevent mistakes and keeping in track with the standards, laws and policies.
If the recommendations in manuals of operating procedures are not indicated, the possible risks that the Machine Manufacturing Company will incur are possibly all of the risk. The organization will suffer from capacity risk because there are no proper guides in terms of EUP that the manual of operating process should have. Strategic risk is also related because the business will not have strategies if they didn’t fully understand and know the operations. Compliance risk is also indicated because a messed up operation will not know if they are complying with standard, laws and regulations. As like the problem arose with the sample Machine Manufacturing Company, all of that will be evident because of no clear manuals of operating procedures.
Reference;
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950).AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
- Don Luis M. Villanueva (2019-102313)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control (IC) is a process for detecting faults or irregularities in a company's operations. It is a procedure in which a company's board of directors, management, and other employees work together to identify problems and take remedial action. It is done to ensure that data is accurate, dependable, and timely. It was also carried out to confirm that the information is accurate for financial reporting and complies with applicable laws, rules, contracts, policies, and procedures.
An Internal Control (IC) aids in the achievement of an organization's overall objectives because it strengthens the company's reliability and integration, safeguards the assets of the company, ensures the economical and efficient use of the company's resources, and ensures the achievement of established objectives and goals for operations or programs. Internal control is intended to offer a reasonable level of assurance that organizational objectives and goals are accomplished. Additionally, an organization’s strategies are implemented to achieve the long-term goals of an organization. An assessment of a company's strategic performance management examines how successfully the company carried out the plans put in place by management. The acts that management intends to produce the intended results are referred to as strategies. An assessment examines how successfully management carried out the plans, if the organization carried out the planned activities, and whether the actions produced the desired results. This evaluation's metrics are a solid indicator of managerial performance.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Internal Control of The Machine Manufacturing Company failed in various sectors. They have failure in managing their assets, liabilities, equity, sales, purchases, payroll, and general administration. The Machine Manufacturing Company’s cash receipts, deposit slips, checks, bank reconciliations and petty cash disbursements were not properly reported and examined. The management of accounts receivables were not handled accordingly in terms of monthly statements and credit memoranda. In terms of inventory management, absence of proper handling of the items and failure to sort it in accordance to its category. In management of PPE, they failed to review and check the plant ledgers and failed to report the disposal of these assets. The company’s accounts payable were not updated and reconciled. Its capital stock and dividends show discrepancy in accounting records. There are missing information and management issues in sales report and purchases. Payroll account has incomplete accounting information and an error in approval on changes in time cards and job time tickets. In terms of general administration, there is a failure in preparation of organizational chart and manuals of operating procedures.
My topmost recommendation is to provide a holistic approach for Internal Control. Each department handling various activities should have a department’s standards (e.g. policies and procedures) that are mandatory to comply in managing the department’s activities. Every department should have additional office personal (e.g. department head) that assures the quality of work before transferring reports to chief accountants. In addition to holistic approach, the company should have a strong foundation of internal control by developing the integrity, ethical values, management, authority and responsibility. Also, proper risk assessment, communication, and monitoring must be implemented.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteThe recommendation on management of cash should have been emphasized more. Based on the case study, the mishandling of cash has the most recommendations. Cash flow (inflows and outflows) mismanagement could result to a financial risk which is a major threat to the company. Financial risks were accompanied by multiple risks: credit risk (insufficient fund to cover costs), liquidity risk (substantial need for additional cash flow) and operational risk (fraud, lawsuits, and business model risk). The company will face these multiple risks if the cash flow of the company if the recommendations by the auditor about cash management is not emphasized.
Resources:
University of California San Francisco (n.d.). Audit & Advisory Services: Internal Controls. Retrieved from: https://audit.ucsf.edu/internal-controls
Lohrey, J. (2017 November 11). Effects of the Quality of Internal Control. Retrieved from: https://smallbusiness.chron.com/effects-quality-internal-control-72691.html
Eric, L. (2016 August 26). 5 Key Elements of Good Internal Controls. Retrieved from: https://beenegarter.com/5-key-elements-of-good-internal-controls/
Maverick, J.B. (2016 June 24). Financial Risk: The Major Kinds That Companies Face. Retrieved from: https://www.investopedia.com/ask/answers/062415/what-are-major-categories-financial-risk-company.asp
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are a company's processes, regulations, and procedures for ensuring the integrity of financial and accounting data, promoting accountability, and preventing fraud. Internal controls can help enhance operational efficiency by enhancing the accuracy and timeliness of financial reporting, in addition to complying with laws and regulations and preventing personnel from stealing assets or committing fraud (Kenton, 2021). Internal controls are designed to assist an organization protect itself and achieve its goals. Internal controls help to reduce risks and safeguard assets, as well as maintain record accuracy, improve operational efficiency, and encourage adherence to policies, rules, regulations, and laws (Michigan Technological University, 2021). Reiterating these emphases of the purposes of internal control, I think that it aids organizations to operate optimally to attain objectives while maintaining reliability on financial and other reporting.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
I personally think that The Machine Manufacturing Company’s biggest internal control failure is its overall implementation of shaky internal control on all accounts, or in simpler terms, weak internal control system. Their internal control on accounting records is all over the place it brought failure on maintaining objectivity and accuracy resulting in inauthentic financial reports. If I were to recommend, I would say that it would be best for their auditors to create an internal control framework infused with their findings to better their operation’s efficiency and effectivity, maintenance of accounting records’ objectivity and accuracy, and overall firm implementation.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
The internal control issues on cash should be pinpointed the most if I had to choose from the rest. Cash is the most liquid and most involved account in daily transactions and operations so its record must be tightly checked. Failure to do this might reflect to all the accounts and would bring forth inaccurate financial reporting, fraudulence proneness, and loss.
References:
Kenton, W. (2021). Internal Controls. Retrieved November 9, 2021 from
https://www.investopedia.com/terms/i/internalcontrols.asp.
Michigan Technological University. (2021). What is Internal Control?. Retrieved
November 9, 2021 from https://www.mtu.edu/internal-audit/control/what-is/.
Paglinawan, Eliazar A. 2019-101459
Internal control (IC) contributes to the organization's overall objectives and strategies.
ReplyDeleteInternal control provides mechanisms, regulations, and procedures that a business uses to ensure financial and accounting data integrity, encourage accountability, and avoid fraud. It helps the organization to achieve its goals and mission. Effective internal controls enable firms to accomplish three primary goals. These three objectives are as follows: accurate and reliable financial reporting, compliance with applicable rules and regulations, and operational effectiveness and efficiency (Key Components of Internal Controls, 2020).
The Machine Manufacturing Company's most serious internal control failure and a recommendation to strengthen their internal controls to avoid risks.
The case study of the Machine Manufacturing Company shows how poor the internal control of the company was. When it comes to personnel, some personnel are not well educated on the job they are assigned to, which leads to not correctly doing their job well. Secondly, the failure to control the cash activities and the company was having difficulty providing data for auditing and confirmation for some company activities. In addition, not having excellent internal control of overseeing the fraud that was occurring in the company led to frequent misstatements in the financial statements.
The internal control of the company needs some improvement to improve and to prevent risks. Firstly, segregating accounting duties and having suitable personnel. To be able the company to operate, one must have good personnel educated on their respective fields. Segregating the accounting jobs will help the accountant to focus on one job without minding the other department. Secondly, restrict access to the financial system. The individual that should have access to the financial system should be the one who only has access to it to avoid false entries that may affect it. Also, having someone examine the financial statement from a third party will help the company identify inaccuracies and inconsistencies in the financial records (Pires,2021). Lastly, the best thing to do to improve internal control is to review every company transaction.
2019-104415 / Mangilog, Anthony C.
Recommendations that should be emphasized more and potential consequences of not emphasizing them
ReplyDeleteAll the recommendations are helpful for the company to improve its internal control. But the recommendation that needs to be emphasized is the payroll. According to company policy, all modifications to timecards or job time tickets should be approved. Any payroll advances should be documented as soon as they are made. Failure to oversee the payroll of the employees could result in overstating the payroll expenses. Also, it should be better to check every employee once a week to see if changes have not been approved.
References:
- Pires, J. (2021, September 7). 5 Ways to Improve Internal Accounting Controls and Oversight in Your Business. Signature Analytics. https://signatureanalytics.com/blog/5-ways-to-improve-internal-controls-and-oversight-in-your-business/
- Key Components of Internal Controls. (2020, October 23). Cerini & Associates, LLP Blogs. Retrieved November 9, 2021, from https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
2019-104415 / Mangilog, Anthony C.
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Every organization has a goals and objectives needed and wanted to achieve. However, there are many types of risks that an organization cannot avoid. Therefore, internal control must be effective enough to accomplish those goals and objectives.
Internal control is defined as a processes designed to help safeguard an organization and minimize risk to its objectives. It provides reasonable assurance with regards to achieving operational objectives such as effectiveness and efficiency of operations, accurate and reliable financial reports, and compliance with laws and regulations. With that, the stakeholders will have more confidence to their financial reports. It improves accountability among business owners, as well as the employees, in a sense that they are responsible for monitoring and performing internal controls throughout the year.
Therefore, internal control enables the achievement of overall objectives and strategies of an organization. It drives many decisions and overall operational procedures that everyone should be followed. A properly designed internal control system will not prevent all loss from occurring, but it will significantly reduce the risk of loss and increase the chance of identifying the responsible party.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Lack of internal control is the biggest failure of The Machine Manufacturing Company. There are lot of control issues in accounting system especially in cash. They failed to segregate the function of receiving and disbursing cash that results to fraud or theft. They also failed in maintaining control over blank and voided checks, as well as in bank reconciliation such as having an unrecorded deposits, unable to make a complete examination of the checks that have been returned, and the like. The worst of all is that the control failed to have supporting evidences for all petty cash disbursements that is not aligned with the objectivity of financial statements.
To improve the internal control of the company and to prevent those risks, I highly recommend that the company should have a segregation of duties in accounting. This will be critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. It further helps prevent errors and misstatement of financial statements. Moreover, the transaction should be completed and monitored in a timely manner by someone who is skeptic and independent.
HEDREYDA, HILARY N. (2019-103876)
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
There are numerous recommendations that the auditor of The Machine Manufacturing Company have been provided. It can gleaned that the general recommendation should have been emphasized more, wherein the organization chart should be prepared, reviewed periodically and maintained in a current status. Organization chart helps to demonstrate clear reporting structures for all the employees in the organization. It depicts the varying roles of each of one that is important to maintain the segregation of duties.
If this will not emphasized, then it resulted in confused lines of authority and responsibility of the employees. There will be a duplication of effort, inadequate procedures, that gives way to a poor internal control. A lack of organizational structure can lead to a complete breakdown in company productivity.
REFERENCES:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Auditboard. (2021). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls- compliance-program/
HEDREYDA, HILARY N. (2019-103876)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal Control are the most important aspects of any organization. Internal controls are implemented to aid organizations to attain such objectives and strategies. In conncetion with this, effective internal controls are necessary to assure that goals and objectives are met. They provide unbiased sustainability figures to managers for making sound decisions. They ensure that all applicable rules and regulations are implemented and filling order to avoid public ridicule. Management is responsible for the design, implementation and maintenance of all internal controls, while the Board is in charge of overall control environment oversight. Furthermore, organization with strong internal controls can achieve financial reporting, compliance with laws and regulations and the effectiveness and efficiency of their operation and aims to ensure the integrity of assets that provide possible consequences for dealing with breaches.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
One of the most important aspects to consider in various deployment business is Internal Control. It plays a vital role in order to assure the expedite operation of the company's overall information systems. A lack of internal control can demoralize an organization causing to be ineffective in internal control. In my assertion, the most significant failure of the Machine Manufacturing Company's internal control was a lack of organizational chart procedure, despite the fact the much better control was both possible and practical. Organizational chart failures such as unkempt roles and responsibilities of key personnel may have an impact to their personal behavior and performance, causing them to be unproductive and destitue rendition. In order to assess and alleviate their failures, Machine Manufacturing Company must improve organizational chart procedures for dealing with those hiccups in organizational aspects pertaining to key personnel in the means of developing broad approach and detailed manual transaction procedures that possesses and achieves solution of their failures that may lead them to be effective and efficient.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
In this case study, the emphasis is on presenting coherent recommendations for the company is dominant in order to improve their internal control. As we distinguish the failures of the Company, the key to adequate and envoys recommendations should be emphasized more is the means of extensive organizational hierarchy, which includes academic processes in order to achieve and avoid ambiguity and reduced productivity. In this regsrds, It is consequential to emphasize such company failures in order to yield the good internal control in the structure of organizational chart of the key personnel inclines with operations and informations. The essence of the risks assesment, as we highlighted in the flow of operations is the arduous compliance and mendacity of the business information is occured. Overall, it is critical to seek for recommendations that should be emphasized in order evade the high risks that could lead the organization overall failure.
REFERENCES:
Kenneth R. Cerini, CPA,CFP, FABFA (2016). Key Components of Internal Control. https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. In AICPA Committees. American Institute of Certified Public Accountants. https://egrove.olemiss.edu/aicpa_comm/104/
DELAMBACA, VICENTE JR T. (2019-106640)
Success starts with ourselves and eventually spreads out from thereon. Establishing solid internal control would greatly help because it gives assurance that the company will achieve its goals. It has many purposes within the organization, such as it assists in identifying risks. Risks can bring harm and take down the years of hard work within a short period if not careful; assessment and management of risk are essential in mitigating risk. Internal control also handles the flow of the information that should always be high-quality. The client's and company's data should have well-organized and protected by a system. In addition, the security of who gets the information and its authorization are should be practiced throughout the organization. It should not be easily accessed; putting restrictions such as passwords is a must. The financial statement should always be timely, authentic, and free from any error. When the financial statement is reliable, it greatly helps the company make the right decision, see the problems immediately, and take countermeasures while still a minor one. IC helps keep the duties of the employees separated. Every document carries crucial information, so the specific employee needs to handle it to avoid information leaks or fraud. It also offers improvements in operational efficiency by removing unnecessary processes. Internal control brings more benefits and not just what had mentioned above; it helps the organization continuously flourish while knowing they are ready in every situation.
ReplyDeleteThe Machine Manufacturing Company has faced many failures because of its weak internal control, and among them, it is worth mentioning the problem in managing the cash. In creating a business, money is the main reason why everything is running. It is the bloodline of the business, and imagine how chaotic it can be when it is left unmanaged. There was a significant problem with the company's cash flow, and it seems they continued operating without even knowing this fact. The customer ledgers, sales invoices and customers' statements, and others more all got mixed up. It is hard to track whether the customers had already paid or our money in the bank is still maintaining its balance. It is always important to have a journal entry of every transaction and separate them to their uses. Proper bookkeeping is critical in having an organized system. It is suggested that all the checks should always be prenumbered, and only the person who manages the signatures for it has access. The company should have two bank accounts for receipts then subject to withdrawal, and the second one would be for branch disbursements.
Among all the recommendations, the one that should put emphasis more is everything under the cash recommendations. Cash management is crucial because we will know whether we are earning or not, how much money we are spending, or what improvements we can make. It can help us make the correct next step because if not, the business will surely fail. The employees can make some money, and we would not even know. We might not even know we are no longer maintaining the required balance in the bank, or there is an error, and the balance in the book and bank are not matching. Proper recording and management can help us be more organized and make the business bloom.
REFERENCE:
12 reasons why internal controls are important in any business. Indeed Career Guide. (n.d.). Retrieved November 9, 2021, from https://www.indeed.com/career-advice/career-development/importance-of-internal-controls.
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104
ISIP, IRIS G.
2019-103614
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ReplyDeleteInternal control, for the past decades, has been regarded by many as one of the best defenses against business failure. It is because of the fact that it has multiple functions, most of which are very vital to the success of the business, leading firms to believe that on an entity-level, internal control is the “driver of business performance”. To defend this claim, a definition devised by Saha Rating (n.d.) has been presented, they mentioned that an internal control is “the entire work of monitoring, assessing, and reporting that is carried out by the internal audit organization to determine whether a company’s activities are in compliance with the strategies, policies, and application directives introduced by its management.” With this description, it has multiple aims such as: maintaining the operation’s efficiency and effectiveness, enhancing the reliability of both of its internal and external report, and adhering to legal and administrative regulations.
Relying on this ability to identify, assess, and manage risks, it is safe to say that internal control is intended to protect businesses from the potential loss or misappropriation of its assets and at the same time, it emphasizes the relevance of risk management in enabling an organization to generate and preserve enterprise value as a whole. However, keep in mind that full dependence on the internal control does not guarantee a full eradication of all the errors and irregularities of the business but the mere fact that it can notify management means that the organization can take precautionary steps to avoid the worst-case scenarios that could happen as early as possible.
To give emphasis on this fact, consider the Machine Manufacturing Company. In the case study presented concerning the mentioned company, it can be gleaned that it has weak internal control—making it hard for the company to sustain the operations of their business in an efficient and effective manner. Upon the examination of the assigned auditor, it has been found that all the weaknesses in the system is rooted from the way the company handled their resources. To name a few, and by far, the biggest failure of the company is found within the cash section.
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ReplyDeleteAs it has been constantly highlighted in most accounting subjects, cash is the most vital asset of the business. This is due to the fact that the innate risk of such asset is normally assessed as “high risk” because cash, from its very nature, has several elements that makes it exposed to risks such as high volume, high liquidity, automation of transactions, debt covenants, high susceptibility of manipulation, and the like (Accounting Guide, n.d.). With this implication, cash basically has the highest possibility of being mishandled, embezzled, and disregarded.
For instance, the Machine Manufacturing Company failed to segregate the function of both cash receipt and disbursement, and the same time, it has been mentioned that there is only one person performing the cash, general, and accounts receivable bookkeeping functions which makes it more suspicious for the company to be able to provide reliable results of its bookkeeping ends. This is a very important matter to consider since the failure to segregate people in handling the assets of the company (more specifically cash) could pose a bigger threat to the company as it can insinuate internal misappropriation and if not handled well, the company would not be able to determine where their cash go in and out.
In line with the recommendations provided by the authors, the issue with the limited numbers of office personnel is what makes the internal control almost unsatisfactory to execute its full potential. Although it is cost-efficient on their part, the long-term effect of it is that the supposedly cost-efficient tactic of business will eventually become a drawback in the long-run due to the fact that if a certain line of work is being handled by only one person, there is no way that a company would be able to gain a reliable access as to how resources of the firm have been handled. Hence the reason why it is safe to make the segregation of duties more efficient by considerably investing to people who handle them.
References:
Accounting Guide. (n.d.). Audit Cash. Accessed November 9, 2021 from https://accountinguide.com/audit-cash/
American Institute of Certified Public Accountants Committee (1950). Machine Manufacturing Company; Case Studies in Internal control. Accessed November 9 2021 from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Saha Rating. (n.d.). Internal Control. Accessed November 9, 2021 from http://www.saharating.com/~saharati/en/about-us/internal-control/
Written by:
Demabildo, John Michael F., 2019-101694
How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control helps entities achieve overall objectives and sustain and improve the performance of an organization. COSO's Internal Control-Integrated Framework (Framework) helps organizations effectively and efficiently upgrade internal control systems that adapt to changing operational and management environments, minimize risks to acceptable levels, and support sound management decision-making and control. In addition, internal control achieves effective and efficient operations when external events are considered unlikely to have a significant impact on achieving objectives or where the organization can reasonably predict the nature and timing of external events and mitigate the impact to an acceptable level. A well-designed and operational internal control system will not minimize the possibility of damage, but it will mitigate it.
Moreover, Internal control safeguards a company's assets and prevents it from breaking any regulations while tracking its financial activities in accounting records. Accounting records are used to compile financial statements that owners use to analyze a firm's operations, including all organizational and personnel engagements (Franklin,2018). Internal controls encompass more than just reviewing how items are well-documented in the company's accounting records; they also entail comparing the accounting records to their actual functions.
Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's weak internal control resulted in the biggest failure of their organization. Based on their "Check List – Internal Control, the company failed to segregate the function of receiving cash from those relating to Sales invoices and customer statements, Customer ledgers, Mailing or delivering checks, Bank reconciliations, Cash disbursement, and General accounting records. They also neglected to separate the functions of disbursing cash from bank reconciliations, payroll preparation, approval of payment vouchers, and general accounting records. Furthermore, failure to maintain a record showing complete securities descriptions had a weakening effect on the otherwise reasonable internal control. Unsatisfactory internal control resulted from the failure to check and reconcile balances shown by vendors' statements and balances shown by accounts payable detail.
The auditor mentioned different recommendations, but in my perspective, the higher management must give more attention to the administrative and accounting control and take the necessary procedures to enable the internal auditors to execute it somehow which leads to raising the level of effectiveness. Moreover, strengthening control over the risk management system through ongoing tests for the effectiveness of the procedures and controls.
- SEAN LESTER NOMBRADO (2019-106902)
Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteThe auditor mentioned different recommendations in the case study, and I would recommend focusing on accounts payable. It is essential to emphasize the Accounts payable because it can lead to internal and external fraud, tax issues, extraneous invoices and payments, and inaccurate financial reporting. Accounts payable internal control should be utilized to keep the payments safe and avoid human error—for example, the obligation to pay contracts. With the obligation to pay controls in place, organizations can verify the accuracy of invoices and ensure they are paying for items they have indeed received that including the purchase order approval, invoice approval, and auditing for duplicates which involves manually checking the files to make sure duplicate payments have not been made. Additionally, data entry controls like the record before and after approval ensure an invoice is successfully recorded in the system to eliminate the possibility of manual data entry errors. Lastly, increasing the security of a specific department, like moving to an electronic payment system, includes the segregation of duties, tracking check numbers, securing check storage, and vendor payment information updates.
Refences:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Franklin, M. (2018, July 24). Define and Explain Internal Controls and Their Purpose within an Organization – Principles of Accounting, Volume 1: Financial Accounting. Pressbooks. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
- SEAN LESTER NOMBRADO (2019-106902)
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal Control focuses on achieving the objectives in these three major categories. (1) Effectiveness and efficiency of operational process, (2) Accuracy and reliability of Financial Reporting, and (3) Compliance with both internal and external laws and regulations. Basically, any organization in operation has risks and such risks need controls. Internal Control creates a roadmap or clearer path on achieving the goal. It is not only for finding potential problems but to discover opportunities for improvement and executing necessary corrective actions. Without Internal Control, an organization may fail to establish an appropriate control environment, assess risks, implement control activities, communicate information, and monitor the entire operational process. According to Kendra James, A successful system of internal control is not built overnight, but is an ongoing process of fine tuning the inner workings of an organization.
2. Identify the biggest failure of the Internal Control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
After reading the "checklist - internal control" and assessing the situation of The Machine Manufacturing Company, I believe the biggest failure of they had was poor Internal Control to Cash. They failed to work in customer's sales invoice from preparing up to balancing the account, they failed to record accounts receivable and notes receivable, they were not able to provide receipts for unclaimed wages and dividend and how they used the petty cash fund, and they had a problem in bank reconciliation where checks are not countersigned. These are all making huge delay and give an indication of poor internal control. My recommendations are all receipts should be under accounting record control if not deposited immediately, all duplicate deposit slips should be stamped by the banks, all checks should be prenumbered, and all petty cash disbursements should be supported by a complete petty cash voucher. Through this, they will prevent the risks from arising and make nuisances in company's operation
John Michael Ruiz (2019-103444)
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ReplyDelete3. Of all recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasizes.
I believe out of all recommendations provided by the auditor, the recommendation should have been emphasized is about good internal control in Inventories. In view of the fact that except for accounting control over a few special lasses of inventories and a few checks made on physical inventories, internal control was completely lacking. If this were not emphasized by the auditor, they may have inaccurate forecasting as to their inventory stock, they may encounter theft and loss on obsolete inventory, and will have a delay in operation as a whole.
References:
American Institute of Accountants, (1950). Machine manufacturing company; Case studies in internal control. https://egrove.olemiss.edu/aicpa_comm
Reciprocity (2021). Objectives of Internal Control in Auditing. https://reciprocity.com/objectives-of-internal-control-in-auditing/
Kendra J. (2021). Purpose of Internal Control. https://smallbusiness.chron.com/purpose-internal-control-3804.html.
John Michael Ruiz (2019-103444)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is broadly defined as a process carried out by the entity's board of directors, management, and other personnel to provide reasonable assurance regarding the achievement of the following objectives: operational effectiveness and efficiency, financial reporting reliability, and compliance with applicable laws and regulations (Chambers, A. & Rand, G., 2010). Internal control is a continuous process that is based on the actions of the staff and focuses on achieving operational objectives, reporting consistently, and adhering to standards. The internal control system must be followed by all employees, officers, and management of a company. It gives the management reasonable assurance and can be appropriate to the needs of the entire organization. It monitors operational effectiveness and makes necessary changes if a major problem arises. Thus, internal controls are beneficial in achieving the company's goals and future plans and everyone involved in the company's operations must maintain it.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's biggest failure is a lack of internal control. A failure in the implementation of effective internal controls. The Machine Manufacturing Company failed to account for and manage their cash, notes and accounts receivable, and customer deposits, inventories, securities, property, plant, and equipment, accounts payable, capital stock and dividends, sales, purchases, expenses, and payroll. All of these items failed their internal control procedures, which had a negative impact on the audit results of Machine Manufacturing Company. All internal control failures are caused by a lack of information, inexperienced staff, and a poorly designed internal control environment. As an auditor, I will advise them to conduct additional investigations into the entire operation, create a preliminary audit plan, write a report based on their observations (this report should be properly authorized), and make recommendations as needed. They can include activities like reconciling bank statements and conducting internal audits to determine whether cash is being misappropriated by management. It should also examine the operations to achieve effective internal control because this will lead to reduced risk of asset loss, ensuring that plan information is accurate, financial statements are reliable, and plan operations are carried out in accordance with applicable laws and regulations.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
ReplyDeleteI believe that all of the recommendations should have been emphasized because each account in the Machine Manufacturing Company's financial statements has an internal control weakness. However, they should place a greater emphasis on their cash, particularly cash disbursement. According to the checklist presented in the case study, the organization failed to segregate its employees' jobs and obligations, as well as the issue of reconciling it. Because cash is the most liquid of all assets, a company cannot survive if it does not have proper cash management. Furthermore, cash carries the highest risk because it is the easiest to disappear. Management must ensure that they have strong internal controls in place to secure the cash process by having sufficient knowledge of its operation, experienced personnel, and separate tasks for authorizing, recording, and reconciling accounts. Each employee should be assigned specific job responsibilities, which can greatly aid in risk mitigation. However, because its operations affect all accounts, Machine Manufacturing Company should not disregard others and give priority to only one or two components. All of the accounts have an impact not only on the Machine Manufacturing Company's operations, but also on its various stakeholders. The company will be at risk if it does not have proper internal control procedures in place and continues to operate in the same manner as before. When mistakes occur, it leads to conflict between employees and management. The case study's recommendations will be beneficial to Machine Manufacturing Company's operations, processes, and monitoring.
References:
Chambers, A. & Rand, G. (2010). The Operational Auditing Handbook: Auditing Business and IT Processes, Ltd. ISBN 978-0-470-74476-5. P 140
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
ALCANTARA, SHIELA MAE D.
2019-103506
1. How can an internal control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Besides complying with laws and regulations and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting. (Kenton, 2021). Internal Control helps by ensuring integrity within an organization. They would put up mechanisms, laws, regulation, and frameworks in helping internal auditors in achieving the accuracy, sufficiency, and effectivity they are aiming within their workplace. Having said about the frameworks, it was an overall monitoring (minimizing) of every risks, interaction, and activities—creating an organized work system for every employee. As we all know about the Enron case, this is their answer to avoid that situation again.
2. Identify the biggest failure of the internal control of The Machine Manufacturing and what will be your recommendation to improve their Internal Control that should have prevented this risk. The data that was given to us gave away their poor internal control in their organization. They don’t have full control of the of the organization itself. It has caused mismanagement from departments that lead to failure in their data. Their communication wasn’t disseminated properly and with the lack of supervision that made confusion on the workplace. As what we saw here, it is the lack of laws and regulation, or simply they should’ve strengthened their internal control and picking the right personnel with a sense of responsibility on their hands. With that being said, Malicious actors can leverage internal control to circumvent even the most robust security measure. The only probable solution that I can give to them is an
Habon, Ashley P
2019-102695
improvement on the part of internal auditors. Picking a capable and skilled employee is the first thing they should have to improve the internal control of the organization and can have a deeper foundation. The risk should’ve been identified, the cash should’ve been used properly, information properly disseminated, risks immediately identified and taken action, and the likes. They should take by heart the processes and regulation it has because it can be a big help on everyone’s part—clearing the confusion that they’ve experience.
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
All of the auditor’s recommendation can truly help the organization but the one that should be emphasized is the number 2 of the General section; which is the manuals of operating procedures should be prepared. We can address here that what they really lack of the is a capable and skilled internal auditor to overlook theses circumstances. What they are lacking, that was mentioned in the recommendations, are the jobs of an internal auditor. The organization has shifted to complete fall of their company since they have failed to place the right personnel in that job. If this recommendation is not emphasized, in what plan or strategy they can provide will lead into total destruction since no one will overlook it, no one will identify the risk, no one can trace back and identify the problems, no one will ensure the efficiency of the company; In other words it’s like removing an important material in a machine.
References:
Will Kenton. 2021. Internal Controls. https://www.investopedia.com/terms/i/internalcontrols.asp
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Habon, Ashley P
2019-102695
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls (IC) are paramount to any organization's success. Internal controls are put in place to ensure that the organization's goals and objectives are met. All internal controls are designed, implemented, and maintained by management, with the board overseeing the control environment as a whole. Organizations can achieve three major objectives by implementing strong internal controls. These three goals are as follows: accurate and reliable financial reporting, adherence to laws and regulations, and the effectiveness and efficiency of the organization's operations. To achieve these objectives, an internal control framework must be implemented and followed throughout the organization. The five components of the internal control framework are control environment, risk assessment, control activities, information and communication, and monitoring.
The first component, control environment, is essential for it serves as the foundation for the four other components of internal control. The control environment establishes the tone at the top of an organization and provides discipline and structure. The second component is risk assessment. Risk assessment is the identification and analysis of risks that could prevent the organization from achieving its objectives. The third component is control activities, which are the policies and procedures that help ensure that management directives are carried out. Information and communication is the forth component of internal control. This relates to the identification and transfer of pertinent information in a timely manner that permits personnel to perform its responsibilities. The last component is monitoring, which is a key element of managements responsibilities when it comes to internal control. Top management is responsible for monitoring all controls and to determine if the controls are operating as they were intended. If controls are not operating effectively, management is then responsible to modify these controls. If these five components are implemented and are operating effectively, they can help ensure that an organization will achieve its objectives while avoiding complications along the way (Cerini, 2016).
CHENCEL-ANNMAE F. ALMODIEL (2019-105222)
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteThe checklist provided in the case study clearly outlined the weaknesses of The Machine Manufacturing Company in its internal controls. But one thing that caught my attention is the cash section, for which I assumed is the biggest failure they've committed among the others. Cash is the most liquid asset, thus it plays a significant role in a company. However, The Machine Manufacturing Company failed to manage it properly which resulted to poor internal control. As indicated in the checklist, particularly in the cash section, The Machine Manufacturing Company failed to segregate the function of receiving cash; failed to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts; failed to segregate the function of disbursing cash; failed to use prenumbered checks; failed to have two local bank accounts each for the New York, Pennsylvania, and California branches: one for receipts, subject to withdrawal only by the home office; and the second for disbursements, to be operated on an imprest system. In addition, they also failed to make complete examination of checks returned with bank statements at the time of bank reconciliations; failed to have pay distributed to employees by persons other than those regularly making the pay-off, and failed to have supporting evidence for all petty cash disbursements. These failures might lead to certain risks, so I recommend that the Company should create an effective and efficient accounting policies first for it sets a framework that they could follow, and it provides comparable and consistent standard financial statements.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The auditors provided a brief list of recommendations that The Machine Manufacturing Company could use to establish a strong internal control and manage its operations effectively. Among these recommendations, as per the case study, I think accounts payable particularly the reconciliation of vendor's statement should've been emphasized more. As we all know reconciliation is a practice that should be completed on a regular schedule to ensure that business records are kept up to date and as accurate as possible. Although this sounds like a very common sense approach, it is not always that common. Thus, ensuring that the vendor's account balances are accurate is vital in the validation and accuracy of financial statements. On a further note, a missing invoice means a missing expense, which may result to an inaccurate Income Statement or Balance Sheet.
CHENCEL-ANNMAE F. ALMODIEL (2019-105222)
References:
ReplyDeleteCerini, Kenneth R. (February 29, 2016). Key components of internal controls. Retrieved November 9, 2021 3:26 pm from https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
American institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
CHENCEL-ANNMAE F. ALMODIEL (2019-105222)
PART 01/02
ReplyDelete(1)
Internal controls are mechanisms, rules, and procedures that maintain the integrity of financial and accounting information. These activities help to improve the accuracy and timeliness of every report. It also promotes accountability and decreases the probability of fraud within an organization (Kenton, n.d.). In addition, it helps to prevent employee misconduct (e.g., stealing a company's assets, engaging in deception, and more) and improves the overall operational efficiency.
According to Franklin et al. (2019), the chief purpose of internal control is to protect the organization and promote its goals. Internal controls will help an organization reduce risks, safeguard assets, ensure record accuracy, increase operational efficiency, and facilitate compliance with policies, rules, regulations, and laws. With these, the entity's frameworks will be easier to handle and evaluate. Besides the stated purpose above, internal control also produces benefits for every stakeholder.
We can say now that internal controls are a fundamental part of the administration policy of an organization because they serve as a guide to protecting the integrity of every report, procedure, and activity of a firm. Having a well-designed internal control system will bring leverage to the company in terms of reliability of accounting information, effectiveness and efficiency of performance, and protection of assets. Internal controls determine many decisions and general operations within an organization. To sum it up, it is clear that a proper internal control system will help attain the overall objectives and strategies.
(2)
The Machine Manufacturing Company is a firm that manufactures and sells heavy special machinery, including parts and accessories. Their manufacturing operations occur at two plants in the same Michigan City. The sales operations are conducted from home to the manufacturing facility and employees from four offices in New York, Pennsylvania, Missouri, and California. In addition, independent consignment agencies are responsible for their local and export sales.
The American Institute of Certified Public Accountants (1950) made an examination of the policies and procedures of the said venture. According to their investigation, the lack of internal control is the main reason why the operations in The Machine Manufacturing Company fail. The primary contributor to this failure is the insufficient number of office staff. These events and situations lead them to have unsatisfactory performance. Nevertheless, if they recalibrate their internal control system, it will improve their business procedures, policies, and performance. To achieve sufficient internal control of the business, they must have a strict assessment of financial statements and systems; segregate the accounting duties properly; hire a third party to check and evaluate their financial reports, and strengthen their management supervision.
FRANDIAN A. BLANCO, 2019-103951
PART 02/02
ReplyDelete(3)
Of all the recommendations presented by the American Institute of Certified Public Accountants, Committee on Auditing Procedures to the venture, their advice regarding inventories and property, plant, and equipment require an emphasis. The nature of the business is a manufacturing venture that focuses on producing and selling heavy special machinery, including parts and accessories. That is why there is a need to emphasize the recommendations that directly affect their business operations.
Different risks may get through their internal control framework if the emphasis on the said recommendations is lacking, especially the uncertainties related to business processes. For example, capacity risk, this uncertainty can lead to faulty capacity limits to satisfy the demand of the market, or surplus capacity, which will threaten the business capability to create competitive profit margins (Murdock, 2017). In addition, the execution risk and product development risk will also increase. Consequently, the business may have difficulty in producing its product. And ineffective product development jeopardizes a company's ability to meet or exceed customer expectations. For the stated reasons, emphasizing the AICPA recommendations respecting inventory and property, plant, and equipment is vital.
References:
Kenton, W. (n.d.). Internal Controls. Investopedia. https://www.investopedia.com/terms/i/internalcontrols.asp
Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of Accounting, Volume 1: Financial Accounting. OpenStax
American Institute of Certified Public Accountants, Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. https://egrove.olemiss.edu/aicpa_comm/104
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. CRC Press Taylor & Francis Group
FRANDIAN A. BLANCO, 2019-103951
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
According to COSO (2013), Internal control is a process effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding achieving objectives relating to operations, reporting, and compliance. Internal control is essential in an organization to manage risk and diminish the occurrence of fraud. As organizations face different threats, the lack of internal control will likely result in corruption, misuse of resources, and inefficiency of operation.
Internal control is paramount to the success of an organization (Girsch-Bock, 2021). It will help them achieve its overall objectives and strategies by establishing an effective and efficient system in adapting to changing business and operating environments, mitigating risks to acceptable levels, and supporting sound decision-making and governance of the organization (COSO, 2013). Moreover, internal control will help the organization identify and mitigate the risks present in an organization that may jeopardize its objectives and enhance its performance's overall efficiency. It is the organization's backbone that supports the management in achieving its goals and sustaining better performance. Furthermore, internal control guides the management in designing and mapping their systems that would benefit the organization, producing accurate financial reporting, and ensuring compliance with regulations. A company that fails to establish internal controls effectively is considerably more likely to encounter several problems than a company that has rigorous internal controls in place.
GESTA, CHARLOTTE G. (2019-100594)
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ReplyDelete2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Internal control is vital in an organization as it guides the management in achieving its objectives and maintaining good performance. The lack of or weak internal control puts the business at higher risks and prevents success. In the case study that I have read, the biggest failure in the internal control of the Machine Manufacturing Company is the lack of an organization chart and manual operating procedures. These resulted in confusing lines of authority and responsibility, duplication of effort, inadequate systems, and poor internal control. For me, these affect the organization's performance because these create confusion on responsibilities and increase conflict, resulting in disorganized management of the organization. An organization chart is a critical element of accountability and responsibility, and the lack of it affects the overall productivity of the corporation. Furthermore, the lack of manual operating procedures affects the organization's operation because there are no clear guidelines on how the employees will carry out their work and responsibilities.
In improving the organization's operation, it is essential to organize the management by developing an organizational chart. Through this, conflicts will not arise because there is a precise execution of an authority, and responsibilities are distributed accordingly. Moreover, the organization needs to prepare manual operating procedures that will guide the employees to perform their tasks to increase productivity and improve the business operations' efficiency.
GESTA, CHARLOTTE G. (2019-100594)
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
All recommendations of the auditor in the case study are helpful in the company to improve their overall performance. But among the suggestions given by the auditors, I think that creating an organization chart and manual operating procedures to address the problem with the general operation of the organization is what should be emphasized more. The lack of organization chart and manual operating procedures results in conflicts on the authority, poor delegation of responsibilities, inadequate operation, and poor internal control. There should be a specific exercise of authority to improve the company's overall performance, and responsibilities should be delegated accordingly. An organization chart will be helpful to organize the entity, ensure a smooth flow of information from the top management to the employees, and increase efficiency in the operation. Also, the manual operating procedure will guide the employees on how they will perform their tasks following the standard set by the organization.
Emphasizing these recommendations will create a significant impact on the overall performance of an organization, such that it will be able to operate smoothly and efficiently. Contrary, if these recommendations were not emphasized, the company is at high risk of collapsing because operations will continue to worsen, and poor internal control will still prevail. Furthermore, a poor delegation of responsibilities results in lower productivity of the employees, resulting in more losses in the company and inefficient operation.
REFERENCES:
Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. In AICPA Committees. American Institute of Certified Public Accountants. https://egrove.olemiss.edu/aicpa_comm/104/
Franklin, M., Graybeal, P., Cooper D. (2019, April 11). Principles of Accounting, Volume 1: Financial Accounting. Openstax. https://opentextbc.ca/principlesofaccountingv1openstax/
Girsch-Bock, Mary. (2021, August 6). The Importance of Internal Controls. CPA Practice Advisor. https://www.cpapracticeadvisor.com/accounting-audit/article/21232325/the-importance-of-internal-controls
GESTA, CHARLOTTE G. (2019-100594)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is crucial in any business, but it is especially important to auditors, because the audit work and audit program are fully dependent on whether the firm's accounting system and procedures provide good internal control. Internal control protects a company's assets and prevents it from breaking any laws, while also properly recording the company's financial transactions in its accounting records.
An effective internal control system can provide managers with the tools they need to make their programs accountable and receive reasonable assurance that they are meeting their goals and objectives. However, all employees, not only managers, have responsibilities and accountability in an internal control of an organization. It encompasses the characteristics of effective management. When everyone in the organization and the surrounding environment work together, you can guarantee that the internal control will be effective. Following the internal control framework guarantees that a business meets its objectives while avoiding possible risks.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Based on the case study, weak internal control within the company causes the failures in the organization. The failure to segregate the functions of receiving and disbursing cash is the Machine Manufacturing Company's biggest internal control failure. This failure could result in the possibility of fraud or financial misstatements. Cash flow information enables users in understanding a reporting entity's operations, evaluating its financing and investment activities, assessing its liquidity or solvency, and interpreting other financial performance data. To improve Internal Control and avoid the creation of risks, the company must have a strong division of roles between those who conduct accounting operations and those who manage assets. Because internal control works well if the people are doing their job responsibly. Also, they need to supervise each employee's activity to monitor the flow of processing transactions and related operations.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteThe auditor of Machine Manufacturing Company made a number of recommendations to help them strengthen their internal control. But I think the one that should be emphasized more is all the recommendations related to cash. Because cash has no internal supervision, different cash fraud schemes can be carried out with ease. Apart from the recommendations made in the case study, I would advise them to quickly record all cash receipts they get so that there is proof that the company has received them. To prevent misstatements, they must deposit all cash receipts in the bank immediately once they have received it. Also, because division of roles is crucial, they must remind their staff of the specific tasks that have been allocated to them and the limitations of their responsibilities.
References:
The importance of Cash Records and reports. Ebrary. (n.d.). Retrieved November 10, 2021, from https://ebrary.net/11006/business_finance/importance_cash_records_reports.
Machine Manufacturing Company; case studies in ... - egrove. (n.d.). Retrieved November 10, 2021, from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm.
-BULING, CATHERINE
2019-103626
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls as defined by Kenton (2021), are the various mechanisms, rules, and procedures which are implemented in an organization to ensure the integrity of its operations. Following its definition, IC would definitely help to achieve the overall objectives and strategies by ensuring that standards, processes, and regulations of the organization are met; hence, IC allows the organization to supervise and oversee its operation as a whole – regardless of department or job-level. Also, Internal control provides reasonable assurance regarding the achievement of the organization’s objectives in terms of: the effectiveness and efficiency of the operations, reliability of financial reporting, and compliance with applicable laws and regulations (Michigan Tech, n.d.). For final remarks, IC helps the management guarantee that every decision made by the organization has an overall positive effect in the organization. It helps to maintain, even improve, the present procedures and/or policies that the organization already has.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Upon reading the case study of the internal control of The Machine Manufacturing Company, I immediately noticed the abundance of poor internal control results from the account Cash. In this case, I have identified that this is the biggest failure of internal control of the organization. Due to being the most liquid asset, it is used on the daily operations of the business. Since the organization has numerous risks involved, it would be worrisome to the organization as this account must be well-accounted to ensure that shortage of cash, any fraudulent transactions, or even miscounting of cash would lead to more risks. In line with this, hiring a trustworthy individual to manage cash would lessen this risk as proper cash control would generally suffice the need of reducing such controllable risk.
BENTULAN, JOHN PATRICK ABRAHAM A. (2019-106909)
CBET-01-502A
1/2
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteFollowing my prior number, the number 8 recommendation under cash struck me as this is poor cash internal control – having the same person to authorize to sign checks and to maintain the accounting records reeks the possibility of fraudulent behavior. The risk of this possibility should not be left unchecked and must be immediately accounted for; hence, this recommendation must be given more emphasis. If such risk is left unnoticed, the employee may steal the cash of the company and use it in his personal gain.
REFERNCES:
Kenton, W. (September 3, 2021). Internal controls. Retrieved on November 10, 2021 from https://www.investopedia.com/terms/i/internalcontrols.asp
Michigan Tech. (n.d.). What is Internal control. Retrieved on November 10, 2021 from https://www.mtu.edu/internal-audit/control/what-is/
BENTULAN, JOHN PATRICK ABRAHAM A. (2019-106909)
CBET-01-502A
2/2
Internal controls are the methods that a company employs to manage risk and prevent fraud. The control environment, accounting system, and procedures known as control activities make up the internal control structure. Internal control systems that are well-designed and well-functioning do not remove the risk of loss, but they do lessen it. Internal control protects a company’s assets and prevents it from breaking any laws, all while accurately capturing the company’s financial activity in its accounting records. It should be clear how important internal control is to all businesses, regardless of size. An effective internal control system allows a business to monitor its employees, but it also helps a company protect sensitive customer data. Internal controls have become an increasingly important part of most business decisions. As many firm structures have become more sophisticated, its significance has expanded.
ReplyDeleteIn an effective internal control system, the following five components work to support the achievement of an entity’s mission, strategies and related business objectives. First is the Control Environment that exercises integrity and ethical values. Next is Risk Assessment that performs risk identification and analysis. Control Activities is third on the list which conducts application change management. We also have what we called Information and Communication which job is to measure quality of information and effectiveness of communication. Lastly, we have Monitoring that conducts separate evaluations and reports deficiencies.
Upon reading and analyzing the The Machine Manufacturing Company, I have come to a conclusion that their biggest fall back was the failure to double check or triple check all the data or activities that the company performed or operated during the year. It’s important to always verify to avoid unnecessary circumstances just like what happened to the said company. Whether it be about the cash inflow or outflow, the employees payroll or the petty cash disbursements, it’s always best to make sure that everything is under control. My recommendation is to enhance more or focus on Risk Assessment. In this internal control, its main job is identifying and analyzing different kinds of risk that an organization may encounter.
I’ve read all the recommendations suggested by the auditor and I think they should’ve focused more on recording all the receipts of the company that took place during its operation. By doing so, all the problems that may come along the way will have an answer since you have your records with you. Being able to provide information about a certain failure is enough to improve one’s self. For me, if the recommendation that I mentioned above was not emphasized, you will waste more time finding what went wrong instead of just browsing through your records.
References:
Principles of Accounting, Volume 1: Financial Accounting
https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
American Institute of Accountants. Case Studies in Internal Control
https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Dalmacion, Khyla Bernadette S.
2019-105708
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteAn organization will achieve all their objectives and strategies if they will apply the COSO Framework because of its five key components. First is by establishing a control environment where in it includes the ethical values, organizational structure, commitment to employing competent employees, and human resources policies (Snook, 2019) with all of this controlled within an organization, surely that the workforce will be more efficient which means good performance will take place. Second is by conducting a risk assessment for the organization’s quarterly analysis of the overall performance by checking all the happening in each department of the organization, ability to specify all possible risks that will threaten or weaken the performance of the organization and determining which risks will be tolerable. Third is implementing a Control Activities, completing tasks and activities by directly following all the policies and procedures will control and keep all things in place, although this doesn’t mean that the organization cannot go beyond their policies because in the process, they will eventually need to reconstruct or re-implement their policies to keep it according to all the changes along the way. Fourth is the Information and communication, implementing a system to have effective dissemination of information which is needed to keep relevancy and harmony within in an organization. Last is the Monitoring, this activity must always be part of the internal control of an organization because this is an ongoing evaluation and assessing that will help specify all risks and the effectiveness of all the other components applied within the organization.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
According to the AICPA Committees on their case study, Accounting System and Procedures is mainly the basis of the Machine Manufacturing Company in identifying if they have good internal control. And according to my own understanding, their biggest failure is in terms of their reporting all of the transactions accurately. Everything related to their accounting aspect failed to show good internal control because they lack the ability to make a proper report and monitoring of all the transactions of their business. And because they lack proper reports, it resulted to stacks of failures to the point that they failed to manage the in and out of the cash in their business and they failed to properly account how much is the actual profit or loss of their business. This affects the relevancy and credibility to make an overall good performance.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Generally, they need to emphasize and control their reporting ability and the timeliness of the reports because the delay in recording the activities will affect the overall decision makings in the future and will cause disorganized plans. Another thing is that I think they need proper control in their environment because I think their failures were the result of their ineffective policies and procedures. The employees tasked to do those jobs doesn’t apply proper ethical behavior which is crucial in the performance.
Johanna Marie V. Rotoni (2019-103691)
References:
DeleteAmerican Institute of Certified Public Accountants. (1950). Machine Manufacturing Company; Case studies Internal Control. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Snook A. (2019, November 21). COSO Framework: What is it and How to use it. https://www.i-sight.com/resources/coso-framework-what-it-is-and-how-to-use-it/
Johanna Marie V. Rotoni (2019-103691)
1. Internal control is a process that is influenced by individuals, particularly the board of directors and management. Furthermore, it is expected to provide just reasonable, rather than complete, trust to an entity's management and board of directors (UCSF,2021). Internal control may assist company in attaining goals such as increasing the reliability and integrity of information. That is, all of the information is correct and relevant, allowing auditors and management to judge how effective the company's information is in meeting its objectives. Furthermore, it aids in the protection of company's assets. It is vital to the firm because the company's assets have a significant influence on achieving objectives that are for success; if the company has a problem with its assets, it may create a problem for the whole company, which can lead to failure.
ReplyDeleteInternal control may also assist a corporation in complying with policies, plans, procedures, rules, and regulations. It is critical because these are the things that will be the soul of the organization; it is the implementation of policies and processes that are in accordance with laws and regulations. A systematic strategy increases overall performance via compliance by identifying and measuring both functional and non-functional demands concurrently. It also aids in the economical and effective utilization of resources. Being efficient and effective is important in achieving the company's goal. With the help of internal control, the company's resources can be efficiently used by automating manual controls, removing unnecessary or duplicative steps in a process, or combining certain functions in a cost-effective manner.
Cebuano, Mary Ann J. (CBET-01-502A)
1/2
2. The machine manufacturing company's major failing is its inadequate internal control, particularly its cash control. The case study details the company's failure in cash control. Poor cash control may have a significant influence on the company's success, ultimately leading to the company's demise. We are all aware that money is essential in business, since the company would not have been founded if the owners did not have enough money to run it. I agree with the recommendations made in the case study to improve their cash control. I'd want to add a few items that I believe would be advantageous to the firm. Regarding receipts, the company should have always secured all receipts together with all of the company's transactions in case of a financial statement falsification. This also contributes to the overall balance of the company's transactions. Furthermore, the company's cash flow should be properly monitored. This pertains to the requirement for qualified individuals with expertise and understanding of cash management.
Delete3. The ideas offered in the case study are all sound and can significantly improve the company's performance. However, in my opinion, the general advice should be emphasized. In addition to the case study's recommendations, the company should think about expanding its workforce. As per the case study, a small number of office staff would never suffice. This is correct, as this is also be the way the company might confront even more serious problems and risks. In the long run, failing to emphasize this issue might be a major concern. Because there will be insufficient qualified or experienced individuals in the company, the company will be unable to reconstitute any procedures or policies.
Reference:
University of California San Francisco. (n.d.). Internal Controls. Audit & Advisory Services. Retrieved November 9, 2021, from https://audit.ucsf.edu/internal-controls
Cebuano, Mary Ann J. (CBET-01-502A)
2/2
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls are risk-reduction techniques that help a firm protect itself and achieve its objectives. They aid in the reduction of hazards and asset protection, as well as record accuracy, operational efficiency, and policy, law, and statute compliance. (Auditboard, 2018). Internal controls are one of the most important aspects of every business. Internal controls are used to help businesses achieve their objectives and goals. Management is in charge of the design, implementation, and maintenance of all internal controls, while the Board is in charge of the control environment's overall oversight. Organizations can achieve three key goals supported by strong internal controls. Accurate and reliable financial reporting, compliance with rules and regulations, and the efficacy and efficiency of the organization's operations are the three goals. Internal control is very important not just in public corporations, but also in private firms, because they protect an organization's assets, reduce the chances of fraud, and allow errors to go undetected in day-to-day operations.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Based on the checklist of the internal control of The Machine Manufacturing Company, it shows that there are different failures in its internal control and it affects mainly on the company> The failures includes inaccurate financial recording, erroneous reporting, cash, notes and accounts receivable and customers' deposits, inventories, securities, property, plant and equipment accounts payable, capital stock and dividends, sales, purchases and expenses, payroll, lack of an organization chart, and manual of operating procedures resulted in confused lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control.
In my opinion, the biggest failure on the internal control of The Machine Manufacturing Company is the lack of organizational structure and poor internal control in employing personnel in the company. It is stated that most of those firm's top roles were occupied by people who were new to both their work and the organization. As a result, they are still adapting to the new environment and they tend to familiarize first the things that they should do in the company.
LIGUTAN, JAQUELINE V.
2019-104055
2/2
ReplyDeleteHowever, as I read the case study intently I found out that there is a huge failures in the internal control in the area of cash. Due to poor internal control in cash it resulted in the failure to segregate the function of receiving cash from those relating to sales invoices, customer statements, customer ledgers, mailing or delivering checks, bank reconciliations, cash disbursements, and general accounting records. It also fails to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts, failed to segregate the function of disbursing cash from those relating to bank reconciliations, payroll preparation, approving vouchers for payment, and general accounting records.
As a recommendation, I believe that no such thing as a perfect control system exists. A control system does not provide absolute assurance that an organization's control objectives will be met. Instead, any system has several inherent limitations that reduce the level of assurance. In connection with the failures that I have mentioned above, the proper reorganization in the company must be addressed such as giving those works to people who are capable and has the capacity to do the job properly. In order to improve the internal control of a company, following the proper steps and processes must be the first thing to remember.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Based on the case study, the recommendations that must be emphasized is the proper organisation of the organizational structure. Having a right people for the right job is a good thing. There should be enough workers to do the job who have the experience, skills, knowledge, and professionalism to prevent risks. Internal control in the company would never be completely satisfactory due to the small number of office staff, and adequate separation of accounting responsibilities was not believed feasible. The execution of the above advice, however, was thought to significantly increase the company's internal control. The employees must know their duties and responsibilities. Once this recommendation is not properly address, there is a possibility that the internal failure will repeatedly arises.
REFERENCES
American Institute of Certified Public Accountants. (1950). Committee on Auditing Procedure, Machine manufacturing company; Case Studies in Internal control. AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved November 8, 2021. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Cerini and Associates. (2016). Key Components of Internal Control. Retrieved November 8, 2021. https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
LIGUTAN, JAQUELINE V.
2019-104055
1. How can Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteEvery organization operates with a purpose or objectives. However, along the way of attaining these objectives, some obstacles may hinder them classified as risks. Hence, internal control is vital for them to overcome the risks involved in their operation. By definition, internal control is the general control in the organization affected by management and overseen by the board (Chambers & Rand, 2010). Internal control ensures risk mitigation and implementation of corrective action in addressing the risk, which is essential in achieving the organization's objectives. Furthermore, it strengthens the reliability and integrity of information, maintains compliance with policies and regulations, safeguards assets, assures the efficient use of resources, and increases the probability of attaining the established objectives and goals (UCSF, n.d.).
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks?
Based on the data provided in the case study, the lack of an organizational chart and poor qualities of employees were the primary reasons behind all of the problems with the system of the Machine Manufacturing Company. The overall management of the branches is under the provision of the managers and not on the home office. This kind of setup hinders the fulfilment of the company's objectives and allows for fraudulent acts. Also, the employees lack the fundamental skill that is expertise, hence, failing their performance.
The best solution for their problem is to implement an organizational chart that will allow for the division of work and eradicate the possibility of committing fraud, as actions will be regulated or limited to their respective position. Also, a company must hire employees that are of high quality. Hence, I would suggest selecting the right employees, which is beneficial for assuring effective performance, maximizing the probability of attaining objectives and success.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
Among all the recommendations provided in the case study, the most essential is the general section. The emphasis of this section will result in addressing almost, if not all, the problems relating to operations. Having organizational charts and manuals of procedures is vital for assuring the proper conduct of the organization. Failure to focus on and address these two-aspect will not eradicate the problem but will allow for it to occur again.
References
Chambers, A & Rand, G. (2010). The Operational Auditing Handbook: Auditing Business and IT Processes. John Wiley & Sons, Ltd. ISBN 978-0-470-74476-5. pp 116
University of California San Francisco. Internal Controls. Retrieved November 10, 2021 from https://audit.ucsf.edu/internal-controls
Dizon, Jake C (2019-106975)
1/2
ReplyDeleteAfter reading the case study, I certainly believe that a good internal control will really help the company achieve success. Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. (Investopedia, 2021). Internal control acts as a guide to those people involve in the business. It is the policies that must be followed to ensure the safety of the asset, to produce reliable financial statements, making sure that the business is functioning efficiently and effectively and align with the company’s goals and vision. These guiding principles is what makes an organization systematic. Undeniably, the machine manufacturing company lacks internal control that result negatively and affecting the whole business organization. Internal control is created to mitigate risk and any fraudulent acts, control is part of the process to reach the goal.
There biggest failure is the fact that there is an absence of organizational chart, there is no sense of authority that is why some branches are confused. There is no sense of direction and uniformity in the business. I notice that majority of the operation in business is affected. They lack in many aspects like in cash account, receivable, payables, inventories, and etc. All of these would have been prevented if they acquire an internal control system. So that they would have been guided accordingly. The failure of the Machine Manufacturing with regards to different accounts is a result of not having a sense of control. I would recommend that they create their organizational chart and generate policies concerning the matter. In that way, employees and managers will be guided and act in accordance with the control measurements indicated. The business will have a consistency and conformity since there will be procedures to follow. They will know their responsibilities in addition branches will now know what their function be and task that should be accomplish.
Longno, Micah Lei C. (2019-106978)
2/2
DeleteOut of all the recommendation provided by the auditor, I think Machine Manufacturing Company must give emphasis to ‘general’ suggestion. I also agree that all accounting procedure and internal control can be done if there is a concrete list of there responsibilities. If the employee know that their function would be. It is the reason why an organizational chart is important to every business, it is not about showing the hierarchy but rather, it is a diagram that visually conveys a company's internal structure by detailing the roles, responsibilities, and relationships between individuals within an entity (Chen,2021). Internal Control Department also plays a significant role in an organization. I believe that all of accounts mention in the case study will be address once there is an establish operating procedures. If the business failed again to institute an internal control, then all the deficiency mention in the study will never be address properly. It can result to many inconsistencies in reporting financial data, their objectives moreover, fraudulent acts might happen.
Longno, Micah Lei C. (2019-106978)
References
Chen, J. (2021, August 17). Investopedia . Retrieved from Google: https://www.investopedia.com/terms/o/organizational-chart.asp
Kenton, W. (2021, September 3). Investopedia . Retrieved from Google: https://www.investopedia.com/terms/i/internalcontrols.asp
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ReplyDeleteInternal Control in Achieving the Overall Objectives and Strategies of an Organization
Every organization exists to achieve goals, but various risks can prevent those goals from being fulfilled. Internal control compliance is applied to reduce risks and give the organization a better chance of achieving its goals.
According to AuditBoard (2018), Internal controls are processes designed to help an organization protect itself and minimize risk to its objectives. Internal controls reduce risks, protect assets, ensure record accuracy, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. An effective and efficient internal control process specifies how the company handles financial transactions as well as the delegation of administrative and management responsibilities. Employees understand what is expected of them and how to complete day-to-day tasks when protocol and procedure are clear.
Internal control allows an organization's overall goals and strategies to be met. A properly designed internal control system will not eliminate all losses, but it will significantly prevent losses and help management maintain a high level of performance. As a result, internal controls are advantageous in achieving the company's goals and plans, and everyone involved in the company's operations must maintain them.
Biggest Failure of the Internal Control of The Machine Manufacturing Company
Internal control is weak at the Machine Manufacturing Company. Several failures are described in the case study that demonstrate the worst state of it. One of the shortcomings is a lack of cash internal control. According to the case study, the organization failed to separate the function of receiving cash from those related to sales invoices and customer statements, customer ledgers, mailing or delivering checks, bank reconciliations, cash disbursement, and general accounting records. Furthermore, the control failed to have supporting evidences for all petty cash disbursements, which is inconsistent with the objectivity of financial statements.
Accounting division of tasks is what they should do to strengthen their internal control and prevent these risks. They failed to segregate the functions of receiving and disbursing payments, which leads to fraud or theft. With this, it will decrease the danger of both incorrect and improper behaviors. It also aids in the prevention of financial statement mistakes and misstatements.
MARANAN, PATRISHA C., 2019-100624
(2/2)
ReplyDeleteRecommendations That Should Have Been Emphasized More
All of the auditor's suggestions will help the firm conduct its operations more successfully. However, among all recommendations, the general should be more emphasized: Organization chart prepared at request should be reviewed periodically and maintained in a current status, and preparation of operating procedures manuals. According to Stoll (2018), organizational charts are crucial since they improve internal structures and facilitate communication. They can assist in increasing cooperation and communication between teams and the larger organization; improving information flow and team responsiveness, defining clear business structures, hierarchies, roles, and responsibilities; and assimilating new employees. Furthermore, the entire operating manuals and procedures are a complete mess, so they need to provide proper operating procedures to develop clear objectives and apply suitable measures to segregate staff roles and duties.
REFERENCES:
American Institute of Certified Public Accountants. Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. Accessed November 10, 2021, from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
AuditBoard. (2021, November 9). AuditBoard. Accessed November 10, 2021, from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Indeed Editorial Team. (2021, March 17). 12 Reasons Why Internal Controls Are Important in Any Business. Indeed Career Guide. Accessed November 10, 2021, from https://www.indeed.com/career-advice/career-development/importance-of-internal-controls
Rice University. (n.d.). 8.2 Define and Explain Internal Controls and Their Purpose within an Organization - Principles of Accounting, Volume 1: Financial Accounting | OpenStax. Openstax. Accessed November 10, 2021, from https://openstax.org/books/principles-financial-accounting/pages/8-2-define-and-explain-internal-controls-and-their-purpose-within-an-organization
Stoll, D. (2018, November 20). Why everyone can benefit from organizational charts. Accessed November 10, 2021, from https://blog.hyperfish.com/why-everyone-can-benefit-from-organizational-charts
MARANAN, PATRISHA C., 2019-100624
(1/2)
ReplyDeleteInternal control is a crucial aspect of an organization’s governance system and ability to manage risk, and is fundamental to supporting the achievement of an organization’s objectives and creating, enhancing, and protecting stakeholder value. According to International Federation of Accountants (2012), effective internal control can help organizations improve their performance by enabling them to take on additional opportunities and challenges in a more controlled way. Therefore, there needs to be a better understanding of how organizational performance relates to effective risk management and the role and effectiveness of internal control. Furthermore, IFAC emphasized that internal control should be used to support the organization in achieving its objectives by managing its risks, while complying with rules, regulations, and organizational policies.
Poor internal control impaired the company's overall performance in the AICPA Journal (1950) case study for Machine Manufacturing Company. Internal auditors used the checklist approach to determine the root cause of the company's internal problems. The following are the main vulnerabilities in internal control systems that resulted failure in: cash, notes and accounts receivable and customer deposits, inventory, securities, PPE, accounts payable, capital stocks and dividends, sales, purchases, and expenses, and payroll. In fact, there was no found organizational chart at the time of their operations, which leads to confused lines of authority and responsibility, duplication of effort, and inefficiency. In addition, there is practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches (American Institute of Certified Public Accountants, 1950).
-PALACIO, DARLENE L. (2019-103509)
CBET 01-503A
(2/2)
ReplyDeleteHaving weak internal control, in my perspective, has a detrimental impact on practically all of the company's essential aspects. That unfortunate circumstance may have been avoided if the Machine Manufacturing Company had implemented strong and effective internal controls. When Machine Manufacturing Company began operations in the 1950s, internal control systems were not yet clearly defined and favored. According to Tipgos (2002), the AICPA Committee expanded the use of internal control, and in the 1950s, "operational efficiency" and "adherence to established managerial policies" entered the ongoing debate regarding internal control. Controls were built into the procedures and processes to detect and correct errors and noncompliance with specified managerial policies, including irregularities, in a timely manner. Furthermore, in subsequent years, personnel certification and training became an important component of adequate or reliable internal control.
In this sense, I would suggest that following systematic control such as internal control frameworks will assist and save the company from identified risks. For instance, as cited by (Tipgos, 2002), "The Independent Auditor and Internal Check" are already in use during the late 1950s. This internal control suggests three classifications or components: (a) internal administrative control-where managerial policies and procedures are designed to promote operational efficiency and effectiveness, (b) internal accounting control-that emphasizes the check the accuracy and reliability of the accounting data, and (c) internal checks-which comprise accounting audits. It is also crucial to emphasize that personnel and administration must meet the requirements of competency, integrity, and determination to carry out their obligations, as the "Giver–Receiver Model" implies. Given that a clear division of duties and tasks will aid in the leadership and control of the organization. Returning to the AICPA case study, the lack of internal control was so severe at The Machine Manufacturing Company that management conferences and written recommendations to the president were deemed the most satisfactory manner of resolving the situation. I want to underline that without the auditors' proposal, the company would continue to fail in terms of effectivity and efficiency, resulting in a large loss for the entire organization.
References:
American Institute of Certified Public Accountants. (1950). Machine manufacturing company; Case studies in internal control. AICPA Historical Collection. Retrieved from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
International Federation of Accountants (IFAC). (2012, June). Evaluating and Improving Internal Control in Organizations. Retrieved from ifac.org: https://www.ifac.org/system/files/publications/files/Evaluating%20and%20Improving%20Internal%20Control%20in%20Organizations%20-%20updated%207.23.12.pdf
Tipgos, M. A. (2002). Why Management Fraud is Unstoppable. The CPA Journal. Retrieved from http://archives.cpajournal.com/2002/1202/features/f123402.htm
-PALACIO, DARLENE L. (2019-103509)
CBET 01-503A
1.How can Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteBusinesses operate to achieve their specific goals. The overall objectives and strategies of the organization are established primarily by the management, and this guides them in achieving the set goals and allows employees to monitor their own progress and improve their efforts if necessary. However, despite the clear goal of the organization, they are always exposed to risk and there will always be a vulnerable area that needs attention. And with this, it created a need for internal control that is structured to protect the organization from possible risk and accomplish its goals without hindrance. Internal control facilitates an efficient operation by allowing the organization to respond to operational, financial, and compliance risks that, if not eliminated or mitigated, could have an adverse impact on the operation. Internal control helps the organization and ensures that the business is conducted efficiently by putting control in place.
2.Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Failure to implement a proper internal control would expose the organization to more risks. With regards to The Machine Manufacturing Company that is engaged in manufacturing and selling heavy special purpose machines, their biggest failure is that they failed to implement proper internal control in different areas of the organization. Their internal control is lacking in different aspects, as if they have no internal control at all, and among those areas that are exposed to risk because of a lack of control, the way they manage and safeguard the resources is very alarming. They fail to segregate the functions of those relating to cash receipt from those relating to cash disbursement; they fail to maintain proper control over blank and voided checks; and they fail to receive paid bank checks from their branches for reconciliation, making it all susceptible to fraud. In this matter, what I could recommend is for the organization to reorganize their operation, from their employees to how they do business. They should segregate the jobs with corresponding functions to different employees to ensure that misappropriation and fraud will be avoided. There are lots of areas that lack control, like notes and accounts receivable, inventories, accounts payable, and property, plant, and equipment. Learning the importance of applying proper internal control would be beneficial to The Machine Manufacturing Company to improve their operations and eliminate the risk that could have penetrated the firm.
3.Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
With regards to the recommendations available in the case study, segregation of duties should have been given more emphasis. It is important, especially for those employees who assume the same job, making it easy to misappropriate funds like those relating to cash receipt and disbursement. It should be done to avoid fraud, theft, and misuse of information and for security purposes. Also, the organization should examine the qualifications of employees, especially those who fill key positions. The Machine Manufacturing Company need a lot of improvement in terms of their internal control, rest assured that when they implement it, they will be able to achieve their goals and optimize efficiency in operation.
References:
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. Taylor & Francis Group.
Indeed (2021). 12 Reasons Why Internal Controls are Important in any Business. Retrieve November 10, 2021. https://www.indeed.com/career-advice/career-development/importance-of-internal-controls
BUCAL, RINA P. (2019-102462)
INTERNAL CONTROL AND ITS IMPORTANCE
ReplyDeleteNone of the businesses ever founded subsists without the desire for a trouble-free operation and commercial growth. Of course, no rational businessperson would wish for his company's demise and downward progress. Hence, it's only natural for them to take all necessary measures to ascertain the achievement of their corporate objectives and to better establish organizational strategies that would help the company thrive in a particular industry.
One of the concrete steps proven to deliver a promising business outcome is by having a reliable and effective internal controls. Given the definition provided by the Accounting Tools Website, internal control is an interlocking set of activities that are layered onto the normal operating procedures of an organization, with the intent of safeguarding assets, minimizing errors, and ensuring that operations are conducted in an approved manner. However, the term should not only be limited to the creation of mechanisms, rules, and procedures, but should also refer to the people who will effectuate the said measures.
Evidently, internal controls revolve around three (3) key concepts: objectives, risks, and solutions. When company objectives are set, internal auditors determine the roadblocks which make them impossible to be met (risks), and that is where adequate internal controls are based, designed, tested, and monitored (solutions). Companies that have developed competent and operative internal controls are able to entirely eradicate or at least decrease the threats that surround their firm to an acceptable level, as well as come up with the finest business plans for improving their overall performance.
THE MACHINE MANUFACTURING COMPANY: INTERNAL CONTROL FAILURE AND RECOMMENDATIONS
DeleteFrom the checklist provided by the company's audit team, there has been an enormous number of significant works which are not properly practiced or are not exercised at all by the company. As what I have observed, the internal control deficiencies have rooted mainly from the lackness in employee competence, inadequate number of accounting department officers, and the absence of directories regarding the proper segregation of tasks, authorities, supervisions, and manual procedures.
As mentioned in the case study, many of the key positions in the company were filled by persons relatively new both in their jobs and in the company. Thus, presumably, employees devoid of necessary work experience may impair the quality of duty performances they are expected to carry out. Additionally, the fact that there have been a complete absence of constant monitoring and checking in many areas, especially when dealing with most of the financial accounts (Cash Receipts and Disbursements, Accounts Receivables and Payables, etc.) the company turned to be an easy prey for frauds, mistakes, delays, and confusions when employees' commitment becomes relaxed and lukewarm if left unsupervised (e.g. branch managers). But this could be alleviated by doing regular employee performance evaluations (especially the branch managers), allotting budget for staff trainings in all departmental units, and formulating comprehensive duty assignments.
Another thing, the shortage of employees especially in the areas where they are most needed had also brought the company's failure, most importantly in the accounting department where heavy workloads related to financial matters cannot be divided, and counterchecked. This is very evident in the management of cash accounts in terms of receipts and disbursements, verifications through account reconciliations, documentations, checks and balances, and the list goes on. Neither the fixation of responsibilities nor any supervision measures will be effective with fewer people performing almost all the tasks, so the company must consider hiring more accounting staffs enough for future internal controls to take effect.
But above all, it shall be emphasized that there shall be a well-established policies and well-detailed orientations regarding the specific tasks that every company employee shall execute. Limiting and enlisting the extent of their duties will help them be reminded of the authority they shall only hold. In that way, they could be more concentrated with particular duties without overriding others' respective works.
DeleteRECOMMENDATION EMPHASIS
Proper records and documentations, in my opinion, should be emphasized. We are aware that every business transaction must be supported by the appropriate supporting papers, such as a presentation of checks and vouchers in the case of payments, or a copy of the sales invoice in the case of sales.
Now, in case of the Machine Manufacturing Company, having transaction evidences that are pre-numbered is crucial in order to ensure that all transactions are being documented and that no transactions are missing or duplicated. It will also help businesses save time and resources when tracing for important and relevant financial information. Without it being exercised, the company will be fraud-vulnerable, in a way that employees in their advantage may be tempted to manipulate business transactions, records and figures. Thus, adversely affecting the company in the financial aspect.
References:
AccountingTools. (2021). Internal Control Definition. https://www.accountingtools.com/articles/internal-control.html
American Institute of Certified Public Accountants. (1950). Machine Manufacturing Company; Case Studies in Internal Control. AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
- Ellen Grace B. Tanhueco (2019-100741)
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls are processes designed to help safeguard an organization and minimize risk to its objectives. (Auditboard, 2018). Internal controls are vital in organizations operational activities because it aims to minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws.
All of the organizations faced different risks that can threaten the operational activities in achieving its own objectives. Internal controls are intended to assist businesses in meeting operational goals, reducing risks, and improving process performance, improve accountability among business and process owners, stabilize internal operations and business functions, indicate stronger confidence in your financials, reduces external audit fees, and speeds up the certification process. (Auditboard, 2018).
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The cash division, in my opinion, is where the most internal control failure occurs. Cash is, as we all know, the lifeblood of any firm. When it comes to receipts and disbursements, it was discovered that there are shortcomings in segregating the functions of cash. In addition, there is a failure in the evaluation of checks and the keeping of a record of all completed transactions. I'd also mention the failure in general, where there was a lack of an organizational chart and manual method, resulting in confused duties, duplication of work, and poor internal planning within the organization.
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
I think that the organizational chart and manual procedures should be emphasized in order to provide precise roles and responsibilities and to avoid operational process misunderstanding. This will be emphasized to cover all of the case study's recommendations.
Reference:
American Institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Rillera, Myra Dianne G. (2019-107121)
This comment has been removed by the author.
ReplyDelete1/2
ReplyDelete1.) Internal control is the type of control that is embedded within a process. It ensures that an organization's goals in operational effectiveness and efficiency, accurate financial reporting and compliance with laws, rules and policies are met. Internal controls are the structure, rules and processes in place to ensure that management achieves its goals and performs its responsibilities.
Everyone in a company, according to the COSO Framework, has some responsibility for internal control. Management, board of directors, employees and personnel are some of the people in charge of establishing and maintaining internal controls in order to achieve the goals in the areas of effectiveness and efficiency, financial reporting reliability, and compliance with applicable laws and regulations.
The following is a five-step procedure for creating and implementing effective internal controls in an organization. To begin, create an appropriate control environment. Second, determine the level of risk. Third, put control activities in place. Fourth, make information available to others. Finally, monitor everything (Auditboard, 2021).
2.) Internal control failures occur when internal controls are not properly implemented or are ineffective.
There are many mentioned Failures of the internal control in the Machine Manufacturing Company, it consists such effects on the cash, notes and accounts receivable and customers' deposit, inventories, securities, property plant and equipment (PPE), accounts payable, capital stocks and dividends, sales, purchases and equipments and payroll.
According to the given case study, because there was no organizational chart or handbook of operating procedures, there were confusing lines of authority and accountability, duplication of effort, insufficient procedures, and poor internal control. There is absolutely no internal control in any of the branches because all records kept in are under the supervision of the branch managers. Given the restricted number of staff at the branches, there is no way to solve the problem other than to tighten home office authority over the branches.
My recommendation to improve their Internal Control that should have prevented risks is first to monitor regularly. It is necessary for ensuring the effectiveness of controls. Second, conduct an internal audit, effective controls help to guarantee that financial reporting is accurate and that investment, capital and credit requirements are effectively addressed. A check of accounts payable data, as well as stocks, assets, and cash reconciliation, is included in an internal audit. Cash reconciliation entails ensuring that all company's funds are accurately accounted for, taking into account all of the income and costs. When reviewing such accounts, one must verify that all payments are being sent to the right person or company.
Lastly, train and educate staff, employees must be educated on the most up-to-date internal control processes and methods since it continues to evolve. Any changes should be communicated to employees, as well as their influence on their regular routines. One of the most common causes of internal control failure is the lack of employee knowledge and training. Employees can assist in identifying and correcting control failures by receiving training and being involved in the process.
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ReplyDelete3.) In the instance of the aforementioned recommendation at the case study, the lack of internal control was so pronounced in The Machine Manufacturing Company that discussions with management and written recommendations to the president were deemed the most effective means of resolving the situation. Internal control in the company would never be completely satisfactory due to the small number of office staff and adequate separation of accounting responsibilities was not believed feasible. The adoption of the above advice, however, was thought to significantly increase the company's internal control.
The recommendation that should have been emphasized more is about the right quantity and competency of office staffs since they are the persons in charge of the duties and responsibilities in the given organization.An effective internal control program must include employee competency and professional integrity. Knowing that responsibilities can aid in providing reasonable assurance that internal control systems are adequate and functioning properly.
Second one is about accurate information and good communication.Information must be accurate and distributed to those who require it. Supervisors, for example, must convey roles and obligations to the employees who report to them and employees must be able to report any problems to the management with connection to the case study, that discussions with managements and written recommendations to the president as the most deemed effective solution. Continuous communication is required within and between organization's various levels and activities.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case
studies in internal control" (1950). AICPA Committees. 104.
https://egrove.olemiss.edu/aicpa_comm/104
Auditnet. (2021). What are internal controls. https://www.auditnet.org/audit-library/auditnet-internal-controls-primer
Sunthorn, Honey Lizette B.
2019-103582
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteEvery organization has its specified objectives. However, there is a presence of risk that may hinder the organization from achieving those objectives. Internal control compliance is established within the organization to address and mitigate the risks and provide the organization a higher assurance of accomplishing its objectives. Additionally, help check and determine the organization's risk appetite or the amount or level of risk the organization is willing to accept and retain. Internal controls are processes designed to help safeguard the organization and attain its objectives. It encompasses the plan of organization and all of the coordinate methods adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies (Office of Audit Risk and compliance). When organizations lack internal control, there is numerous risk that may penetrate the organization, which can affect profitability and operation, at worst, may also lead to a considerable loss.
Furthermore, the Internal control function also provides the management and the stakeholder assurance in the effectiveness and efficiency of the operation and ensure adherence to policies, procedure manuals, laws, and regulations. Effective internal control assists the management in achieving objectives relating to the operation, reporting, and compliance. Operational objectives pertain to the effectiveness and efficiency of operation, including operational and financial goals. On the other hand, reporting objectives relate to internal and external financial and non-financial reporting and may encompass reliability, timeliness, transparency, or other terms set forth by regulators, recognized standard setters, or the entity's policies. Lastly, Compliance objectives pertain to the adherence to laws and regulations to which the entity is subject (COSO, 2013). When the following objectives are met, we can say that the control is well carried out and the organization is running as intended. Further, it concluded that controls are adequate to address risks making it possible to achieve the primary objectives and goals of the organization. Moreover, internal control aids the management in making good significant to organization success.
RIVERA, MARY QUEEN 2019-106336
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control was described as “The plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.” (AICPA, 1950). It ensures and establish how the management runs the operation to be more efficient and effective in achieving the overall objectives and strategies of an organization. Internal controls are intended to prevent errors and irregularities, identify problems and ensure that corrective action is taken. In many cases, process owners within your department perform controls and interact with the control structure on a daily basis, sometimes without even realizing it because controls are built into operations. Also, Internal controls are established to further strengthen the reliability and integrity of information, compliance with policies, plans, procedures, laws and regulations, the safeguarding of assets, the economical and efficient use of resources, and the accomplishment of established objectives and goals for operations or programs (UCSF, 2021). Having an internal control helps the organization in minimizing the risk of the overall objectives and strategies, and prevents possible fraud.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of The Machine Manufacturing Company is the insufficient internal control of sales that resulted from inaccurate and incomplete shipping records, failure to use pre numbered invoices, failure to prepare invoices for all sales, failure to check invoices for prices, and failure to follow regular sales procedures on miscellaneous sales. (1/2)
Maria Eloisa A. Ramos
2019-101335
My recommendation in improving their internal control is that they should have a separate book in recording the shipments, sales and prices of the machine, they must have pre numbered every sales and shipments prepared, and establish a more accurate standard in sales procedures on miscellaneous sales.
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Of all the recommendations provided by the auditor of the case study, the recommendation that should have been emphasized more is the checks should be made to determine: that all items have been inventoried, and that conversions from physical inventory units to pricing units are accurate. Inventory is very important in the organization because this is the product that the organization is selling and having knowledge about their inventory makes it possible for them to plan efficiently when it comes to their finances. The risk that I can see if the recommendations have not emphasized is that the inventory might increase the cost of the product. When there is high-value of inventory stock theft might occur. When there is a missing inventory it is written off that results to loss of an asset and sometimes the inventory tend to be damage which is also written off. (2/2)
Reference:
American Institute of Certified Public Accountants (1950). Committee on Auditing Procedure, “Machine manufacturing company; Case studies in internal control". AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
University of California San Franciso (2021). Internal Controls. UCSF. https://audit.ucsf.edu/internal-controls
Maria Eloisa A. Ramos
2019-101335
1.How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteEvery organization exists to achieve some goals, but numerous risks are always evident that prevent those goals from being fulfilled. Internal control, as defined by the Audit Board, refers to the processes designed to help safeguard an organization and minimize risk in order to achieve its objectives. In connection with the definition provided by the audit board, internal control helps achieve the overall objectives and strategies of an organization since it provides reasonable assurance regarding the achievement of operational objectives, such as the effectiveness and efficiency of operations, accurate and reliable financial reports, and compliance with applicable laws and regulations. It also helps mitigate risk and improve process performance by providing a clear process and ensuring that the guidelines are outlined properly. Internal control also improves accountability among businesses and process owners since these individuals are the key members of an organization that owns the controls and are responsible for monitoring and performing internal controls throughout the year. However, it is also important to take note that internal control will only help the organization achieve its objectives when the management, which is responsible for the control, establishes a well-designed internal control that may keep a business operating efficiently and effectively while also ensuring regulatory compliance. The audit must remain independent from the control process so that the controls are tested without any bias or conflicts of interest.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company case study reveals that the company has weak internal control, which led to the failure of its operations. According to the company's checklist, the weaknesses in the company's internal control system are found in the different sectors of the company. However, the cash section, which is considered the lifeblood of a business, is the most affected area. A company's cash flow provides an indication of its health, which is why a company must have strong internal and accounting controls in place to prevent any kind of loss and failure by ensuring that every piece of information regarding the condition of the company is accurate, financial statements are reliable, and operations are performed in accordance with applicable laws and regulations.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
All recommendations made to the president and management regarding the correction of weaknesses in internal control are important. However, I think the cash recommendations should be emphasized because it is the most affected area. Effective management of your company's cash flow is critical to its success because a proper recording of cash regarding its receipts, disbursements, purchases, sales, inventories, and accounts receivable and payable in the periods will provide a more accurate picture of the company's financial health.
Bianca Marie Q. Aplacador 2019-106307 (CBET-01-503A)
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
In an organization, internal control is one of the integral parts of operation. According to Kenton, Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. It comprises the plan of organization and the co-ordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. In line with this, internal controls are very relevant and beneficial to the organization as well, for the reasons that it helps to effectively manage and control the whole operation of an organization that would result into smooth flow of work and attainment of the overall goals. Considering the five general objectives of internal control which are the safeguarding of assets; checking accuracy and reliability of accounting data; ensuring economical, efficient and effective operations; complying with the laws and regulations; and adhering to managerial policies would surely increase the effectivity and efficiency of an organization. The overall objectives and strategies of an organization can also be achieved through applying the most suitable internal control framework into the operation and following all the necessary information as well as the guidelines stated in the framework. This will help the organization to be more effective and efficient as the same time, through this, the overall goals and objectives can be achieved.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
In line with the case study from the American Institute of Certified Public Accountants (AICPA) about Machine Manufacturing Company, there are various failures occurred on the said company and it is maybe because of the lack in managing its internal controls. Moreover, I believe that the biggest failure of the internal control of Machine Manufacturing Company is the failure in cash management that resulted from poor internal control, some of this were the failure to segregate the function of receiving cash, failure to deposit all receipts with delays, failure to segregate the function of disbursing cash, failure to maintain proper control over blank and voided checks and failure to have supporting evidence for all petty cash disbursements. Furthermore, my recommendations on Machine Manufacturing Company is to consider implementing the usage of internal control frameworks, this will greatly help them to effectively manage their operation through applying all the necessary inputs that the company needed coming from the framework.
RAMOS, CRISHIA ELLAINE P. (2019-105763)
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Generally, the absence of internal control on the Machine Manufacturing Company were noticeable and this should be addressed by the company immediately to have an effective and efficient workflow on its operation. As per the case study, all of the recommendations provided by the auditor were very important and helpful for the Machine Manufacturing Company. However, among all the recommendations provided by the auditor, I think the accounts payable should have been emphasized more. As we all know, accounts payable primarily takes charge of paying the company’s bills and should be on a timely basis. It is considers first before engaging into any financial disbursement of cash. This should be accounted primarily to be able to have a better management in cash. Accordingly, the risks that I can see regarding the recommendations are the possible existence of internal fraudulent acts due to the misstatement of financial records and also the delay on the payments which causes numerous problems on the company including the duplication of payments as the supplier may send multiple follow-up invoices. Furthermore, the Machine Manufacturing Company should consider all the recommendations provided by the auditor to sustain the needs of its improvement to be able to attain its goals and objectives accordingly.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Kenton, W. (2021). Internal Controls. Retrieved November 9, 2021 from https://www.investopedia.com/terms/i/internalcontrols.asp.
Michigan Technological University. (2021). What is Internal Control?. Retrieved November 9, 2021 from https://www.mtu.edu/internal-audit/control/what-is/.
RAMOS, CRISHIA ELLAINE P. (2019-105763)
Reference:
ReplyDeleteAudit Board. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
American Institute of Certified Public Accountants. (1950). Committee on Auditing Procedure, “Machine manufacturing company; Case studies in internal control". AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104/
Bianca Marie Q. Aplacador 2019-106307 (CBET-01-503A)
1. How can Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is a procedure used by a company's board of directors, management, and other employees to provide reasonable assurance that information is accurate, trustworthy, and timely. Laws, regulations, contracts, policies, and procedures must all be followed. Internal Control not only helps the company to be more organized and effective but also prevents problem in the organization. The goal of Internal control is accurately and trustworthy financial reporting, compliance with rules and regulations, and the efficacy and efficiency of the organization's operations. A business who doesn’t follow and do internal controls are more likely to face many problems.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure the Machine Manufacturing Company did is they do not have strong Internal control, because of this they did many mistakes in accounting procedure. This may cause errors in the records. For them to improve this, they must review analyze their accounting policies and standards. They should focus internal control to lessen the risk of making wrong decisions in the organization.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
I think the company is really lacking internal control, especially on their cash internal control. Their recording of their transactions didn’t become legible that cause misstatements on their records. They are not that aware of the possible risk that may come because of their negligence in this part. Because of this financial risk may come, when it comes, the company might face more risk that can cause more serious problems.
References:
Key Components of Internal Controls. (2020, October 23). Cerini & Associates, LLP Blogs. Retrieved November 9, 2021, from https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/#:%7E:text=Strong%20internal%20controls%20allow%20for,efficiency%20of%20the%20organizations%20operations.
Internal Controls. (n.d.). Audit & Advisory Services. https://audit.ucsf.edu/internal-controls#:%7E:text=Internal%20control%20is%20a%20process,regulations%2C%20contracts%2C%20policies%20and%20procedures
-AMARGA, ROCHELLE ANNE V.(2019-106144)
1. How can internal control help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control help achieve the objectives and strategies of an organization because it creates a competitive advantage, as an organization with effective controls can take on additional risk. Internal control is a critical component of a company's governing system and capacity to manage risk, and is critical to order to achieve these ultimate and attempting to create, strengthening, and guarding value for all stakeholders. Overall organizational breakdowns frequently result in the promulgation of the new regulations and restrictions, and also time-consuming and extremely expensive quality assurance initiatives. This, nevertheless, neglects the fact that perhaps the appropriate sort internal controls systems that enable an organization to utilize on aspirations while mitigating potential threat can absolutely preserve money and energy, as well as enhance the development and restoration of real worth. Among the core competencies are evaluating and improving risk management and internal control. There are many professional accountants in company or organization. As a result, professional accountants can play a role, a leadership role in guaranteeing that risk management, including internal control, an important aspect of an organization. With something like a risk-management strategy that is interconnected across the organization. Organization and internal control are also encouraged by professional accountants in business that risks be respected and treated in a more holistic manner As a result all crucial business judgements should have been based on a proper risk assessment that characterizes the general impact of the financial crisis on the goals of the organization
2. Identify the biggest failure if internal control of the machine manufacturing company and what will be your recommendation to improve their internal control that should have prevented risks.
I think the biggest failure in machine manufacturing company if the internal control failed is the breakdown of equipment. Its consequence can range from conveniently repaired with minimal casualties to irreversible, depending on several factors such as maintenance costs, overall breakdowns, safety and health repercussions, and consequences on production and manufacturing handover. Understanding why your equipment may be failing should have been your first preventative measure against certain negative repercussions of unplanned outages. I recommend that, there must be regular testing utilizes sensor information to build a foundation for excellent equipment condition in automatically detect major changes which could be used to forecast future breakdowns and uncertainties. This gives you more time to plan for contingencies and schedule downtime to lessen manufacturing interferences. This process of evaluation, as well as the data gathered in the process, can assist businesses in identifying the causes of excessive stress on machinery and adjusting throughput and time frames to reduce the load on equipment, indicating early signs and symptoms of increased risk of falling.
-Dugay,Bernadeth (2019-103892)
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteAll of the auditor's recommendations are beneficial to the company's capacity to handle its business operations efficiently and successfully, but I see some flaws in them. I can see a problem where their monitoring of conceptual inventory level was suffering from a lack .They could lose inventory though since they did not keep proper accounting records or to make it short they should be primarily focused on maintaining proper accounting records. They must also start concentrating on inventory monitoring and keeping correct and comprehensive inventory records to avoid losses. And a lack of records must be a dilemma, which could also affect the credibility like fraud and infringements that can harm the organization's management and maintenance.
REFERENCES:
Internal Control in Organizations (2012) Retrieved from https://www.ifac.org/system/files/publications/files/Evaluating%20and%20Improving%20Internal%20Control%20in%20Organizations%20-%20updated%207.23.12.pdf
Ellacott Jes (2019) 5 causes of equipment failure (and what you can do to prevent it) Retrieved from https://www.fiixsoftware.com/blog/5-causes-of-equipment-failure-and-what-you-can-do-to-prevent-it/
-Dugay, Bernadeth (2019-103892)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is considered as a shield of a business to any danger. In which, it led to continuity of a business and helps providing an accurate financial information in effect. It is very vital to a business to have this because this will be the anchor on how the business will ended up in a long run. Internal control help achieve the overall objectives and strategies of an organization through ensuring that all economic resource obtained in possession is managed properly, risks in the business is well monitored, and plan of action in case things does not go the way they were expecting. Also, internal control increase the effectiveness and efficiency of business performance in terms of obligations and for profit.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
After reading the case study, the biggest failure I identify with the internal control of The Machine Manufacturing Company is the isolation of the cash function in terms receiving related to sales invoices and customer statements, ledger, checks, disbursement, bank reconciliation, and general accounting records. Failure to have internal control with this one might lead into bankruptcy or fraud. Among all the economic resources that the entity has, cash is the most crucial because risks is always on this part. The best advisement that I could provide to the Machine Manufacturing Company is to have special journals to separate sales, purchases, collection, disbursement, and non cash transaction. Also, to have a different people managing and monitoring cash to avoid fraud. Lastly to have a bank reconciliation every of the month to see the difference and adjustments that should be made to avoid understatement or overstatement of cash account.
This comment has been removed by the author.
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
DeleteOf all the recommendations provided by the auditor in the case study, what I think that should have been emphasized more is to give more emphasize to the accounting policies applied in the business and to have more people who should prepare the output. One of the example is with regards to the bank reconciliation wherein instead of only one preparing it, there must be another one who should prepare it for security purposes and as well for the accurate information in the financial statement. Another one is with regards to sending invoices, as per reading the case study, they send multiple invoices for late payments and might be confused and it's effect would possibly a multiple payments making the economic resources be understated.
References:
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Murdock, H. (2016). Operational Auditing: Principles and Techniques for a Changing World. Taylor & Francis Group, LLC.
LOPEZ, FRITZ REIZEN V
2019-103689
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are processes designed to help safeguard an organization and minimize risk to its objectives. Internal controls minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. Many different types of internal controls exist — they can be preventive or detective, automated or manual, and all of these are impacted by people. (Franklin, M., Graybeal, P., & Cooper, D. 2019). Principles of accounting volume 1 - Financial accounting.
Every organization exists to accomplish some objectives, but there are many risks that impact achieving those objectives. Internal control compliance is put in place to mitigate the risks to give the organization a better chance at achieving its objectives. Well designed internal controls keep the organization operating efficiently and effectively and the controls can help maintain compliance with regulations. (Franklin, M., Graybeal, P., & Cooper, D. 2019). Principles of accounting volume 1 - Financial accounting.
Management is responsible for their own controls. Audit must remain independent from the control process so that we can test the controls without any bias or conflicts of interest. Internal control compliance plays a vital role in ensuring your organization’s operational, strategic, compliance, and reporting objectives are met. As you meet with different control and process owners — whether they are new to their role or have been a control owner for many years — or look for support from upper management, here are seven reminders on why internal controls compliance is so important. (OECD. 2015). G20/OECD principles of corporate governance. OECD Publishing.
Dizon, Mark Raven R. (2019-107007)
1. HOW CAN INTERNAL CONTROL (IC) HELP ACHIEVE THE OVERALL OBJECTIVES AND STRATEGIES OF AN ORGANIZATION?
ReplyDeleteThe Committee of Sponsoring Organizations of Treadway Commission (COSO) defines Internal Control as a process effected by the entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance. An established internal control system is necessary to the management as these would help minimize risks, safeguard assets, ensure accuracy of records, promote and increase operational effectiveness and efficiency and encourage members of the organization abide to policies, rules, regulations and laws (Schandi and Foster, 2019).
The established internal control system is geared to the achievement of objectives and comprises of the tasks and activities acceptable to the organization’s structure from the entire entity. Oftentimes, people viewed internal control as “getting in the way” and merely an act of complying to government agencies to which the organization is registered, however, the reality is quite opposite. Internal control enables the achievement of organizational objectives by helping to mitigate the risks that can impede its achievement. Unchecked risks can prevent the achievement of objectives, so by mitigating risks likelihood and its negative impacts, objectives are more likely to be achieved. A good internal control help organizations deliver value to its stakeholders and achieve their strategic objectives while aligning with industry best practices, laws and regulations to manage risks facing them.
PIOLIN, RICKA MAE B.
2019-101805
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteMachine Failure, or Equipment Failure, is any event in which a piece of industrial machinery underperforms, whether entirely or partially, or stops functioning in the way in which it was intended to. The term “machine failure” can encompass differing scenarios and levels of severity. A failure, in this context, is not only those critical show-stopper issues that halt production entirely, but also includes any loss of usefulness within a machine. The tolerance threshold for machine failure will vary based on circumstances since all systems degrade and lose effectiveness in some form or another over time.
Wrong Amount of Maintenance This can be too little maintenance, but it can also be too frequent maintenance that leads to machine failure. Maintenance that happens too infrequently can let problems go by unnoticed which can then lead to a domino effect of failure, but frequent maintenance, essentially, introduces chaos into the system each time. Whenever a technician opens up a piece of machinery, there is always the potential for risk and for failure, whether that is breaking a panel, losing a screw, accidentally jiggling a wire the wrong way, stripping a bolt… the possibilities are endless and increase the more times the equipment is touched. (Westrom, D. 2021, January 14). Top causes of machine failure and how to prevent them. Manufacturing's First Industrial IoT Platform for Machines.
My recommendation to improve their Internal Control is regularly inspecting machines prior to use, establishing and sticking to a maintenance schedule, regularly replacing components before their average lifespan is over, and anything that tries to ward off the failure before it happens. Think of it like changing the oil in your car every few thousand miles. We don’t wait until the oil is muck and has clogged the rest of our equipment, we just preemptively, preventively, maintain it based on our expectations of when failure would otherwise occur. Westrom, D. 2021, January 14). Top causes of machine failure and how to prevent them. Manufacturing's First Industrial IoT Platform for Machines.
Dizon, Mark Raven R. (2019-107007)
2. IDENTIFY THE BIGGEST FAILURE OF THE INTERNAL CONTROL OF THE MACHINE MANUFACTURING COMPANY AND WHAT WILLL BE YOUR RECOMMENDATIONS TO IMPROVE THEIR INTERNAL CONTROL THAT SHOULD HAVE PREVENTED RISKS?
ReplyDeleteThe Machine Manufacturing Company is engaged in the manufacturing and sale of a heavy, special purpose machines together with parts and accessories. Additionally, they also produced special equipment and parts to meet unusual requirements of its customers aside from the parts and accessories they produced for the stock. The Independent auditors held examinations to determine the internal control procedures of the management. The results came out and it showed that the management has an unsatisfactory internal control procedure. The unsatisfactory results do not only involve improper handling and maintenance of the cash account but as well as the other asset accounts such as Accounts Receivable, Notes Receivable, Inventories and Property, Plant and Equipment and liability accounts such as the Accounts Payable and Payroll Account (for the accrued salaries and employee premiums payable). Generally, the primary root of the unsatisfactory results lies with the lack of organizational chart and manual of operating procedures resulted in confused lines of authority and responsibility, duplication of efforts, inadequate procedures and poor internal control.
There is no good internal control system implemented in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. In order to prevent the likelihood of risks I would recommend to have regular meetings with the President along with all the branch managers to established concrete internal policies that would support management’s operations and to address the existence of potential risks arising from the poor internal control.
It is also suggested to create an organized department with a defined job description. In this way, the management could reduce duplication of work efforts and increase productivity. The management must also conduct regular inspections to ensure that the internal control policies are followed and implemented properly and prepare risk assessment reports after each inspection.
PIOLIN, RICKA MAE B.
2019-101805
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteIn general, the Machine Manufacturing Company's lack of internal control was obvious, and this should be rectified quickly by the company in order to have an effective and efficient workflow on its operations. According to the case study, the auditor's recommendations were all extremely important and beneficial to the Machine Manufacturing Company. However, I believe that among all of the recommendations, the emphasis on accounts payable should have been increased. Accounts payable, as we all know, is in charge of paying the company's bills, and it should be done on time. Before engaging in any financial disbursement of funds, it thinks about it first.
This should be accounted for largely in order to improve financial management. As a result, the risks I see with the recommendations include the possibility of internal fraud as a result of misstatement of financial records, as well as payment delays, which cause a slew of issues for the company, including duplication of payments as the supplier may send multiple follow-up invoices. Furthermore, the Machine Manufacturing Company should take into account all of the auditor's recommendations in order to maintain the company's improvement needs and achieve its goals and objectives.
References:
(2021) AuditBoard https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
D. Westrom (2021) Top Causes of Machine Failure and How to Prevent Them https://www.machinemetrics.com/blog/machine-failure
AS 2401: Consideration of Fraud in a Financial Statement Audit https://pcaobus.org/oversight/standards/auditing-standards/details/AS2401
Dizon, Mark Raven R. (2019-107007)
3. OF ALL THE RECCOMENDATIONS PROVIDED BY THE AUDITOR, AS PER THE CASE STUDY. WHAT RECOMMENDATIONS SHOULD HAVE BEEN EMPHASIZED MORE AND WHAT ARE THE RISKS YOU CAN SEE IF THE RECOMMENDATIONS HAVE NOT EMPHASIZED
ReplyDeleteThe auditor provided a lengthy list of recommendations relative to possible improvements of the accounting procedures and internal control system due to various internal control failures in each area of focus. As for me, the best ways to address the failure in adopting effective internal control policies in the management include a periodical review of organizational charts and maintained in a current status. Doing such, each employee is aware of the jobs they are assigned into, thus, reducing the duplication of work efforts in doing the work previously done by the others or accomplishing work which shouldn’t be done by an employee. Next, the management prepare manuals of operating procedures for re-checking purposes in case the balances are not sufficient or to determine if the amounts reflected in the books of record are stated based on the correct amounts upon rechecking. The management should also observe the limited number of personnel or employees working in the company. The internal control in the company will never be entirely satisfactory and it was not considered practicable to segregate the accounting functions adequately if the managements has limited human resource. If the following recommendations were not emphasized, the company will continuously receive unsatisfactory results arising from its failure to implement good and proper internal control policies. They will still encounter the same issues which could probably lead to its downfall.
REFERENCES:
Schandi, Annette and Foster, Philip (2019, January). COSO Internal Control-Integrated Framework: An Implementation Guide for the Healthcare Provider Industry. Retrieve 09 November 2021 06:07 pm https://www.coso.org/documents/coso-crowe-coso-internal-control-integrated-framework.pdf
American Institute of Certified Public Accountants, Committee on Auditing Procedure (1950). "Machine manufacturing company; Case studies in internal control". Retrieved 09 November 2021 7:30 am from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Clarke, Isaac (2020, March 24). Establishing an Effective Internal Control Environment. Retrieved 10 November 2021 03:04 pm from https://linfordco.com/blog/internal-control-environment/
PIOLIN, RICKA MAE B.
2019-101805
(1/2)
ReplyDelete(1) How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Regardless of the type and size, internal controls are undoubtedly an integral part of a successful business. No business can successfully operate in the long run if it has no internal controls. Occurrence of frauds, risks, corruptions, violations of laws and regulations, and losses are inevitably part of every business. And it is where internal control systems take place. Internal control system is the one who safeguards the overall business. Internal control system is made up of formal procedures, policies, and activities that protect the overall business and guide its overall operations.
According to Pressbooks (2019), here are the list of specific purposes of internal control system that help businesses to achieve overall objectives and strategies:
(1) To manage risks. Not totally eliminating the risks, but reducing the risks of the business and preventing all loss from occurring.
(2) Proper evaluation of the overall operations helps diminish or reduce the occurrence of frauds.
(3) To ensure assets are kept secure and properly used. To ensure the integrity of assets.
(4) To ensure accounting system is functioning properly to keep the business from violating any laws and regulations.
(5) To ensure fair recording of the financial activities and ensure reliable accounting information and financial reporting.
(6) To monitor operations of the organization. To enhance maximum efficiency within the business. To provide guidelines for dealing with breaches.
(7) To ensure employees are in compliance with business policies to prevent workplace violations and corruptions. And to ensure the protection of sensitive customer data.
Reference:
Pressbooks. (July 23, 2019). 45 Define and Explain Internal Controls and Their Purpose within an Organization. Retrieved November 08, 2021 from https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
— KRYSTAL VIEN T. LADAO (2019-106903)
(2/2)
Delete(2) Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of The Machine Manufacturing Company is, the business has no proper established accounting standards, practices, and policies to follow. They had difficulties in recording and documenting the day-to-day operations of the business. It is very noticeable that all of the weaknesses of the organization are about the specific details of the operations of the business.
The best to recommend to The Machine Manufacturing Company is, to establish proper accounting standards, practices, and policies. And the strict compliance of the business is highly required. Every business should have the proper establishment of the system of procedures, methods, policies, judgments, estimations, standards and controls that they need to follow in order to properly document and record the day-to-day operations. Every business should know how to properly disclose its day-to-day transactions, information, and operations.
(3) Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Of all the recommendations provided by the auditor, the recommendation that should have been emphasized more is the General Recommendations. It is about reviewing and maintaining the prepared organization chart and the preparation of the manuals of operating procedures. As what have mentioned above, the biggest failure of the internal control of the business is the lack of proper establishment of accounting standards, practices, and policies. Emphasizing the general recommendations means focusing on the biggest failure of the business. The strict compliance of the organization with the established accounting standards, practices, and policies will result to proper management of the other failures of the business. Failure to comply with the accounting standards, practices, and policies will result to inaccurate, inconsistent, and unreliable disclosures of the business operations and financial statements. Eventually, these will result too, to more violations, frauds, risks, and losses of the business.
— KRYSTAL VIEN T. LADAO (2019-106903)
How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteA properly designed and implemented internal control helps manage the risks and prevent its occurrence, as well as it helps eliminate acts of fraud. It controls the environment and operational activities, assesses risks, monitors control processes, and provides accurate communication of information. These policies ensure that: (1) assets are properly used and kept secured; (2) the accounting system is functioning properly; (3) employees are incompliance with corporate policies; and (4) operations of the organization are monitored to guarantee maximum effectiveness and efficiency. Internal control is also important in protecting the confidentiality of customer data. Through well designed internal control, an organization will be able to reduce the loss from the occurrence of the risks and will be able to identify who’s the responsible party. The reliability of accounting information and financial reporting can be achieved by properly designed internal control which again, will enhance the efficiency of the organization, and provide guidelines and possible consequences for dealing with breaches. Understanding the significance of internal control, the management will be able to create a properly designed internal control system that will promote positive business environment which will result to effectively serve customers.
DE LOS SANTOS, FEBVIE ROSE C.
2019-103240
CBET-01-401A
Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks
ReplyDeleteFrom my personal standpoint, all of the mentioned weaknesses in the internal control of the Machine Manufacturing Company are all attributed to poor employee management. That’s why it is mentioned that the general reason of failure is due to confused lines of authority and responsibility. Because of the confusion it affected the work or each and everyone.
I would like to recommend that they should first create an organization chart that states the roles and responsibility of each employee. They should also segregate accounting duties, for example, the one who keeps the books should not also be the one who handles the receipts and cash to avoid fraud. Requiring employees to take vacation and provide them adequate training should also be implemented. The most important though, in my opinion, is performing self-evaluation of the organization’s internal control regularly, so that, they can identify, improve or change, faulty or lacking policy.
Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
As I have mentioned in my answer on the 2nd question, I strongly agree that the creation of organization chart, reviewing it periodically and maintaining it in its current status must be emphasized. As I see it, if this is not going to be implemented, there will be retention, miscommunication, work delays, reduced productivity, and low morale, which will greatly affect not only the profit of the company but as well as its image. With that, there should be matched hierarchies, clear roles and responsibilities, and updated processes and systems so that an organization can create a healthy work environment for its employees.
References:
Howard, S. (n.d.). 3 Signs You Have Poor Organizational Structure. The Predictive Index. https://www.predictiveindex.com/blog/3-signs-you-have-poor-organizational-structure/
OSCRiceUniversity. (n.d.). Principles of Accounting, Volume 1: Financial Accounting. BC Campus. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
DE LOS SANTOS, FEBVIE ROSE C.
2019-103240
CBET-01-501A
1. Internal controls are a technique that allows a company to be more productive and efficient while also averting big issues such as operational breakdowns and legal infractions. Internal controls are policies, procedures, and laws implemented within an organization to provide reasonable assurance that management meets its objectives and fulfills its responsibilities. Internal control systems that are well-designed assist the organization in ensuring that its assets and data are safe and secure, thereby increasing the reliability of financial accounting information and creating greater trust in their financials. Apart from that, internal control systems help firms achieve operational goals by improving the efficiency and effectiveness of internal processes. Every company is set up to pursue specific objectives, but there are a number of hazards that could hinder it from achieving those objectives. Internal control is one way to mitigate these dangers. Although establishing an internal control system does not ensure that the company will experience no loss or risk, it will greatly aid management in minimizing the risk of loss and increasing process performance.
ReplyDelete2. The Machine Manufacturing Company's most important internal control flaw is a lack of cash internal control, as indicated by the failure to segregate the functions of receiving and disbursing funds. Internal control problems in property, plant, and equipment are examples of this, such as failing to check plant ledgers by conducting periodic physical inventories. Internal sales control issues can express themselves in the form of incorrect and incomplete delivery records. If receipts are not promptly deposited, I recommend that they be placed under accounting record management to improve internal control over risk prevention and mitigation. I'll recommend that their plant ledgers be audited on a regular basis, and that their assets be physically inventoried as a last resort. As a side issue, I strongly advise prenumbered shippers to be ready for anything that comes out of the plant.
3. The issue of poor internal control in payroll should have been emphasized more strongly. Payroll is particularly important because it usually involves a large sum of money, and it deserves more attention. Internal control systems that are insufficient in a business can have a substantial influence on the company. In rare instances, the corporation may overpay some of its dishonest employees, causing them to lose their possessions. Furthermore, if a company fails to pay its employees on time, the employee may become disgruntled with the company.
Reference:
Audit Board (April 17, 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program
April 17, 2018. Retrieved November 5, 2021, from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Mengol, James Andrew R.
2019-105794
Internal controls help to keep up with record precision, work on functional proficiency, and urge adherence to approaches, rules, guidelines, and laws as well as to assist an organization to protect itself and accomplish its objectives. Internal controls are designed reduce risks and safeguard the assets (Auditboard, 2018). In order to achieve the overall objectives and strategies of an organization, the internal control environment must have an effective internal auditing. Internal control will continually regulate corporate processes and operations, assisting the firm in accomplishing its objectives. Hence, a suitable framework is utilized to make it easier for the organization to mitigate the risk in diverging dynamics and to evaluate these risks more systematically.
ReplyDeleteThe biggest failure of the internal control of The Machine Manufacturing Company is its internal management itself. It includes the failure to control in cash, property, plant, and equipment, notes, accounts receivable, customer’s deposits, inventories, securities, accounts payable, capital stock and dividends, sales, purchases and expenses, and payroll. In general they lack of manual operating procedures which results to confusion of authority, insufficient responsibility and inadequate procedures. I recommend that they must have a clear checklist of written policies and procedures to have an organized department, must maintain inspections on a frequent basis to ensure that suitable and clear processes are being followed and lastly they must strengthen the home office authority over the branches to increase internal control.
For me, the recommendation should have been emphasized more is the proper management control environment in terms of the flow on transactions of the business, which involves the handling of cash and procurement of products, the organization meets its everyday needs through money and it gives an abstract perspective of the interactions that occur among firms in order to achieve a business goal. Basically the company needs professional workers such as auditor to identify and control its internal risks and to create policies, and competent employees to handle various transactions. If this is not properly address this can lead to a more serious business risk such as embezzlement, forgery and fraud.
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
BATULAN, Anna Marie M. (2019-102079)
CBET 01-503A
(1) How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are processes designed to help safeguard an organization and minimize risk to its objectives. Internal controls minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. Many different types of internal controls exist — they can be preventive or detective, automated or manual, and all of these are impacted by people (Internal Control Compliance: 7 Reasons to Maintain Your Program,2018). Internal control is necessary for the organizations to minimize the exposure of business risks or at least help them strategize their actions in dealing with such uncertainties. This also safeguards assets, people, and all stakeholders from the adverse impact of unfavorable situations. Moreover, it helps the organization to save money from penalties or costs of noncompliance with the standards, framework, and laws, since it guides the accountants to provide reliable financial reports and management to design their policies and regulations accordingly. More importantly, it makes the production procedures became efficient and moves employees to perform well increasing their productivity and engagement for the success of the business.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks
The Machine Manufacturing Company is lacking internal control over cash, whereby the duties of cash receipt and cash disbursement were vested to the same custodian. There is an inaccurate financial recording and reporting of company transactions such as bank reconciliations, petty cash disbursements, deposit slips, and discrepancies of other source documents. Also, the lack of an organizational chart and operational processes manual resulted in unclear lines of authority and responsibility, duplication of work, and insufficient procedures. They have failed to exercise control over their PPE as they lose track of their plant ledgers and failed to report the disposal of assets. The payroll account lacks relevant information, their inventories are poorly handled, and shipping records are deficient. In my assertion, the inadequacy of stringent internal control discourages the employees and also management to observe integrity at all times. I'll recommend conducting regular inspections of the company's book to monitor and detect any misstatements and manipulation that occurs. There should have assigned personnel that will be accountable for securing inventories and other assets, and the managers must give reasonable assurance that reports under their supervision are accurate. Moreover, administering continuous risk assessments to potential threats will help them alleviate the adverse impact of the risks. Aside from that, providing a concise organizational chart, proper governance, and internal control at all levels in the organization will ensure their adherence to all prevailing laws and standards.
-BANGATE, LOVELY V. (2019-104176)
-CBET 01-501A
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteAll the written recommendations provided there have equal importance in strengthening the overall control within the business. Yet, for me, the control over cash needs more emphasis because of its liquidity. Of all the assets, cash is the most susceptible to theft. Logically, no individual is to have complete control in the handling of cash because of the risk of manipulations. Management must ensure that they have strong internal controls in place to secure the cash process by having sufficient knowledge of its operation, experienced personnel, and separate tasks for authorizing, recording, and reconciling accounts. Each employee should be assigned specific job responsibilities, which can greatly aid in risk mitigation. If this recommendation was ignored, Improper managing and monitoring of cash may result in a higher risk of fraud and potential loss to the company.
References:
Internal Control Compliance: 7 Reasons to Maintain Your Program. (2018). Retrieved November 10,2021 from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Internal Control For Cash Receipts. (n.d). Retrieved November 10,2021 fromhttps://des.wa.gov/services/hr-finance/small-agency-services/small-agency-financial-services/finance-toolkit/internal-control-cash-receipts#:~:text=No%20individual%20is%20to%20have,record%20as%20soon%20as%20possible.
-BANGATE, LOVELY V. (2019-104176)
-CBET 01-501A
1.) How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteIn order to design a good Accounting Information System, there are four (4) basic concepts that we need to follow. These are the Cost-Benefit Approach, Internal Control, Compatibility Principle and Flexibility Principle. One of them is our topic for this week which is the Internal Control. When we say Internal Control, these are techniques and practices that helps the entity to minimize the risks and produce results for the sake of the stakeholders as well as provide an efficient accounting information system that helps a business organization to: (A) safeguard its assets, (B) check the accuracy and reliability of its accounting data, (C) promote operational efficiency and (D) encourage adherence to managerial policies. The reason why Internal Control important in an organization is it serves as an assistance for an organization to maintain effective controls by evaluating its effectiveness and efficiency and find ways on how they can improve this continuously. In an organization there are risks and anomalies that are unavoidable, with the help of an internal control it can lessen the effect of its risks and it can help it control some of it which is a must-have objective if you want an organization to no fail.
2.)Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Upon reading the case study about Machine Manufacturing Company, it suggests that internal control is important, regardless of the type of business organization. It shows that this concept is vital in terms of effectively and efficiently controlling the resources, labor, risks and other aspects that can greatly affect the business' success. Following the procedures provided by a good internal control is sufficient in determining the strengths and weaknesses of business. In the Machine Manufacturing Company, the biggest failure of their internal control is the failure to have an organizational chart and poor control in the assets of the business. The recommendation that I can give to them is to make an organizational chart from the start. Organizational chart is included in the preparation phase of every new business. Knowing the person who will manage a specific department will give reduce the time in the division of labor which is one of the resources of a business. It will assure the organization, if this specific person can lead this department to produce an efficient and effective output. As far as poor control of assets is concerned, we should know the rules that govern a specific asset especially on its function in terms of disbursing and receiving assets. Knowing these functions, can lessen the risk of fraud and helps in providing a good form in the financial records.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteRecommendations and suggestions given by the auditors to The Machine Manufacturing Company are complete and informative and it is or will be helpful in the future operations of this company. These can help the company in improving their procedures and process that they do in a daily basis. Of all the recommendations that the auditors given in this case study, the company should emphasize the manuals of operating procedures that must be prepared. Having these manuals can give them a guide or an idea on how they should operate in a daily basis and what are the essential tasks that needed to prioritize and remove in order form them to perform properly.
REFERENCES:
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. Taylor & Francis Group, LLC.
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company: Case Studies in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Manuel, Z. V. (2020). Financial Accounting and Reporting: Partnership and Corporation (22nd ed.). Raintree Trading & Publishing.
- CANCINO, JOVIN E.
2019-106913
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteAs according to the Audit Office of New South Wales, Internal control is a process, affected by an entity’s board of executives, management, and other work force, planned to supply sensible affirmation with respect to the accomplishment of goals relating to operations, announcing, and compliance. Internal Control frameworks plays a major role in an organization because it helps to achieve the organization’s goals and objectives. Those frameworks help by diminishing the risks that were a threat to a business. Organizations can achieve three major goals by implementing strong internal controls. These three goals are as follows: accurate and reliable financial reporting, adherence to rules and regulations, and the efficacy and efficiency of the organization's activities. To achieve these goals, an internal control system must be implemented and enforced throughout the business. Control environment, risk assessment, control actions, information and communication, and monitoring are the five components of the internal control framework.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company’s biggest failure of the internal control is them being weak in handling their sales, on how to segregate the function of their cash, even they have a lack of maintaining the proper control to their checks. They also failed to complete examine their checks with bank statements. The things I will recommend to the company is first, strengthen their policies, point out their weakest link so that they can pull out on how they will regain the strength in it. Check out the duties that it will be totally segregated so that to ensures that errors will be prevented on timely basis. Even well-designed internal controls can break down. Employees sometimes misunderstand instructions or simply make mistakes. However, errors detected at any stage of a process should receive prompt corrective action and be reported to the appropriate level of management. Lastly, provide adequate training and self-evaluation of their internal control. In this way, they may prevent their failure in the future.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Base on the case study, the recommendation that should have been emphasized more is the issues on their cash and hoe they should have handled it. Handling cash is one of the riskiest things to do because one failure to made, everything will be affected. Proper handling of cash in a business is one of the best practices that an organization must possess. Internal cash management improves when a company grows and expands its accounting staff, allowing for separation of roles in cash handling and tracking cash transactions in accounting records.
REFERENCES
Key Components of Internal Controls. (2020, October 23). Cerini & Associates, LLP Blogs.
Retrieved November 9, 2021, from https://ceriniandassociates.com/news feed/2016/02/29/key-components-of-internal-controls/
Internal Control Framework. (2019, October). Audit Office of New South Wales. Retrieved
November 9, 2021, from https://www.audit.nsw.gov.au/sites/default/files/auditoffice/
Governance-and-Policies---Current/Internal-Control-Framework-v13-current-version.pdf
-TAPIA, GIAN TRICIA B. (2019-103668)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are the methods that a company employs to manage risk and prevent fraud. The control environment, accounting system, and procedures known as control activities make up the internal control structure. The Committee of Sponsoring Organizations (COSO), an independent, private-sector group whose five sponsoring organizations identify and address specific accounting issues or projects on a regular basis, convened several years ago to address the issue of internal control deficiencies in organizations' operations and accounting systems. They followed up with the publication of COSO's Internal Control-Integrated Framework. Control of the environment, risk assessment, control of operational activities, monitoring and control of processes, and accurate communication of information are among the five components they believed were necessary in an effective internal control system. A properly designed and functioning internal control system will not fully eliminate the risk of loss but it will certainly reduce the risk. Internal control protects a company's assets and prevents it from breaking any laws, all while accurately capturing the company's financial activity in its accounting records. The financial statements that the owners use to evaluate the operations of a firm, covering all corporate and staff actions, are created using proper accounting records. Internal controls encompass more than just auditing how items are documented in the company's accounting records; they also include comparing the accounting records to the company's real activities.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The huge mistake of Machine Manufacturing Company was the lack of internal control in many areas. They lack on internal control in cash which has resulted in a colossal impact to their downfall. It was shown that in the area of the internal control of cash, they have enlisted the most which just tells that they have not been applied some great auditing techniques. Lack of internal control of inventories and Accounts receivable have contributed a lot to its problem. Appropriate division of different stuff should have done to properly account these things.
To be continued....
Colarina, Adrian Mark T. (2019-105709)
Continuation...
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Everything which has been enlisted should be focused on. All of them has to be applied since those recommendations arose from the information given. The recommendation summarized the intervention needed to maintain and bring back the firm to its process. I highly recommend the solution offered by the auditor inclined with the internal control of assets especially cash and inventories. These two have been proved the most damaged spots by the machine manufacturing company. Also, implement a more reliable auditing process and procedure since the audit report must not be biased.
References:
Define and explain internal controls and their purpose within an organization – Principles of accounting, volume 1: Financial accounting. (2018, July 24). BCcampus Open Textbooks – Open Textbooks Adapted and Created by BC Faculty. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
Colarina, Adrian Mark T. (2019-105709)
(1/2)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls are the systems that an organization employs to manage risk and reduce the likelihood of fraud. The internal control structure is made up of the control environment, the accounting system, and procedures known as control activities. Several years ago, the Committee of Sponsoring Organizations (COSO), an independent, private-sector group whose five sponsoring organizations to meet regularly to identify and address particular accounting issues or projects, empaneled to address the issue of internal control weaknesses in organizations' procedures and accounting systems.
Internal control safeguards a company's assets and prevents it from breaking any laws while accurately recording its financial activity in accounting records. Accurate accounting records are used to create the financial statements that the owners use to analyze a company's performance, including all company and employee activities. Internal controls include more than just reviewing how items are recorded in the company's accounting records; they also include evaluating the financial documents to the company's actual operations.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's biggest failure is the failure in the financial statement instruments. For instance, the poor internal control for receiving the aggregate cash resulted from different activities such as sales invoices and customer statements, customer ledgers, mailing or delivering checks, bank reconciliations, cash disbursements, and general accounting records.
-ARONCE, MARY ANGELOU N.
2019-105627
(2/2)
ReplyDeleteThe poor internal control for receiving cash could cause a loss or risk in the company, leading to a serious one. Since receipts are not promptly deposited, I recommend placing them under accounting record management to improve internal risk control and intervention controls. I'll recommend that their plant ledgers be audited daily and that their assets be physically inventoried as a final check. Documents shippers should be prepared for anything that comes out of the production, as a side remark.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Machine Manufacturing Company's auditor made several recommendations to enable them to improve their internal controls. However, I believe that all cash-related recommendations should be highlighted more. Since there is no internal scrutiny over cash, various cash fraud schemes can be easily carried out. Aside from the recommendations given in the case study, I would advise them to instantly record all cash receipts they collect so that the company has proof that they have received them. All cash receipts must be deposited in the bank as soon as they are received to avoid mistakes.
REFERENCES:
American Institute of Certified Public Accountants. (1950). Machine Manufacturing Company; Case studies Internal Control. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Principles of Accounting, Volume 1: Financial Accounting. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
-ARONCE, MARY ANGELOU N.
2019-105627
Our everyday lives are like a marathon; we run and do as much as we can to reach the finish line. A lot of things may happen in a span of twenty-four hours. We might trip or slip, maybe dehydrate because of the scorching heat, or injure ourselves. No matter how prepared we are, there are certain things that are out of our control; just how it is when we are operating a business. However, if we can manage to hydrate ourselves during the run, or wear proper shoes and other appropriate gear, we might prevent causing trouble to our selves—these pertain to the things that we have authority over. In business terms, there are matters that we can supervise, and actually govern. In an organization, internal and external risks are pre-existing, and are carried along the way as the business operates. It is inevitable, although it can be assessed and evaluated. Internal risks are risks that are within the organization, and might be tolerable firsthand. However, those risks are mostly neglected, and spread within the operations and it would be much difficult to bear that what it was originally. Establishing a firm internal control would greatly affect the functioning of the overall performance of the business. Speaking of which, as internal control plays a major role in the organization, The Machine Manufacturing Company depicts the perfect example of a company that failed to exercise their internal control. It seems that the downhill of the company was mainly caused by poor cash management, as it was declared as a primary weakness, listing ten reasons why. A business is up and running because of cash; money does keep the business alive. Being as negligent as they have been, is like indirectly digging up for the business' grave. They let the bank receipts, the inflow and outflow of cash, unattended. They were not even able to record journal entries, in which basically is a primary step into entering transactions. As problematic as this, I would presume that an accountant is not present. There are a lot of loose ends in the transactions made, despite dealing it with a bank. It is always helpful to look over the situation at a greater perspective, and overlook all the spots and holes that are making the business ship, sink. With this, I think that among the recommendations provided by the auditor, it might be easier for the company to focus more on bank reconciliation. This would help them signify all cash on hand and in bank, for it would impart relevant information that could contribute into giving them a wider perspective. In addition to this, if the company does not have a proper record book, it would only lead them to confusion, and possibly suffer a great loss if they are not able to track their past transactions. All in all, the recommendations given by the auditor were the perfect fit for the weaknesses stated, and it would surely uplift the business' effectivity little by little.
ReplyDeleteReference:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. Retrieved November 10, 2021, from https://egrove.olemiss.edu/aicpa_comm/104.
POBLACION, KIRSTEN GAVEN R.
2019-104425
(1/2)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. (Kenton, 2020). The internal control are systems that helps the company ensure that they manage the risks effectively and to reduce the occurrence of fraud in the entity. It gives assurance that financial statements are reliable for decision making and the assets are secured and properly used and to ensure that the employees are working in accordance to company’s policy and pursue its objectives. There are different risks that an entity may face, according to the kind of organization that they have but a weak internal control may attract more of its employees to do fraud and missuse the company’s asset. A great internal control system not only allows a company to keep track of its personnels, but it also aids in the protection of valuable customer information. Internal controls would not only prohibit outside access to the valuable information, but they would also protect it against corruption, damage, or misuse from the internal parties.
The internal control is indeed important to the overall objectives and strategies of an organization to provide solid policies and systems within the organization to protect its assets and data. It may not remove all the risk of loss but with the properly designed and well functioning system, they may help lessen it.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
One of the biggest failure in the internal control of The Machine Manufacturing Company is its cash management system, specially that it is one of the company’s asset that can be easily stolen, the company should keep an eye on it and have a segregation of duties and rotation of staffs who will handle the cash, also there should be different personnel that disburse, receives and record its transactions. The company should also deposit all of its cash in a bank, have a separate banks for every branch and maintain a low cash on hand balance to ensure that all of its cash is properly accounted and nothing will be missing.
All inventories should be properly stored in a secured area and have a detailed Inventory list where all the items are listed including the date it is acquired and the number of specific items. It should be properly organized and have a paper trail, proper and exact documentation of who moved what and when can make all the difference when trying to reconcile variances or track down any missing stock. A regular physical count of everything should be done to reconcile its physical count in its records. And there should be proper system on how they store and get the inventories to avoid its misuse.
The property, plant and equipment should have a proper and detailed record on when the asset was acquired, its useful life, how many it is and when releasing it, to be well informed if the PPE is fully depreciated and to report it promptly if sold especially that this is the merchandise of the company and it holds significant value.
The company should have regular checking of inventories, sales and other accounts like its accounts receivable to makes sure that what is recorded aligned on what they will receive, cash disbursements on their purchases and expenditures should also be properly accounted for, that will ensure that they are disbursing money on what is really needed and to properly segregate and keep the ir vouchers and receipts to have a systematic payroll and to lessen the work of accounting department.
Rochel M. Bulatao
2019-101054
(2/2)
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The auditor’s lengthy presentation of its recommendations without properly emphasizing what can really help the company will make the whole auditing process pointless as it won’t really help the company in knowing what exactly they have to focus to have an effective internal control system and because of this the entity won’t be able to really apply and use the result of audit and most of it will be useless, if not everything. The auditor should have highlighted the need of keeping accurate records of the company’s assets to avoid misuse, damage and fraud particularly in its cash and having a properly functioning cash management system is also helpful as cash is easily stolen and manipulated.
References:
OSCRiceUniversity (ND). Define and Explain Internal Controls and Their Purpose within an Organization. Retrieved from: https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
Kenton, W. (2020). Internal Controls. Investopedia. Retrieved from: https://www.investopedia.com/terms/i/internalcontrols.asp
Rochel M. Bulatao
2019-101054
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDelete• Internal control keeps the assets of a company safe and keeps the company from violating any laws, while fairly recording the financial activity of the company in the accounting records. Proper accounting records are used to create the financial statements that the owners use to evaluate the operations of a company, including all company and employee activities. Internal controls are more than just reviews of how items are recorded in the company’s accounting records; they also include comparing the accounting records to the actual operations of the company.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
• The biggest failure of the internal control of The Machine Manufacturing Company is the Failure to segregate the function of receiving cash. I think my recommendation to improve the internal control to prevent risks is that they should improve their employee’s performance because it looks like it is a human error so my recommendation is to Provide Adequate Training to Staff. Employees should be properly trained and authorized to perform their duties.
Marinel S. Nudo
2019-106335
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Delete• From all the recommendation, I think the those all recommendation should be emphasized because all of it is important from cash to general because it is all part of its operation. No part of business operation should fall behind because they are all important.
References:
Kenton W. reviewed by Mansa J. fact checked by: Kvilhaug S. (2021). Internal Controls. https://www.investopedia.com/terms/i/internalcontrols.asp
Top Ten Things to Strengthen Internal Controls in the Office 2-2-2-2. https://www.sai.ok.gov/Search%20FormsPubs/database/TopTenThingsICanDoToStrengthenInternalControlsInMyOfficeDocBW.pdf
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Marinel S. Nudo
2019-106335
(1/2)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control is an important component of an organization. An efficient and effective internal control ensures the fulfillment of the company’s goals and objectives. It can also assure meeting the aims of the internal control system (Leng and Zhang, 2014). As we all know, the main purpose of internal control is to help in ensuring assurance that the entity will further achieve its objectives. The internal control provides reasonable assurance through effective and efficient operations, reliability, and transparency of financial statements, and compliance in following our laws in the Philippines. (Michigantech, n, d). Internal can take in many forms. We can encounter controls in our daily lives for it helps us to achieve compliance, effectiveness, and efficiency towards our goals in life. Just like merely reviewing bills before paying to check the accuracy represents personal internal control outside the workplace. It is a process that involves every people in an organization that is essential in achieving the common goal. Moreover, it holds the people accountable for the actions to minimize the risk and prevent fraudulent actions. It should be clear and transparent to every business how important internal controls in operations are; for internal controls provides measures that will protect the assets of an entity. It must be properly designed and selected that it will be best suited for the structure of the business. It will help in aligning and meeting the company’s aspirations. Many businesses do not have an understanding of these controls which can lead to inefficiency. It is important to fully understand and be adept in establishing and maintaining good internal control. More importantly, it can uncover misappropriations, frauds, misstatements, errors, and manipulation of data.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company is a company which internal control is dependent on the checklist upon assessment of the extent of reflectivity and efficiency of operations. Internal control plays a huge role in the success of every business. Every business venture must have a sound mind in decision-making upon choosing the structure of internal control. Above all the identified failures, I think it all rooted from it’s lack of organizational chart and manual operating procedures. A business starts from creation of organizations chart to impose and promote strong leadership. Lack of organization structure and manual procedures resulted to poor internal control, inadequate, and inefficient procedures. For the further improvement, I therefore recommend to create an organizational structure which promotes strong leadership and team players. A change in key management employees may also be imposed if proven guilty of fraud and malicious intentions with the company. A healthy working the environment will produce productive and good energy. In addition, transparency in the manual of procedures to align the day-to-day operations to create strategies to meet long-term goals. Upon addressing these problems, it will contribute to the overall betterment of the company through the minimization and elimination of fraud and possible risks.
ZARAIN, KIANNA ERIKA D.
2019-104924
(2/2)
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
A good internal control will be able to distinguish the weaknesses of an entity. Upon addressing these weak points, it will help in further betterment of the internal control system. The Machine Manufacturing Company faced numerous problems in its internal control system. From the case study, it is seen that lack of the organization chart and manual operating procedures led to weaken the internal control system. There are several recommendations from internal auditor and management. It includes correction of weaknesses in internal control. I think the recommendation to create, review, and maintain an organizational chart and manual of procedures need to be emphasized. Upon putting these in action, it will help in imposing strong leadership, display responsibility, and adequacy in procedures will be the start of changing the old system. As it always begins with the structure of the business, it must be kept organized and regularly reviewed. Basically, without good internal control, it leads to business failures. Weak internal control of the company regarding financials leads to excessive workloads for the accounting department.
Reference:
Leng, Jianfei & Zhang, Lingfen. (2014). Research and Discussing on Internal Control Auditing. Modern Economy. 05. 785-790. 10.4236/me.2014.57072.
MichiganTech (n,d). What is Internal Control?. Retrieved from https://www.mtu.edu/internal-audit/control/what-is/
ZARAIN, KIANNA ERIKA D.
2019-104924
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control, as indicated by Western Illinois University (n.d.), is “a process, affected by an entity's board of directors (trustees), management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations; Reliability of financial reporting; and Compliance with applicable laws and regulations.” Effective and efficient operations would be possible if there is the establishment of regulation and composition of the tone at the top of the organization. The demonstration of the management's practice of integrity and promotion of internal control will encourage the employees. The risks that could hinder the attainment of objectives would also be recognized and mitigated. The financial reporting would be made reliably through the transfer of essential information needed to make sound judgments. Data would be kept faithful and dependable if there is proper segregation and delegation of tasks as manipulation and anomalies such as fraudulent activities would be prevented. And the compliance to laws and regulations would be ensured as monitoring the controls is a vital responsibility of management’s internal control. There would be constant tracking and determining if the controls are working according to plan.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company lacks in the different areas of their accounting system and procedures where the audit work is based. Among all the listed sections, the biggest problem is the poor internal control of cash. It failed to have a proper and organized receipt, deposit, and disbursement of cash. There is only one bank for the receipt and disbursement of cash. The paid bank checks are also not forwarded to be reconciled to the home office. These failures would result in being prone to manipulation and mark the start of fraudulent activities. If I will be the auditor, I would recommend improving the cash control of the organization. Cash receipts should be recorded immediately after the transaction to prevent cash theft. It applies as well to the depositing of check receipts. There should also be a different person for receiving, recording, and disbursing cash. It is valuable to enhance it as cash is the most important liquid asset of the organization, and without it, the organization cannot flourish and survive.
Samson, Shayne Danielle G.
2019-102562
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteOut of all the categories, the general one should be emphasized a bit more. The organization should properly assemble the organizational structure. The home office sales, administrative, and executive personnel with only 65 employees perform numerous functions like the control of the four branches, bank reconciliations, and keeping of general accounting records. The employees are not enough to have a clear assignment of responsibilities. Aside from that, many of the company's major positions were filled by people who were new to both their jobs and the organization. The lacking organizational structure is more susceptible to issues and difficulties in achieving the organization’s objectives. The employees, which do not have proper and clear tasks and responsibilities, will have a difficult time getting things done. It would affect the organization’s competency as there would be inefficient operations resulting to slow progress. And it will also have an impact on the reliability of the decisions made.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. In AICPA Committees. 104.
https://egrove.olemiss.edu/aicpa_comm/104
Cerini, K. (2016, February 29). Key Components of Internal Controls. Cerini & Associates, LLP Blogs. https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
Murdock, H. (2016). Operational Auditing: Principles and Techniques for a Changing World (1st ed.). Auerbach Publications. https://doi.org/10.1201/9781315368733
Western Illinois University. (n.d.). What are Internal Controls? - Internal Auditing - Western Illinois University. Www.wiu.edu. Retrieved November 9, 2021, from http://www.wiu.edu/internal_auditing/internal_controls/
Samson, Shayne Danielle G.
2019-102562
1. How an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal control is a process, effected by an entity’s board of directors, the management and other authorized personnel, designed to provide reasonable assurance: That information is accurate, reliable and relevant, Of compliance with applicable laws, rules and regulations, contracts, policies and procedures, Of the reliability of financial reporting. Internal controls are intended to prevent errors and irregularities, identify problems and risks and ensure that corrective action is taken. In many cases, process owners within the department perform controls and interact with the control structure on a day-to-day basis, sometimes without even realizing or noticing it because controls are built into operations. Internal Control helps prevent fraud or fraudulent activities made by employees. Thus, having an effective and proper Internal Control can indeed help an organization achieve its objectives.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
I think, the biggest failure of the internal control of the Machine Manufacturing Company was not having a uniform process when it comes to the cash receipts and not having a organizational chart. Lacking organizational chart will create confusion on where to pass or send information because the use of organizational chart is to help employees clearly identify all team leaders within their organization. Providing this information to all employees minimizes the amount of time wasted dictating whom to pass on information to. Having no organizational chart also will make it hard for the employees to identify people that are in authority. I recommend that they should have always prepared an organizational chart and is readily accessible to all the employees. I think creating an organizational chart don’t take so much time and problems relating to that chart should have been prevented if they have one.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
I think the recommendation that should have been emphasized more is the recommendation about cash. As you can see in the case study, the Machine Manufacturing Company have poor Internal Controls when it comes to cash so I think they should always take a closer look in the flow of their cash. If the recommendation is taken for granted, I think it will result to amore and more serious problems and worst, will make damages to their company.
References
University of San Francisco California (2021) Internal Controls.
https://audit.ucsf.edu/internalcontrols#:~:text=Internal%20control%20is%20a%20process,regulations%2C%20contracts%2C%20policies%20and%20procedures
Datis Admin (2018) THE IMPORTANCE OF AN ORGANIZATIONAL CHART. Datis
https://www.datis.com/resource/the-importance-of-an-organizational-chart/#:~:text=Organizational%20Charts%20help%20employees%20clearly,to%20pass%20on%20information%20to.
Velasco, Mely Jane
2019-103477
HOW CAN AN INTERNAL CONTROL (IC) HELP ACHIEVE THE OVERALL OBJECTIVES AND STRATEGIES OF AN ORGANIZATION?
ReplyDeleteAccording to COSO, internal control is a system of procedures implemented by the board of directors, management, and other personnel, relating to operations, reporting, and compliance. It designed to safeguard the organization and assure the achievement of the entity's objectives and goals through the following (Michigan Technological University, nd.):
• effective and efficient operations
• reliable financial reports
• compliance with the laws and regulations
Components of internal control includes (University of Florida, nd.):
a. Control Environment- circles around the organization structure and attitudes of the management and the employees
b. Risk Assessment- the process of identifying, evaluating, and determining, and management of risks
c. Control Activities- actions taken to manage the risks
d. Information and Communication System- refers to the exchange of useful information
e. Monitoring- ensuring the overall system is operating as expected.
IDENTIFY THE BIGGEST FAILURE OF THE INTERNAL CONTROL OF THE MACHINE MANUFACTURING COMPANY AND WHAT WILL BE YOUR RECOMMENDATION TO IMPROVE THEIR INTERNAL CONTROL THAT SHOULD HAVE PREVENTED RISKS.
At the time of investigation (1950), the representatives of the American Institute of Certified Public Accountants found out that many of the high and key positions are dominated mostly by new employees. This may not be considered as a major problem in the financial area but with the lack of experts and experienced employees, an organization will have a hard time training the new ones. Apart from this, and as the case study suggests, The Machine Manufacturing Company's principal weaknesses in their internal control system involves failure to properly assess their cash, notes receivable, accounts receivable and customers' deposits, inventories, securities, property, plant and equipment, accounts payable, capital stock and dividends, sales, purchases and expenses, and payroll accounts. In general, the absence of internal control was so pronounced that the lack of clear organizational chart and procedures resulted in confusion between the authorities and their subordinates causing duplication of effort, inadequate procedures, and poor internal control.
In line with the general recommendation of the auditors, accounting and auditing literacy is very much needed and required. They must understand how to mitigate risks, correct errors promptly, and perform regular examination of accounts. To ensure that the duties are performed, the company must provide adequate training to the staffs and must improve its organizational chart by listing the roles and responsibilities of each position. Documentation of the relevant transactions, policies and procedures will clear out all the confusion.
- - - to be continued...
PARAGAS, DANIELA T.
2019-104925
- - - continuation...
ReplyDeleteOF ALL THE RECOMMENDATIONS PROVIDED BY THE AUDITOR, AS PER THE CASE STUDY. WHAT RECOMMENDATIONS SHOULD HAVE BEEN EMPHASIZED MORE AND WHAT ARE THE RISKS YOU CAN SEE IF THE RECOMMENDATIONS HAVE NOT BEEN EMPHASIZED.
All the recommendations provided by the auditors are essential in ensuring an effective and efficient internal control. As reviewed, the main cause for The Machine Manufacturing Company's poor internal control is confusion, lack of communication, and vague distribution of work. With this, the preparation of organization chart and manuals, and operating policies and procedures must be given enough focus.
Establishment of policies and procedures are a part of control. These are guides that allow the users of information to see if the performance of the organization is in line with its objectives. "When management fails to fulfill these obligations, the organization is subject to significant risk”, (IIA, nd.).
REFERENCES:
American Institute of Certified Public Accountants (1950) Machine manufacturing company; Case studies in internal control. Retrieved from https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Institute of Internal Auditors (nd.) Internal auditing: Assurance, insight, and objectivity. Retrieved from https://na.theiia.org/about-ia/publicdocuments/pr-value_prop_bro-fnl-lo.pdf
Committee of Sponsoring Organizations of the Treadway Commission (2013). Internal control - integrated framework: Executive summary. ISBN 978-1-93735-239-4. Retrieved from https://www.coso.org/documents/990025p-executive-summary-final-may20.pdf
Michigan Technological University (nd.) What is internal control. Retrieved from https://www.mtu.edu/internal-audit/control/what-is/
University of Florida (nd.) Components of internal controls. Retrieved from https://www.oia.ufl.edu/home/information-and-resources/internal-controls/components-of-internal-controls/
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PARAGAS, DANIELA T.
2019-104925
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are one of the fundamental parts of an organization's system. Internal Control is defined as an interconnected collection of actions that are layered upon an organization's usual operating procedures with the goal of safeguarding assets, preventing errors and irregularities, and guaranteeing that operations are carried out in an appropriate way (“Internal Control”, 2021). Furthermore, internal controls are established to ensure record of accuracy, improve operational efficiency, and promote adherence to the ordinances, policies, rules, and regulations in an organization. Its primary purpose is to aid in the protection and promotion of an organization's goals, as well as to uncover problems and ensure to take any remedial action if necessary. In relation to this, it gives reasonable assurance that the organization will achieve its goals and objectives.
According to the International Organization of Supreme Audit Institutions (INTOSAI), internal control serves four purposes, and if an organization addresses each of these four purposes in establishing its internal control system, the organization is more likely to fulfill its objectives and mission. The creation of good internal control system necessitates management to balance risk reduction with efficiency. With this, an effective Internal Control Program will aid in the streamlining of procedures and the improvement of the level and quality of service provided by an organization.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
It is evident in the study that The Machine Manufacturing Company lacks an organization chart and manual of operating procedures. In relation to this, it led to uncertainty over authority and accountability, duplication of effort, insufficient procedures, and poor internal control. Furthermore, there has been an inadequate amount of personnel in the branches which leads the organization to have weak internal control in any of its branches. It is also due to the fact that all records maintained in the branches are under the supervision of branch managers.
According to a checklist provided by the auditor including cash, notes, and accounts receivable, customers' deposit, inventories, securities, accounts payable, capital stock and dividends, sales, purchases, and expenses, power, plant, and equipment, and payroll, was deemed to be the system's primary weaknesses due to poor internal control. With this information, it can conclude that a weak internal control system is detrimental to the operation of an organization. In order to improve the company’s internal control, I think they should strengthen the home office controls over its branches. They should also organize the departments and segregate duties accordingly, ensure that the written policies and procedures are being followed and applied consistently by the employees, identify and manage possible risks, and perform reconciliations regularly to correct errors on a timely basis. It is also essential to provide proper training to staff and personnel because they are also part of the asset of the company.
Macanip, Joanna Elaine O. (2019-103856)
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
DeleteAmong the recommendation imposed in the study, I think the General should be more emphasized. The "general recommendation" contains about organization chart that should be maintained and reviewed periodically and the preparation of manual operating procedures. The organization chart aids in the demonstration of clear reporting systems for all employees. This chart also generates a road map for how the work will be completed and the processes that must be followed to ensure the data's accuracy. With this, employees should also be properly trained in the preparation of manual operating procedures and be authorized to perform their duties.
Implementing controls requires the management to examine and review an employee's work, which might help to reduce the risk of both errors and fraud. One of the essential roles that management must maintain is competent oversight. If the management did not emphasize this recommendation, it would result in a chaotic organization wherein errors, risks, and fraud might take place. In addition, it could also lower the productivity level of an organization.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company: Case Studies in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104.
Fairbrother, P. & Majak, J. (n.d.). Campus Internal Control Handbook. https://www.newpaltz.edu/media/internalcontrols/ic_handbook.pdf.
Internal Control Definition. (2021, April 15). Accounting Tools: Accounting CPE Courses & Books. https://www.accountingtools.com/articles/internal-control.html.
State Auditor & Inspector. (n.d.). Top Ten Things to Strengthen Internal Controls in the Office. https://www.sai.ok.gov/Search%20FormsPubs/database/TopTenThingsICanDoToStrengthenInternalControlsInMyOfficeDocBW.pdf.
Macanip, Joanna Elaine O. (2019-103856)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteControl Framework is the roadmap to identify, assess, and manage objectives, risks and
controls in an organization. As defined by Wandering CPA (2021), the Internal Control comprises the plan of organization and the co-ordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. There are several control frameworks in place that are implemented as a means to improve business results. Whether the organization uses COSO, ISACA, ISO or any other exclusively, or embraces a customized control framework that better suits its unique needs, having one in place is highly advisable.
It is important to make sure that control frameworks are updated periodically as these
revisions give organizations an opportunity to further improve their internal control mechanisms.
In general, it is essential that we spend time identifying the characteristics of the formal and
informal systems, while remaining aware of the culture and ethical climate because a key aspect
of our job is to ensure alignment between these. Should there be dissonance between them, the
likelihood of organizational issues increases (Murdock, 2017).
There are also several tools and techniques that can help internal auditors improve the procedures and systems in their organizations. They serve as a great toolbox to improve quality, reduce costs, accelerate deliverables, and increase yields. The goal is the continuous process improvement, achieving overall objectives and strategies and these tools are a fundamental part of that effort. A good internal controls system includes a set of rules, policies, and procedures an organization implements to provide direction, increase efficiency and strengthen adherence to policies.
MORENO, GLORENE MAE R. (2019-105014)
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
DeleteThe biggest failure of the Machine Manufacturing Company is their weak internal control, in fact there is barely an internal control done in the company. Upon reading the case study it occurred to me that the failure mainly rooted on the poor implementation of policies and procedures in handling cash accounts. Since cash is the most liquid of all assets, a business cannot survive and prosper if it does not have adequate control over its cash. To control and manage its cash, the Machine Manufacturing Company should:
• Account for all cash transactions accurately so that correct information is available regarding cash flows and balances.
• Make certain that enough cash is available to pay bills as they come due.
• Avoid holding too much idle cash because excess cash could be invested to generate income, such as interest.
• Prevent loss of cash due to theft or fraud.
The need to control cash is clearly evident and has many aspects. Without the proper timing of cash flows and the protection of idle cash, the business cannot survive. And it is important to note that having a good internal control system is a crucial aspect of an organization’s ability to manage risk, and is fundamental to supporting the achievement of an organization’s objectives.
MORENO, GLORENE MAE R. (2019-105014)
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
DeleteOf all the recommendations provided by the auditor, as per the case study, I think another important area that the company should give adequate control is the organization’s management of all their employees. In a large organization failing to properly segregate duties can result in a greater risk of errors or fraud. Generally, assigning different people the responsibilities of authorizing transactions, recording transactions, maintaining custody of related assets, and reconciling accounts provides for more effective internal controls. Each employee should have specific job responsibilities, preferably defined in writing. Reassignment of specific duties within a process to other appropriate individuals can significantly help to mitigate risks in many cases. As poor management may not come from individual managers at all but rather from company culture. The aspects of a bad workplace can include inconsistent policies and a lack of managerial presence. Thus, I recommend that the control activities include segregation of duties, proper authorization, have adequate documents and records, and independent checks on performance.
REFERENCES:
American Institute of Certified Public Accountants, Committee on Auditing Procedure (1950). "Machine manufacturing company; Case studies in internal control". Retrieved 09 November 2021 7:30 am from https://egrove.olemiss.edu/cgi/viewcontent.cgiarticle=1103&context=aicpa_comm
Lumen Financial Accounting (n.a). Cash and Internal Control. https://courses.lumenlearning.com/sac-finaccounting/chapter/cash-receipts-and-disbursements/
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. https://doi.org.pdf/10.1201/9781315368733
Wandering CPA. (2021, October 26). Operations audit: Discussion assignment week 4. Glimpse of CPA’s Mind. https://markgrabillo.blogspot.com/2021/10/operations-audit-discussion-assignment_11.html
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Efficient internal control helps to achieve the overall objectives and strategies of an organization in a way that it safeguards its assets, checks the accuracy and reliability of its accounting data, promotes operational efficiency, and encourages adherence to prescribed managerial policies. It is important to be adhered to and implemented on every business to manage and limit the occurrence of operational risks such as capacity risk, strategic risk, compliance risk, political risk, natural-environmental risk, financial risk, and workforce risk. To sum it up, internal control helps in the effectiveness and efficiency of operations, reliability of financial reporting, and lastly in compliance with applicable laws and regulations.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure in the internal control of the Machine Manufacturing Company as mentioned in the case study is the lack of an organizational chart and manual of operating procedures resulted in confusing lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. Moreover, the case study recommends that to cope with the failures, organization charts should be reviewed periodically and maintained in a current status as well as manuals of operating procedures should be prepared. However, If I were to ask, I would recommend that the company should hire competent and knowledgeable employees especially in the position of accountants and auditors both in the branch office and home office so that that there will be a trusted person that would report relevant and timely financial statements and efficient management in the foregoing operation of the business to the management and external regulators.
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Based on the case study, it recommends that to cope with the failures, organization charts should be reviewed periodically and maintained in a current status as well as manuals of operating procedures should be prepared. Of all aforementioned recommendations provided by the auditor, the recommendation that I think should have been emphasized more is the hiring of key employees in the effective and efficient management of the business because I foresee that if this was not taken for granted is it will result in the occurrence of operational risk, financial risk, and workforce risk. With the lack of a competent key employee in both branch and home office, there will be a breakdown in the ongoing operation which results in failure of the business. Next is the financial risk, when there are no competent accountants, there will be insufficient internal control results to have a failure collection of cash and accounts receivable that will be reconciled in the home office and eventually lead to wrong inputs of amounts in the financial statements that is why internal accounting control is important to comprise the plan, procedures, and records of the organization to safeguards the assets and the reliability of financial records. Lastly is the workforce risk which is insufficient employees to comply with the daily operation of the business which results in inadequate outputs of the operation due to limited workers.
REFERENCES
BUSINESS INFO: Risk Management https://www.nibusinessinfo.co.uk/content/types-risk-your-business-faces
Machine manufacturing company; Case studies in internal control, https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Grabillo, M. A. (2020). Operations Audit: Internal Control Frameworks. Accounting Made Easy. Retrieved on October 26, 2021. https://www.youtube.com/watch?v=tW6jeEqEVn8&list=PLqmYUi2kytZa9u87uu40aUSP5FxFm4sNQ&index=6
ESCRITOR, RHEABELLE; 2019-106337
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls enable an organization to be more effective and efficient while also avoiding major problems such as operational failures and legal violations. Internal controls are policies, procedures, and laws that are implemented within an organization to provide reasonable assurance that management meets its objectives and fulfills its responsibilities. Internal control systems that are well-designed assist the business in ensuring the safety and security of their assets and data, thereby increasing the reliability of financial accounting data and instilling greater confidence in their financials. Additionally, internal control systems assist businesses in accomplishing operational goals by increasing the efficiency and effectiveness of internal operations. Each business is formed to accomplish specific goals, but several risks can jeopardize their success. Internal control is one way to mitigate these dangers. While implementing an internal control system does not ensure that the business will experience no loss or risk, it will significantly assist management in mitigating risk and improving process performance.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's most serious internal control failure is a lack of internal control over cash, as evidenced by the failure to segregate the functions of receiving and disbursing cash. Internal control failures in property, plant, and equipment are examples of this, such as the failure to check plant ledgers through periodic physical inventory. Internal control deficiencies in sales can manifest themselves in the form of inaccurate and incomplete shipping records. I'll recommend that all receipts, if not immediately deposited, be placed under accounting record management to strengthen their internal control over risk prevention and mitigation. I'll urge them to conduct regular audits of their plant ledgers and to conduct physical inventories of their assets as a final check. As an aside, I'd like to encourage prenumbered shippers to be prepared for anything that leaves the factory.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The issue of insufficient internal control over payroll should have been emphasized more strongly. Payroll is critical because it typically involves a sizable sum of money, and it deserves more attention. Without adequate internal control systems in place, a business can suffer significant consequences. In rare instances, a business may overpay one or more dishonest employees, resulting in the loss of the company's assets. Additionally, if a business pays its employees late, the employee may develop a negative attitude toward the organization.
Reference:
Audit Board (April 17, 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program April 17, 2018. Retrieved November 5, 2021, from https://www.auditboard.com/blog/7-
Villegas, Mharlouie B.
2019-105793
Part 1/2
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls system includes a set of rules, policies, and procedures an organization implements to provide direction, increase efficiency and strengthen adherence to policies. The objectives of internal control includes financial reports are reliable, operations are effective and efficient, and activities comply with applicable laws and regulations.
An effective internal control system includes organizational planning of a business and adopts all work-system and process to fulfill the following targets which are safeguarding business assets from stealing and wastage, ensuring compliance with business policies and the law of the land, evaluating functions of each employee and officer to increase efficiency in operation, and ensuring true and reliable operating data and financial statements.
It is to be kept in mind, a business organization, be its small or large, can enjoy the benefits of adopting an internal control system. Prevention of stealing-plundering and wastage of assets is a part of the internal control system.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of The Machine Manufacturing Company is their poor and weak internal control itself. There are many failures regarding to the internal control of The Machine Manufacturing Company that affects the Cash, Notes and Accounts Receivable and Customers' Deposits, Inventories, Securities, Property, Plant and Equipment, Accounts Payable, Capital Stock and Dividends, Sales, Purchases and Expenses, and Payroll.
The lack of an organization chart and manual of operating procedures resulted in confused lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. There is practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches
My recommendations to improve the Internal Control of Machine Manufacturing Company are: the company should establish good relationship between all of its employee to have proper communication and dissemination of information, there also must be an organizational chart and manual of operation procedures to avoid confusion in the duties and responsibility of the supervisors and its subordinate, and they must strengthen their internal control itself.
CORTEZANO, ELEONORA LAURA A. (2019-103875)
Part 2/2
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Among the recommendations provided by the auditor, as per the case study, the company does not give attention on the importance of Organization chart. Because having a visual representation of the organization’s structure also has an impact on a couple other factors to reporting because organizational charts help to demonstrate clear reporting structures for all the employees in the organization. It creates a road-map for how the work is to be done and the process required to ensure this information is shared throughout the company, to the right individuals. And the way to ensure this takes place efficiently is, to have one supervisor or manager and few employees directly reporting to one. They have impact on long term planning due to the visual nature of charts it gets easy to identify if any employee/team can become a bottleneck in the long run. If an employee or a team is shouldering more responsibility than they should, you can spot that in a minute in the org chart. This helps you in creating contingencies & backups in case of systemic breakdown. And that turns out to be a strategically important aspect as it also helps in business continuity planning. In alignment of goals, for any company to succeed as a whole, everyone needs to be equally invested in its vision. They need to collectively work together to make sure efforts are taken in that direction. The OKR goal setting methodology, for example, talks about aligning goals at all the levels of the organization to ensure company objectives are achieved. This is one of the most important factors that has been instrumental in the popularity of this goal setting framework.
Organizational flowcharts help streamline the process of aligning these efforts and goals in one direction. When there is a clear relation between two or more levels, goals should be aligned the way OKR methodology suggests. Every employee is made aware of their roles and responsibilities in the workplace.
New employees also benefit from the organizational charts. Even before they get a chance to interact with their colleagues, they can easily determine who they are going to work with. It helps them connect more effectively and with purpose.
References:
American institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control”. (1950). AICPA Committees. 104. Retrieved November 10, 2021. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
I-EduNote. (n.d.). Internal Control System: 5 Components of Internal Control System. Retrieved November 10, 2021. https://www.iedunote.com/internal-control-system
Upraise. (March 8, 2018). Importance of Organizational chart in the workplace. Retrieved November 10, 2021. https://upraise.io/blog/importance-organizational-charts/
CORTEZANO, ELEONORA LAURA A. (2019-103875)
Part 1
ReplyDeleteSalutim, Hershey Mae D. 2019-107961 502A
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
- - "Internal controls are systems meant to assist secure an organization and minimize risk to its objectives," according to the AuditBoard's definition (AuditBoard, 2018). Internal controls, as the name implies, are systems, procedures, policies, and regulations that help to efficiently and effectively reduce risk, protect the company's assets, and ensure that financial statements are accurate and timely. Internal controls are crucial, as evidenced by the rules and regulations issued by the government or the Securities and Exchange Commission, because every firm encounters risk when conducting business, and internal controls can assist manage that risk. By having an effective and efficient internal control the company might mitigate or completely eliminate the risk and achieved what the company’s goals or objectives
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
- - I believe that the Machine Manufacturing Company's Internal Control, as well as the key personnels, is the biggest failure, because it appears that there is no internal control within the company, and according to the report, the personnel or key personnels are new in the job and in the company, which means that they may not have that much experience because there are errors in the accounting procedure, which is the biggest failure for me, Because, in order to have an effective internal control, key managers or staff must be aware of the company's regulations and policies and ensure that everything is carried out in accordance with them in order to accomplish the company's goals and objectives. Just controlling the cash flow and documentation related to the cash failed, since I believe the people who should be overseeing whether the control activities are being conducted lack the necessary experience and understanding. Also, I believe they did not interact with internal and external workers, as well as external elements such as the bank, because they do not have bank reconciliation. In addition, due to the company's weak internal control, every account has a negative result or effect. So, in conclusion, I believe the company's largest weakness is internal control and key individuals.
Salutim, Hershey Mae D 2019-106961
Part 1/1
ReplyDelete1. Every organization exists to pursue specific goals and objectives, but it is undeniable that as the business landscape advances, there will always be a variety of potential risks that could derail those objectives. Indeed, in today’s business environment, the proliferation of vulnerabilities, risks, stakeholders, and activities has demanded the implementation of a competent and effective internal control system. It improves the accuracy of both internal and external reporting, maintains the operation’s efficiency and effectiveness, and ensures compliance with legal and administrative regulations. Of course, different firms confront kinds of risks, but it’s important to emphasize that when internal control systems are weak or ineffective, the risks of fraud, asset misappropriation, and employee or workplace misconduct are more likely to transpire. That is why it is critical for the firm to be able to implement a reliable internal control system, as it will not only execute its functions but will also reflect the organization’s good reputation and commitment to good governance and accountability. However, we must keep in mind that while compliance with a well-designed internal control system does not guarantee the complete elimination of risk of loss, it does significantly lower risk and improve the organization’s chances of fulfilling its objectives. To further give emphasis, Franklin (2018) noted that an adequate and efficient internal control system is interlinked to all areas of the entity’s operations. It serves as a bridge between an organization’s accounting, finance, operations, human resources, marketing, and sales departments. The relevance of internal controls and its role in preventing losses, assessing performance, and planning for the future must be recognized by the organization’s personnel. To summarize, it is evident that an effective internal control system is critical to a company’s success.
SABANGAN, REMELYN T.
2019-101964
Part 2
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
- - My suggestion is to hire workers or key staff who are qualified to do the job, such as knowing the company's correct accounting procedures and regulations. The company should also establish a proper list of control activities and orient its employees so that they know what to do and what not to do. The recommendation that should have been emphasized, in my opinion, is the cash accounts and generalization because there have been a lot of failure results regarding the cash accounts, which I believe is really causing the problem because of mismanagement of the company's cash assets. Also, the general recommendation should be emphasized because it may help the company more, and if it is not emphasized, the recommendation may just be looked upon or ignored it since the staff are not so good, the danger is that the firm will still be in a major problem because they may still do things incorrectly and the company will still be in a huge crisis if the risk is not identified or assessed.
Audit Board. (2021). Auditong with COSO, COBIT, and ISO Control Frameworks. Retrieved 9, 2021. https://www.auditboard.com/blog/auditing-control-frameworks-COBIT-COSO-ISO/
AICPA Committees.(1950). American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case studies in internal control”. Retrieved November 9, 2021. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Salutim, Hershey Mae D (2019-107961)
Part 2/3
ReplyDelete2. The Machine Manufacturing Company is a firm incorporated under the laws of the State of Delaware which has its corporate concentration in the manufacturing and sale of heavy, special purpose machines, as well as parts and accessories. In the case study, Machine Manufacturing Company had a weak internal control which resulted from inefficient and unsustainable business operations. The American Institute of Certified Public Accountants conducted an examination of the firm’s policies and procedures, and discovered that all of the system’s defects originated from the company’s poor management of its resources, particularly cash. Cash, as we all know, is considered as the lifeblood of a business. With that being said, a company must generate enough cash from its operations to cover its expenses while also having enough left over to repay investors, offer a buffer against future financial troubles, and, eventually, grow the company. Furthermore, according to Accounting Guide (n.d.), cash is an inherently risky asset that can be misused without proper authorization, and the improper account or time of record can be omitted when dealing with cash. To exemplify, Machine Manufacturing Company had an exorbitant amount of failures in terms of the resource management of especially in cash, in which it failed to segregate the function of both cash receipt and disbursement. This led to enormous discrepancies in financial statements, and of course, have caused erratic and inept financial analysis.
To summarize, the failure of the company was caused by the lack of an organizational chart or manual of operating procedures, which resulted in an obscure chain of command and responsibility, duplication of effort, insufficient procedures, and poor internal control. Furthermore, it was mentioned that the company has an insufficient volume of office personnel, which has exacerbated the company’s performance. Nonetheless, the organization was able to identify its flaws and key areas for improvement as a result of this assessment. Internal control would then be re-calibrated by enforcing new practices, rules, and organizational structures. I would highly recommend to hire sufficient volume of employees, so the work output would not be compromised and strengthen their policies especially with regards to segregation of disbursements and receipts. Finally, this would increase their effective supervision in order to develop a business’s efficient and effective internal control system.
SABANGAN, REMELYN T.
2019-101964
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ReplyDelete1. How can an Internal Control (C) help achieve the overall objectives and strategies of an organization?
- Internal Controls are systems used by an organization to manage risk and diminish the occurrence of fraud, consisting of the control environment, the accounting system, and control activities. It helps organization achieve its overall objectives and strategies beacuse it is designed to minimize the possible risk it might encounter and handle it properly. It keeps the assets of a company safe and the company from violating any laws, while fairly recording the financial activity of the company in the accounting records. Proper accounting records are used to create the financial statements that the owners use to evaluate the operations of a company, including all company and employee activities. Having accurate and reliable financial accounting data, and efficient business operations contribute to the success of every organization.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their internal Control that should have prevented risks.
- The Machine Manufacturing Company is engaged in the manufacture and sale of a heavy, special purpose machine together with parts and accessories. I believe that the biggest failure of the internal control of the business is related to the purchases and expenses which weakened its internal control resulted from failure to use only prenumbered purchase order forms. These order forms serve as an authorization to pay for merchandise and should be checked against the accounting records. In the case study, they presented AICPA Committee recommend to eliminate unnumbered purchase orders and one standard type of prenumbered receiver should be used on all items received by the company. On the other hand, to prevent the risks related to the purchase, I recommend that MMC and other companies, to accomplish proper internal control, personnel must be periodically checking the source documents of business transactions with its accounting records to ensure completeness. It may contain authorizations to purchase a few residual items that were never received, or may relate to entire orders that were never received. In either case, some investigation may reveal that these orders are no longer needed, so they can be cancelled. In line with this, companies must prenumber all the purchase orders, lock them up, and track the numbers to ensure that none of the orders are missing.
-Dela Cruz, Joyce Ann N. (2019-105673)
Part 3/3
ReplyDelete3. The case study already presented a comprehensive set of recommendations for necessary adjustments to the accounting procedures and internal control system due to significant internal control failures. In my perspective, there is a need to hire a sufficient workforce so that management could properly assign enough tasks to each, ensuring that the output is not compromised. I am certain that employee performance is crucial to the company’s overall success, as it can never reach its full potential if employee productivity is undervalued. Hence, it’s critical to have a effective segregation of duties and responsibilities. Another is the implementation of strict financial record-keeping policies, particularly with regards to cash disbursement and receipts. Keeping the accounts up to date and accurate is the best approach for a company’s financial health because it allows the company to manage its cash flow effectively. The company will continue to receive unsatisfactory outcomes as a result of its failure to establish excellent and proper internal control policies if the following recommendations are not followed.
REFERENCES:
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. CRC Press Taylor & Francis Group.
Franklin, M. (2018, July 24). Define and Explain Internal Controls and Their Purpose within an Organization – Principles of Accounting, Volume 1: Financial Accounting. Pressbooks. Retrieved November 8, 2021, from https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
American Institute of Certified Public Accountants, Committee on Auditing Procedure. (1950). Machine manufacturing company; Case studies in internal control. https://egrove.olemiss.edu/aicpa_comm/104
Accounting Guide. (n.d.). Audit Cash. Accessed November 9, 2021 from https://accountinguide.com/audit-cash/
SABANGAN, REMELYN T.
2019-101964
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
- Auditors presented many recommendations and solutions for the Machine Manufacturing Company to develop and enhance the overall operation of the business. I notice that in that lists, recommendation to have more workers or personnel who will manage each business operations are not present. With the limited number of office personnel, internal control in the company will never be entirely satisfactory and it was not considered practicable to segregate the accounting functions adequately. In order to do the recommendations properly, the company needs more office personnel to appoint. As they are the ones responsible on making sure that there are no pending activity of the company. They should have been more emphasized to make sure that management will appoint competent employees which can help the organization handle its operations effectively.
References:
BCcampus, (2021). Define and Explain Internal Controls and Their Purpose within an Organization. Accessed 10 November 2021. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
American Institute of Certified Public Accountants, (1950). Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control". AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Accounting Tools, (2019). Controls for purchase orders. Accessed 10 November 2021. https://www.accountingtools.com/podcast-blog/2019/7/7/controls-for-purchase-orders-5
-Dela Cruz, Joyce Ann N. (2019-105673)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are a set of interrelated activities that overlap with an organization's normal operating procedures to protect assets, minimize errors, and ensure that operations are performed in an approved manner. Another way to look at internal controls is that these actions are necessary to reduce the number and types of risks to which a company is exposed. Controls are also useful for consistently preparing reliable financial statements. (Accounting tools, 2021)
Audit board provide some reasons on why a company needs to have an internal control. To begin with (1) Achieve operational objectives, (2) Mitigates risk and improves process performance, (3) Improves accountability among business and process owners, (4) Stabilizes internal operations and business function, (5) Indicates stronger confidence in your financials, (6) reduces external audit fees and (7) Speeds up the certification process.
All organizations exist to achieve specific goals, but there are several hazards that might derail those goals. Internal control compliance is implemented to reduce risks and improve the organization's chances of meeting its goals.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The largest failure of the internal control of the machine manufacture company would probably its “failure to segregate the function of receiving cash. The organization is solely responsible to deploy the duties and responsibilities of their employees. Segregation of Duties is a basic internal control that guarantees that no one person has the power to carry out two or more sensitive transactions that might have an influence on financial statements. (safepaas n,d)
The disadvantages of not having segregated duties results to have poor internal controls, accounting fraud and misappropriation of company assets. My recommendation would probably be to have a proper segregation of duties and responsibilities because you are putting the firm at risk by not establishing division of roles. The company needs professionals who is capable of doing their job right and has the independence with regards with dealing with difficulties.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized
Out of all their recommendation, the recommendation that could have been emphasized more is the checking of Property, Plant, Equipment. As physical inventories play vital role in maintaining accurate and up-to-date inventory records. Up-to-date inventory data allow for more accurate sales and purchase forecasting, as well as ensuring that you always have the proper amount of stock on hand.
The risk that I can see or sense if these things may not be emphasized is that it can creates other consequences such as having a not detailed or accurate count of data and it can also cause a delay and disturbance. It can also affect the financial statement of the company. To sum it up physical inventory is one of the most important duty to do within the function of the company.
References:
Basu D. (nd) The Disadvantages of Not Having Segregated Duties Within the Accounting Department retrieved from https://smallbusiness.chron.com/disadvantages-not-having-segregated-duties-within-accounting-department-31026.html
Are you concerned about Segregation of Duties Risk? retrieved from https://www.safepaas.com/articles/are-you-concerned-about-segregation-of-duties-risk/
Internal Control Compliance: 7 Reasons to Maintain Your Program retrieved from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
HALINA,DANICA C.
2019-103671
CBET-01-503A
Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance (COSO 2013). The internal Control are process that help an organization in terms of that it will not eliminate risks, but it will reduce those risks. Also, if an organization lacks in internal control fraud, misuse of the organization’s assets, and employee corruption arises. In addition, Internal control safeguards a company's assets and prevents it from breaking any regulations, while accurately recording the company's financial activities in accounting records. Every company wants to achieve a specific goals and objective, but there are several hazards and risk that might prevent them to achieve those goals it can prevent them to become successful. That's why Internal control compliance is implemented to reduce risks and provide the business a greater chance of accomplishing its goals. Internal controls that are well-designed keep the business to run smoothly and effectively, and they can help in compliance issues.In conclusion, internal controls are intended to offer reasonable certainty about the fulfillment of operational goals such as operational effectiveness and efficiency, accurate and reliable financial reports, and compliance with applicable laws and regulations.
ReplyDeleteAs per my perspective and as what I have seen in the case study the biggest failure of the internal control of The Machine Manufacturing Company is the weakness and lack of internal control on the company’s cash items which resulted to failure to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts. Also, failure of the home office to receive statements of account and checks directly from the banks and to make branch bank reconciliations in the home office since cash is a liquid item in the financial statements, and it can affect most the transactions wherein they should properly account the cash items. As per my perspective I would recommend them to find a person who is truly capable of properly accounting the company’s financial items with an adequate experience in the field, in this step they are ensured that the company’s financial items are properly accounted and can reduce the risk of misuse and misstatement of financial items. In addition, if the company had the adequate internal control system they would effortlessly identify and mitigated risks that can affect the organization which can also help to lessen the problems of the company.
As per my perspective and as what I have read in the case study the recommendations such as operating procedure guides should have been developed, and that the presence of internal control should have been highlighted more. Because, as we all discovered after reading the case study, all of the accounts had not been properly documented and accounted for. That is why I believed that if operating procedure documents were not stressed, the same scenario, risk and hazards would arise. Similarly, having the adequate internal control, everything might have been avoided if things had been done correctly and financial items are properly accounted for.
References:
Internal Control Compliance: 7 Reasons to Maintain Your Program. (2018, April 17). Retrieved from Auditboard: https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Principles of Accounting, Volume 1: Financial Accounting
https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
RETONE, RENCE LOUIESE E. (2019-105248) CBET-01-503A
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are commonly known as the systems used by an organization to eliminate the risk and diminish the occurrence of fraud. Internal control created to develop and ensure the control environment, the accounting system, and procedures called control activities. Years ago, the Committee of Sponsoring Organizations (COSO), published a report regarding the COSO’s Internal Control-Integrated Framework. It is determined as necessary in an effective internal control system. Therefore, Internal Control (IC) helps achieve the overall objectives and strategies of an organization through the use of addressing some of the practical aspects of internal control systems. Internal control keeps the assets of a company safe and keeps the company from violating any laws, while fairly recording the financial activity of the company in the accounting records. Other than that, Internal Control assures that organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies are constantly met and achieved. Internal Control eliminates or reduces the possible risk that may threaten the organization's objectives and strategies to mitigate the risks to give the organization a better chance at achieving its objectives. It helps the organization objectives and strategies to assure that this would become effective and efficient. To sum it up. Internal Control ensures assets are properly used, ensures that the accounting system is functioning properly, monitors operations of the organization to ensure maximum efficiency and accuracy, promotes operational effectiveness and encourages adherence to policies, rules, regulations, and laws.
Mallari, Eugene S.
CBET 01-503A
2019-102848
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteFor me, the biggest failure of the internal control of the Machine Manufacturing Company that probably has a bigtime impact on an organization is the failure to provide and enforce standard procedures covering the sales, disposals or retirements of property, plant and equipment. To further discuss, standard procedures define as the one who creates patterns and scripts about the most varied activities of a company and procedure within the workplace. To do so, everyone involved in running the business should follow these guidelines.The main purpose of standardization is to ensure that all tasks and documents are handled in the same way, even if performed by different people and departments. This way, any employee can understand what was done, how, where and when. Therefore, failure to provide and enforce a standard procedure can create a massive downward towards reliability, and less consistent quality. Standard procedure is recognized as the backbone of your firm’s performance. It gives you a baseline to track and measure performance against, telling you whether you’re utilizing all available resources, and allowing you to maximize revenue. If this failure will exist especially it covers sales, disposals or retirements of property, plant and equipment. Surely the organization's performance will decrease and will produce less quality of output. For me, Plant ledgers and Standard Process should be Reviewed periodically and accurately and all disposals, sales and retirements of these assets should be promptly reported to the accounting department. Through this it will ensure that standard procedures are followed and updated. And all disposals are accurately reported incase of any risk. Other than that Reviewing periodically your standard procedure will put in place the structure for your team to execute high-quality work efficiently, and provide a scalable infrastructure for the future growth of your practice.
Mallari, Eugene S.
CBET 01-503A
2019-102848
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
ReplyDeleteTo all the recommendation provided by the auditor the recommendation should emphasized more is the reviews and inspection to plant ledgers such as plant ledgers reviewed periodically., Maintained for fully depreciated assets, Checked by occasional physical inventories of the assets and All disposals, sales and retirements of these assets should be promptly reported to the accounting department. Because as for me this has the most significant roles and has a big effect on the operation and sales of the organization. Any miscalculation on inventories, less maintenance in depreciated assets, and others. Can produce a threat and probably can demote the productivity within the organization. Standard procedures in use of power plants and equipment and inventories should be accurate and periodically meet its objectives. In an organization any single information matters. The effectiveness and efficiency produced by plant ledgers should be maintained and should be checked from time to time. The possible risk that may arise if this recommendation didn't give emphasis is a massive downward trend towards reliability, less consistent quality, and arisement of fraud. Possibly, more ambiguity and one unavoidable consequence may arise. Sales will probably decrease because productivity, efficiency, effectiveness and accuracy are not properly maintained and reported. Especially that plant ledger plays an important role in the prevention of fraud and falsehood.
References:
COSO (2013) Guidance In Internal Control Retrieved from: https://www.coso.org/pages/ic.aspx
Nick Sorenson (2021) Internal Control Framework Retrieved From:https://pathlock.com/learn/internal-control-framework-a-practical-guide-to-the-coso-framework/
BC Campus (n.d.) Retrieved From: https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
Protiviti KnowledgeLeader(2020) Retrieved From
https://www.google.com/amp/s/info.knowledgeleader.com/bid/161685/what-are-the-five-components-of-the-coso-framework%3fhs_amp=true
Mallari, Eugene S.
CBET 01-503A
2019-102848
(1/2)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control is very crucial to an organization. It is something that can determine whether the organization’s objective can be achieved. Internal control is an action designed to help the organization to operate effectively, improve the reliability of the organization's financial reporting, and comply with applicable laws and regulations. It also supports the organization in several ways, empowers them by providing them a reasonable assurance regarding risk, and assists in the achievement of objectives.
An organization that has weak, improper, or no internal controls at all can experience many problems that may lead to its destruction. They may encounter a lot of risks that can hinder their operation, lack of credibility and reliability of their financial reports that can cause fraudulent results, and non-compliance with laws and regulations that can lead to penalties or legal actions. Internal control is not just what you think it is, its content is deep because it needs an extensive study and assessment to find the best internal controls for a specific organization. So, a well designed and best internal control and strategies not only can help the organization to achieve its overall objectives, but it can also mitigate risk, make the operation run effectively, improve the accountability and reliability to their stakeholders, stabilize its foundation, reduce excessive fees, and cut off some time-consuming processes.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company is the best example of an organization that has weak and improper internal control. The audited report says it all. The failures are not only on the smallest part of the operation but also in the most important part which is the operating procedure. As we can see, they encounter a lot of problems because of the poor internal control that leads to confusion. And the biggest problem and failure of all is the non-segregation of accounts. The reliability of accounts is very important to create credible reports for the business. I suggest that those who are responsible for tracking and keeping transactions should know how to be organized transactions, especially if it's related to the cash flow of the business. If their records are arranged and organized in the right manner then they can always make a proper report or they can easily trace every transaction. I also suggest that the head management should also check the reports as frequently as possible to ensure that there’s no discrepancy in the reports. But if possible he should guide or train the assigned personnel properly.
Janine Louise S. Errua
2019-103959
ReplyDelete(2/2)
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
Out of all recommendations given by the auditor, the recommendation for cash management should be emphasized more. As we all know, the lifeblood of the business is cash. So, cash should be organized and handled carefully and accurately. Cash flow also determines the overall status of the business and it is the basis of the stakeholders on whether the business has good operational, financial, and investing activities or not. So, if cash management is lacking and confusing, it can affect the overall operation of the business. The suppliers will be hesitant, the employees will be unproductive, the customers will be reluctant in supporting the business and the investor will be uncertain with their investment, as well the creditors. Also, unreliable reports may be subject to integrity risk and non-compliance of the business.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Audit Board (April 17, 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved November 11, 2021, from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Janine Louise S. Errua
2019-103959
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are one of the most important aspects of any organization. Internal controls are implemented to help company achieve its objectives and tasks. The management is responsible for designing, implementing, and maintaining all internal controls, while the Board is in charge of total supervision and control of the environment. Organizations can achieve three major goals by implementing strong internal controls. These three goals are as follows: accurate and reliable financial reporting, adherence to laws and regulations, and the performance and productivity of the organization's operations.
The use of internal controls is critical to the success of any organization. Internal controls, when implemented by management, enable businesses to achieve three goals:
• The report of the financial statements should be accurate
• All rules and regulations must be followed.
• Capabilities for efficient organizational operation
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
On the first part of this case study, it said that internal control should be implemented in the organization so that the assets of the company is safe and it enables the auditor in finding the accurate and reliable information. Based on this case study about the Machine Manufacturing Company is that the organization does not have a proper internal control. There are various effects of the poor internal control like failure to deposits all the receipts as soon as possible, inability to maintain a full record, and etc. This cannot happen if there are people who knows how to manage the financial information of the company so the company must have a person who knows how the cycle of doing a business. The staffs must also have a regular meeting regarding their inflow and outflow of their assets so that it can lessen the burden to the company. It should have a proper organizational chart and operational guidelines so that the employees will have a better understanding regarding their mission, vision, and objectives.
Drice, Arielle Jean G. (2019-105710) 1/2
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
DeleteOut of all the recommendations provided by the auditor, as per the case study I believe that it should have been more emphasized in the; all duplicate deposit slips should be stamped by the banks. Duplicate deposit slips with stamped of the bank is one of the important paper in the organization so that they are complacent that the cash are on the company’s account. People can be deceitful, so it’s better like that than to be sorry.
References:
Girsch-Bock, M. (2021, August 6). The importance of internal controls. CPA Practice Advisor. Retrieved November 10, 2021, from https://www.cpapracticeadvisor.com/accounting-audit/article/21232325/the-importance-of-internal-controls
Key components of internal controls. (2020, October 23). Cerini & Associates, LLP Blogs. Retrieved November 10, 2021, from https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Drice, Arielle Jean G. (2019-105710) 2/2
1. A company establishes internal controls to prevent errors, detect frauds, identify risks and ensure that corrective action is taken. Internal controls are tailored to the size and structure of each organization. It not only addresses the company's risks, but they also cut down on excessive costs and effort. Internal controls provide cohesion and consistency to establish order and protocol within a business. Management creates protocols and sets boundaries for how the method is carried out, and they check controls for efficacy and efficiency on a regular basis. Continuous monitoring of a process's efficacy as it is implemented aids management in determining if the process is working or if it requires further attention. Internal controls that are ineffective or excessive decrease productivity, increase the complexity of processing transactions, lengthen transaction processing times, and provide no value to the activities. A well-defined internal control procedure explains how the organization handles financial transactions as well as the accountability and competence of administrative and management responsibilities. Internal controls that are effective and efficient help the organization achieve its goals and protect its interests.
ReplyDelete2. The biggest failure of the internal control of The Machine Manufacturing Company as stated in the case study is the poor internal control arising from lack of an organization chart and manual of operating procedures resulting in confused lines of authority and responsibility, duplication of effort, inadequate procedures, and poor internal control. To improve the Machine Manufacturing Company's internal control by developing a detailed organizational chart for all employees and key people in charge of processes in all areas of the company. Roles and responsibilities can then be efficiently divided and carried out by the appropriate persons. Employees who are not only qualified for the job but also inspired to actively work toward your company's vision are critical to the organization's operational stability. Businesses must be able to trust that every employee will act in the best interests of the company. With the reasonable number of people, work performance is determined by the right person for the right task.
3. The case study offered a number of recommendations for the organization to improve its internal control. The outline for the organizational chart should have been emphasized and manual of operating procedures. It was also expressed that with the limited number of personnel, internal control in the company would never be completely satisfactory and adequate separation of accounting responsibilities was not believed feasible. Conflict can arise in an organization with a poor structure leads to a befuddling tangle of inconsistencies: role confusion, a lack of coordination among functions, a failure to exchange ideas, and sluggish decision-making add unnecessary complexity, stress, and conflict to operational activities.
References
American Institute of Public Accountants. Committee on Auditing Procedure,“Machine Manufacturing Company; Case Study in Internal Control” (1950).AICPA Committees.104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
PABLO, MA. ROWENA
2019-106997
1/1
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
- Every company has its own objectives and goals they want to achieve, but there are some risks that hinder the success of the organization. If these risks aren’t determined in the course of the business, it will lead to failure. That is when internal control comes in the picture. Internal control will help mitigate the risk and are being implemented in order to improve business results. Internal controls are procedures put in place to provide value to stakeholders while reducing risk, so frameworks make it easier to manage these diverging dynamics and analyze the outcomes more systematically (Murdock, 2017). Internal control is an important part of a company’s governance system and ability to manage risk, and it is essential to achieving an organization’s goals and establishing, increasing and safeguarding stakeholder value (IFAC, 2012). The internal control ensures the achievement of operational objectives by assisting in the mitigation of risks that could threaten the objectives of the company.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
- It seems to me that the biggest failure of the internal control of the Machine Manufacturing Company is the internal control itself. The internal control is lacking, they don’t have enough employees that will focus and work on in their internal control, and as a result of that there is a failure in their system of internal control. The auditor points out plenty of weaknesses in the system of their internal control such as poor internal control in cash, notes and accounts receivable as well as customer’s deposits, inventories, securities, property, plant and equipment, accounts payable capital stock and dividends, sales, purchases and expenses, and finally the payroll. The company failed to maintain and record some transactions. They fail to segregate the functions of cash from other accounts, to deposit receipts, to disburse cash from other accounts and many more. I would suggest that they should hire and appoint an internal control auditor that will focus and work on the things that are mentioned.
-BOADO, Loven B. (2019-105729)
CBET - 01 - 501A
2/2
Delete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
- The auditor wrote a lot of recommendation to address the problems of the internal control of the Machine Manufacturing Company. I notice that in the recommendation wherein all bank account reconciliations should be prepared by an employee other than the chief accountant. It should be made by somebody else who are not involved in any other since it is an important internal control tool to find out if there is an unusual transaction that might cause fraud or accounting errors. Therefore, having an independent and knowledgeable in that field will ensure that the organization is in good stand. Furthermore, they should have been emphasized more on the part wherein the organization chart is mentioned. They should have a detailed organization chart to know who the employees are and what their functions in the organization are. The organization needs a competent and skilled employee to work effectively and efficiently on the different department of a company. In conclusion, I believe that failure to do so will lead to problems and failures that will lead to the destruction of the company or worse it will lead to bankruptcy.
References:
Murdock, H. (2017). Operational Auditing: Principles and Techniques for a Changing World. CRC Press Taylor & Francis Group. p 101
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104.
IFAC. (2012, June). Evaluating and Improving Internal Control in Organizations. International Federation of Accountant. ISBN: 978-1-60815-3 pp. 4
-BOADO, Loven B. (2019-105729)
CBET - 01 - 501A
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are defined by Investopedia as mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. In line with the definition given by Investopedia, internal controls also refer to practices with regard to operations that are put into place to create value for stakeholders and minimize risks that the organization may face. These are affected by key personnel of an organization consisting of the management, board of trustees, and other relevant persons wherein they aim the very essence of implementing internal controls which to ensure that the overall performance is as effective and efficient as possible relating to operations, reporting, and compliance.
Implementing internal controls will surely help an organization to achieve its overall objectives as well as its strategies since it has three major types that will deal with the whole operation namely detective, corrective, and preventive internal controls. These internal controls are responsible for determining the loopholes that occurred, ensuring the issues and irregularities are corrected, and also making sure that errors and irregularities are avoided in the first place. If internal controls are followed and executed properly, the organization will then improve its performance, improve accountability at different levels, stabilize business functions, enhance confidence, and many related benefits that the organization may experience. Hence, the application of internal controls is connected with the performance of the organization. With all being taken into consideration, we can say that internal controls are very crucial in which an organization cannot succeed without these as they assist or guide the relevant personnel to attain the highest possible effectiveness and efficiency that will lead to achieving the key objectives.
Chavez, Catherine H
2019-101209
CBET-01-502A
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
DeleteIn the report of the committee on auditing, internal control was described as “the plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.” Based on the case study provided in which it addresses what happened to the management of accounts of Machine Manufacturing Company, it shows the principal weaknesses in the system of internal controls that are presented through a checklist. The checklist shows the poor management of cash, notes, and accounts receivable and customers’ deposits, inventories, securities, property, plant, and equipment, accounts payable, capital stock as well as the dividends, purchases and expenses, and payroll. The common failures of the accounts stated are lack of records, invoices, checks, and receipts therefore, I think their biggest failure in relation to their internal controls is not properly dividing the responsibilities of handling different accounts and not maintaining records.
In my opinion, the best way to improve the overall internal control, considering the data provided in the case study, would be the proper maintenance of record of every transaction for proper documentation that will also serve as primary evidence in reference to the company’s financial statements. The company should also separate the responsibilities of different transactions to ensure that accuracy when reconciliation is taken into place. With these, I think the company will achieve its effective internal control and drive them to better performance.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
As stated earlier, internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability and prevent fraud. The case study shows the various failure internal controls of accounts in the financial statements and of all the recommendations provided by the auditors, taking all the facts into account, the company should focus more on maintaining proper records of all the transactions because if it is not emphasized among internal controls, proper documentation won’t be achieved, which is a crucial part in accounting as it affects the integrity and accuracy of financial statements.
References:
AICPA Committees
Machine manufacturing company; Case studies in internal control. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Impoff
(2021). Importance of internal control and objectives & limitation. https://impoff.com/importance-of-internal-control/
Murdock, H.
(2017). Operational auditing: principles and techniques for a changing world. https://e-rtu.edu.ph/pluginfile.php/286094/mod_resource/content/1/Operational%20Auditing%20The%20Principles%20%20Techniques%20for%20a%20Changing%20World.pdf
Chavez, Catherine H
2019-101209
CBET-01-502A
(1) How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteAn Internal Control (IC) help achieve the overall objectives and strategies of an organization because: (1) it ensures assets are properly used, (2) it ensures that the accounting system is functioning properly, (3) it monitors operations of the organization to ensures maximum efficiency, (4) it ensures that assets are kept secure, and (5) it ensures that employees are in compliance with corporate policies. Internal controls are the systems used by an organization to manage risk and diminish the occurrence of fraud, (BCcampus Open Publishing, n.d.).
(2) Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of The Machine Manufacturing Company is that the company has “practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches.” (American Institute of Certified Public Accountants [AICPA], 1950).
This failure happened because of the lack of personnel which led to weak internal control. My recommendation to improve their Internal Control that should have prevented risks is first make the company properly manned. It is necessary to cover all the business operations for the company to function well. Hire additional employees to cover the maintenance of records in the branches, other than the branch managers.
(3) Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
The recommendations as per the case study made by the auditor was impressive. It gives specific guidelines to reduce risks present in the Machine Manufacturing Company, although there is one weakness included in the checklist which is under the securities that the auditor failed to give recommendations. All the weaknesses in the internal control were properly recommended and was emphasized by the auditor, so I want to emphasize more of the securities stated under weaknesses. AICPA (1950) already said that “Failure to maintain a record showing complete descriptions of securities had a weakening effect on the otherwise good internal control” so the company should maintain records of complete description of securities. If not, an issue arise regarding who is the real and beneficial owner, how many number of shares each client has, and the locations of all securities held by the firm.
REFERENCES
American Institute of Certified Public Accountants. (1950). Machine manufacturing company; Case studies in internal control. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
BCcampus Open Publishing. (n.d.). Define and Explain Internal Controls and Their Purpose. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
-GILLEGO, JORLIE B. (2019-100665)
This comment has been removed by the author.
ReplyDelete
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal controls are the structure, policies, and procedures put in place to provide reasonable assurance that management meets its objectives and fulfill its responsibilities. It also serves as a tool that help managers be effective and efficient while avoiding serious problems such as overspending, operational failures, and violations of law. IC helps to ensure that we are doing the right job in the right way to achieve effective, efficient operations in the work place. Its function is to minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. Implementing good internal control will help to reduce the vulnerability of an organization and not to eliminate the risk totally. It also guide the entity to achieve its overall objectives through their own process which is the information stated above.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of The Machine Manufacturing Company regarding their internal control is basically, the internal control of their accounting process and procedures. One mistake will affect the entity's efficiency and effectivity as well as their reliability. As per the case study, their poor internal control resulted to misstating their assets and liabilities which can lead to fraud and bankruptcy. The company failed to record a lot of important financial issues and process which can affect their financial reporting wherein their stockholders or shareholders might depends when making or doing a decisions. Specifically, cash since the auditor determined a lot of failures on this section among others. I recommend them to establish a procedures that maintain the cash receipts and cash disbursement so that they will able to mitigate some of the financial risks which includes fraud, theft and inaccurate payments.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Among all of the recommendations made by the auditor in the case study, is the General section because it consist of the overall failures and recommendations of the auditor to the organization. If this section have not emphasized the entity might not improve or develop their internal control and accounting procedures as well as to correcting the situation. Since they lack of office personnel the company cannot achieve its overall objectives and low possibility of having good internal control .
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Auditnet (n.d.) What are Internal Controls? Retrieved (2021, November) from
https://www.auditnet.org/audit-library/auditnet-internal-controls-primer
Mondia, Divine Grace A
2019-105175
(1/2)
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control is an interlocking set of activities that are layered onto the normal operating procedures of an organization, with the intent of safeguarding assets, minimizing errors, and ensuring that operations are conducted in an approved manner (Accountingtools, 2021)
Internal controls are put in place to enable organizations to achieve their goals and missions. They secure a company's assets and prevent the company from breaking any laws, all while accurately recording the company's financial activity in accounting records. A Proper accounting records are used to create the financial statements that the owners use to evaluate a company's operations, which include all company and employee activities. Internal controls include more than just reviewing how items are recorded in the company's accounting records; they also include comparing the accounting records to actual operations.
2. Identify the biggest failure of the Internal Control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's checklist that was provided in the case study clearly showed the weaknesses in its Internal Controls. However, out of all the failures that was being presented I noticed the biggest mistake they made was on the Cash section. Since cash is the most liquid of all assets, a business cannot survive and prosper if it does not have adequate control over its cash. It is the asset that has the greatest chance of going missing and this is why we must ensure that we have strong internal controls build around the cash process. The Machine Manufacturing Company failed to segregate the function of receiving cash from sales invoices and customer statements, customer ledgers, bank reconciliation, cash disbursement. They also failed to deposit all receipts with of minimum delay, failure to maintain proper control over blank and voided checks and a lot more. All of these damages and failures are the result of a poor internal control.
To further prevent failures The Machine Manufacturing Company should establish a procedures that maintain control over cash receipts and cash disbursements, the organization will be able to mitigate many of the financial risks associated with running a business, including inaccurate payments, theft, and fraud. Internal cash control systems can include your organization’s governance, all company policies, and segregation of duties within your company.
MONTILLANA, HANNAH SOPHIA G.
(2019-105628)
(2/2)
ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Out of all the recommendations that was provided by the auditor of The Machine Manufacturing Company, I believe that they should emphasize the documentations of every transaction for referral and evidences. Document control is very vital in assuring all transactions are recorded. The use of pre-numbered forms where appropriate, can assist as a control. All forms, including voided forms, must be accounted for. A lot of damage may happen if mistakes were committed from the very start of the business operation. So an organization must have a system of internal controls that recognize four major areas of risks which are; valid documents may be lost and not recorded, or substitute documents may be entered into the records; transactions may be inaccurately recorded; assets may not be safeguarded and lastly lack of compliance with established policies and procedures, laws, rules and regulations
References:
Accounting Tool (2021, April 15) Definition of Internal Controls. Retrieved on November 10, 2021
https://www.accountingtools.com/articles/internal-control.html
Garcia, T. (2021, January 11). What are Internal Control for Cash. Retrieved on November 10, 2021
https://reciprocity.com/resources/what-are-internal-controls-for-cash/
MONTILLANA, HANNAH SOPHIA G.
(2019-105628)
One's mind is the hidden weapon for threats and one cannot protect himself without using his hands and toes. It's as simply as you cannot do a thing without exerting an effort. Objectives will be nothing if there's no risk of trying.
ReplyDeleteControl is a word with a meaning of able to move something, and that something can be a part of your body, or a body of an entity. Let's say for example, the marketing department. If you weren't able to control them then how are you going to obtain a profit? Well, internal control is also a strategy of achieving an entity's goal. From the word internal, we can say, it comes from the top management down to the bottom. This is a process designed to provide reasonable assurance of the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, compliance with applicable laws and regulations (Garcia, 2020).
With internal control, it is a framework that provides pillar to the initial decision and performance of an entity. This makes the objectives clearer, organized, and in-detailed. More importantly, internal control has increased its measures to failure control when it comes to entities who have been using machines to increase their workforce. Always bear in mind that a failure of one machine may lead to huge resources waste at scale (Westrom, 2021).
I think the biggest failure of the internal control to machine manufacturing companies are the competency of the assigned workers and the capability of an entity as well. You may encounter in a machine manufacturing company a worker who knows how to assemble but he doesn't know to use the machine in the production or when he was considered as a maintenance but doesn't know how to properly do a dry check-up. Given the example of electronic wallet nowadays, you may encounter that they frequently fixed their website because they were cleaning the transactions happened from the past. If you may ask, it's because some machines have limited capability and should not exceed the maximum memory they could accommodate. With this daily maintenance, operator may have mistakenly break something or the system may shut down because of sudden changes. What I would like to recommend is that an entity must invest more to machines with good value or when the business already collected a good percentage of customers then they may level up the machine in use. Also, some businesses often become dependent on the use of an old machines, the thing is, it must be used less than its economic life.
Of all the recommendations provided by the author, I would go for trainings for operators. Entity's must test both the intelligence and manual dexterity of an applicant (Gentles, 1971). The entity should pick the most competent and suitable for the job. It is for the means of practicality and efficiency. Measuring the capability of your future employee would mean a lot to the success of production. Imagine having a machine operator who has no knowledge on how to handle machines, then that would be a mess and a big loss to the company. An employee is an asset, they should possess a weapon of knowledge and experience to prevent or lessen the failures in the production.
Garcia, T. (2020). What is an Internal Control Framework?
https://reciprocity.com/resources/what-is-an-internal-control-framework/
Westrom, D. (2021). Top Causes of Machine Failure and How to Prevent them.
https://www.machinemetrics.com/blog/machine-failure
Gentles, E. M. (1971). Training Operator: A practical Guide.
https://files.eric.ed.gov/fulltext/ED052432.pdf
AGULLO, JAMAICA MAE A.
2019-105485
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ReplyDeleteHow can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
The success of the business lies with its management. If the employees are working together, goals will be achieved promptly. Internal operations defines the strengths and weaknesses of the organization. Thus, before creating solutions to externalities, it is a good practice to solve first the internal disputes and issues and convert those weaknesses into strengths.
Moreover, the main purpose why business ventures existed is because they have to accomplish certain objectives, but of the presence of some risks and uncertainties, it may restrict them from achieving those goals. That is why it is crucial to have a well-designed internal control because it will surely minimize the risks, keep the organization operating efficiently, and help uphold compliance with the rules and regulations set by the law and other regulating bodies.
According to Auditboard, "Internal controls are processes designed to help safeguard an organization and minimize risk to its objectives. It mitigates risks and protect assets, ensure accuracy of records, promotes operational efficiency, and encourage adherence to policies, rules, regulations, and laws".
Furthermore, entities tend to create processes and procedures for effective and efficient operation. However, these procedures will not become useful if there is poor internal control. Hence, to create good internal control they have to be mindful of critical areas of the business and make techniques on how to govern those areas so that accomplishing objectives are within the time frame set by the owners.
Identify the biggest failure of the internal control of the machine manufacturing company and what will be your recommendation to improve their internal control should have prevented risks.
Upon reading the Machine manufacturing company; case studies in internal control, I have noticed that the problems being experienced relate mainly to the financial side of the company.
They do not have an established system where they could examine the receipts and disbursements of the funds. They lack control over undeposited receipts, blank and voided checks. There is no proper management of the checks that is why they cannot identify whether such checks were really received or deposited.
Thus, In my opinion, the machine manufacturing company should hire a competent person that could delegate tasks effectively so that his/her subordinates have someone to look up to. He/she will be authorized to implement such duties that are beneficial for the success of the business. In this way, the responsibilities will be assigned and no employees will be left idle. Hence, communication is an important factor for the faster dissemination of information.
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ReplyDeleteInternal controls are like chains that prevent the firm from falling on its own. Internal Controls assists in accomplishing the goals of the firm by strengthening the firm’s defenses and complying with legal and ethical regulations. Additionally, the Internal Control serves as a foundation and helps the organization in preparing more on unforeseen risks especially if their system is very effective. Not only that, as internal controls affect the decision-making and most of the operational procedures (BCampus, n.d.), which is a day-to-day basis, not having appropriate standards may have the company lose opportunities and instead, incur more risks.
In the case of the Machine Manufacturing Company, an effective internal control influences the accounting system of the firm on which the audit program depends upon. The biggest failure of The Machine Manufacturing Company is the lack of an organization chart and manual of operating procedures as these covers all of their deficiency. Due to the both aforementioned in the preceding sentence, there has been confusion in authority lines, effort duplication, insufficient processes, and awful internal control. Their accounting system is disorganized and I think they incurred a huge loss due to the absence of cross-checking.
As reported during their time of examination, there is no available organization chart which is a must in all companies and is only made upon the examiner’s request. Apart from the fact that the firm was filled with new employees, the absence of an operating procedures manual would give a hard time to the new employees in work familiarity (such as standards and regulations). Additionally, they may have been more confused about where they should report as the authority lines were not clear. Worse, as the branch manager was also the ones supervising the records, it would have been easy for them to manipulate it.
If I may recommend, identifying and updating the organizational structure frequently would have helped track the work performed by each employee and where to communicate suitably. Aside from that, if you would notice on the organizational chart, the branch managers are on the same par with the vice presidents and the comptroller, and the engineering department. I think that the branch managers should have their supervisor.
DUEÑAS, ALYSSA MAE B. (2019-102691)
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ReplyDeleteFurthermore, I suggest that they should do more research on what framework to adapt so that the firm would not have a hard time finding and adjusting to a system that would best suit the company. I think they lacked knowledge in the work process based on a large number of failures in internal controls. Should they have the awareness of the proper account management, they would have been organized. If COSO existed back in 1950, I would have gladly endorsed that they follow it as it specialized in corporate governance and financial reports.
Among the recommendations provided in the case of Machine Manufacturing Company, the recommendation that should have been emphasized more is the general section that includes the organizational chart and operating procedures manual. I believe that correcting this first would lead to a more systematic setup and it would be easier to rectify the more specific ones like the one with the broad scope that has been corrected. If this has not been emphasized it may result in (1) the employees would again have confusion as to where they would report; (2) fraudulent acts may be tolerated; (3) disorganized system that would lead to financial losses; and (4) company closure for failing in responsible management once more.
In conclusion, Internal Controls are vital to an organization to prevent self-destruction and wasting finances on what would have been an uncomplicated procedure. Besides, adopting an Internal Control Framework is a useful support to the management in directing the activities towards the goals and objectives of the firm.
References:
American Institute of Certified Public Accountants, Committee on Auditing Procedure (1950). Machine manufacturing company; Case studies in internal control [eBook edition]. University of Mississippi eGrove. Retrieved from: https://egrove.olemiss.edu/aicpa_comm/104
BCampus (n.d.). 45 Define and Explain Internal Controls and Their Purpose within an Organization. Pressbooks. Retrieved November 10, 2021 from: https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
DUEÑAS, ALYSSA MAE B. (2019-102691)
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ReplyDeleteOf all the recommendations provided by the auditors, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
There are numerous recommendations presented by the auditors and of all those suggestions I think the most important in general is the preparation of manuals operating procedures since they lack personnel. In this way, newly hired employees will have the access to learn about the procedures of the operation. Also, this manual will be the standard to be followed so that they will not lose track of achieving the goals of the organization. However, they should instill in their minds the confidentiality of such practices. Hence, it is better to make them sign a non-disclosure agreement to protect the company before actually providing them with the manuals. Aside from that, the proposals relating to the financial matters and fixed assets such as the cash; accounts receivable; and property, plant and equipment shall also be taken in consideration.
References:
Auditboard. (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved on November 10, 2021. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/#:~:text=Internal%20controls%20are%20processes%20designed,rules%2C%20regulations%2C%20and%20laws.
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. pp. 7-19.
Griarte, Lovely Rose B. (2019-105060)
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Each and every company needs to establish internal controls .It is because internal controls are put in place by a firm as a deterrent to wrongdoing and as a tool to safeguard the company's interests. Internal controls ensure that a company's financial data management adheres with federal and state rules and regulations. During internal or external audits, strong internal controls can increase operational efficiency and assure accurate financial reporting. Internal controls are usually created with the help of risk-based strategy to guarantee that your company concentrates on high-risk areas. Understanding hazards will guide you in determining whether or not adequate controls exist to avoid those risks. A risk assessment is an important first step that lays the foundation for establishing internal controls. One of the objectives of internal controls is to preserve the company's assets and, and thus, address financial statement allegations. It is also help to prevent financial statement errors and misstatements.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company's biggest internal control failure is its own poor implementation of internal control. The corporation made various mistakes in terms of their accounting system and procedures. It resulted for the company from failure to segregate the function of receiving cash, Failure to deposit all receipts with a minimum of delay, accompanied by the lack of control over undeposited receipts and many more. As a whole The absence of an organizational plan and a code of procedures. Operating processes resulted in muddled authority and responsibility lines, duplication of effort, insufficient procedures, and a lack of accountability. Internal control is lacking. In other words The Machine Manufacturing Company didn't pay attention or did not give importance on having a strong Internal controls
Rosete, Jun Roi S.
2019-106001
3. of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
DeleteAs I read about the case study of the Machine manufacturing company .In addition to what the auditor provided. I would like to give emphasis on the insufficient number of personnel in the company. It prevents businesses from completing tasks. The lack of productivity translates into a reduction in revenue and profit, which in some cases means the business can't stay operational. Also overworked employees will tend to suffer from high levels of stress.
Zhang, E. (2016, June 1). The Importance of Internal Controls in Accounting. Carrtegra, LLC. https://www.carrtegra.com/2016/06/importance-internal-controls-accounting/
Audit Board (April 2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved 11/10/2021. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Jun Roi Rosete
2019-106001
ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control helps to reduce risks and safeguard assets, as well as maintain record accuracy, increase operational efficiency, and promote compliance with company policies, rules, regulations, and laws (Audit Board, 2018). Through the help of internal control organizations could have a better control environment wherein all its key officers are aware of their roles and responsibilities and they are able to influence their employees with such integrity and high values. An organization with internal control would be aware of the risks bound to their overall operations and consequently be able to implement proper corrective action with regards to those risks. These corrective actions may be segregation of duties of the employees, establishing new procedures and company policies. Internal control enables employees and other officers of an organization to successfully carry out their responsibilities with clearer and fair dissemination of information and proper communication within the entity. Lastly, organizations that have internal control would be able to know the effect of their actions. Monitoring is important to an organization with internal control because through it, they would be aware of any improvement in the operations of the organization or does the implemented procedures and policies increase the overall profitability of the business and be compliance with the law.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The Machine Manufacturing Company’s biggest failure was that they have inexperience persons in the key positions of the company. We all know that the personnel’s competence plays a vital role in order to have an effective and efficient operations because they are the key officers which is a part of the organization’s control environment. The control environment, being the “tone at the top” of an internal control would mean that failure to have competent officers will result to an overall failure of an internal control.
My recommendation regarding this issue is that persons who will be placed in the key positions of an organization should undergo due process before attaining such positions, organizations should first assess their competence whether or not they can handle responsibilities assigned to them; this is to avoid the risks of any employee errors.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
Cash flow management should be emphasized because there are some expenses that are unanticipated and organization who lacks proper cash of cash will have trouble gathering funds because it is easier to borrow money when you have money. Other risk that comes with the failure of cash flow management is that organizations may find difficulty in hiring and retaining its employees.
Reference:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
ROGELIO, JAN LORRAINE M.
2019-105301
I. Internal Control to the overall objectives and strategies of an organization.
ReplyDeleteAccounting and auditing define internal control as a process for ensuring an organization’s goals and objectives in improved operational efficiency, reliable financial analysis, and compliance with legislation, regulatory requirements, and regulations. Internal controls are processes that are intended to help a company protect itself and mitigate risk to its objectives. Internal controls reduce threats and ensure assets by ensuring record accuracy, promoting operational efficiency, and encouraging compliance with policies, rules, legislation, and laws.
Every organization exists to achieve some goals, but there are numerous risks that can prevent those goals from being met. Internal control conformance is implemented to reduce risks and give the organization a greater chance of succeeding its goals. Management is in charge of their very own controls. Audit must be kept separate from the management system so that we can evaluate the restrictions objectively and without bias or conflicts. Internal control adherence is critical to achieving your organization's operational, systematic, adherence, and reporting goals.
I. Biggest failure of the internal control of The Machine Manufacturing Company
According to what I've read, the control in cash is the most serious flaw in the machine manufacturing company's internal control. They failed to separate the feature of accepting funds from those pertaining to sales invoices and client statements, client ledgers, and so on; they also performed poorly to deposit all receipts with as little delay as possible, accompanied by a loss of control over uncleared receipts. They also failed to keep proper control over empty and invalidated checks, as well as to conduct a thorough examination of checks returned with bank statements during bank reconciliation.
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SALVO, MARY ROSE E., 2019-102485
III. Risks you can see if the recommendations have not emphasized
DeleteThe audit report recommendations describe the course of action you hope management will take in response to your findings. Squirrel-like behavior can occur if you do not fully explain what you want. The internal audit function employs a follow-up process to assess the appropriateness, effectiveness, and timeliness of management's actions in response to noted comments and suggestions. Recommendations in audit reports highlight actions that, if implemented, are expected to improve institution performance. The proper and timely application of audit recommendations approved upon by management is critical to reaping the full benefits of an audit.
References:
Internal Control Compliance: 7 Reasons to Maintain Your Program. (2018, April 17). AuditBoard. Retrieved November 8, 2021, from https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Implementation of Audit Recommendations | Australian National Audit Office. (2015, October 22). Australian National Audit Office (ANAO). Retrieved November 9, 2021, from https://www.anao.gov.au/work/performance-audit/implementation-audit-recommendations
American Institute of Certified Public Accountants. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control" (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
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SALVO, MARY ROSE E., 2019-102485
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ReplyDeleteI am one of those who believe that, a chain is only as strong as its weakest link, the weakest element can always damage the organization as a whole. Therefore, an effective internal control must be able to performed or applied in all of the related components of an organization to help achieve its overall objective and strategies. Internal control are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. According to the definition itself, it is indeed helpful in maintaining and ensuring that the goal of the organization is and will always be obtained. Besides complying with laws and regulations and preventing employees from stealing assets or committing fraud, internal controls can also help improve operational efficiency by refining the accuracy and timeliness of financial reporting. By knowing these things, we can say that an effective internal control really helps in achieving the overall objectives and strategies of an organization in a way that it ensure the things or work that’s being done inside the organization are all towards the betterment and goodness of the business. It also keeps the processes, procedure and operation within the management as efficient and effective as possible. Without internal control, the opposite of having an integrity in financial and accounting information, accountability, preventing fraud, being efficient, accuracy and timeliness of financial reporting, and a lot more might eventually happen.
AJY B. PALAMO
2019-106334
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal Controls (IC) are processes or systems that are designed by organizations to mitigate and manage risks. It ensures the security and safety of the company’s assets, the accuracy of relevant information and documentations, efficiency of policies and procedures, the effectivity of operations and strategies, minimization and prevention of risks, and accomplishments of the organization’s goals and objectives. The management is the one who is responsible for designing, implementing, and evaluating their own controls. An internal control can help an organization achieve its overall objectives and strategies by properly carrying out the systems, principles, and rules that it consists. It has a function that can improve the company’s constitution and management and can create opportunities from risks arising within the organization.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
According to the date provided on the case study, the biggest failure that the internal control of The Machine Manufacturing Company generally starts with its accounting system and procedures. The weakness in the company’s system of internal controls is very evident and it resulted to several failures to accounts, such as Cash, Receivable, Inventories, Securities, PPEs, Payables, Dividends, Sales and Payroll. The opinion that I wanted to recommend to the company is to refine and revise their accounting systems, policies and procedures with better and improve ones that are most applicable and suitable for the nature of their business. It is also better to hire professional and experienced employees for the key positions in the company, as it is also mentioned in the case study that new and unexperienced personnel were assigned in those imperative roles. It is important to consider the organizations accountability and quality performance for both of the company’s operation and administrative departments.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized?
The auditor’s recommendations should emphasize mainly on the company’s personnel and the general system and procedures used by the accounting department. The importance of hiring capable and competent personnel to manage and execute the appropriate actions is greatly the main subject of the failures that auditors should point out. If this is not being emphasized enough, how could the accounting systems and procedures be properly implemented and delivered? The risks of failures will only be running in circles if hired employees are not professionals and lacks of knowledge with regards of the accounting functions and policies.
References:
BCcampus (2017). 45 Define and Explain Internal Controls and Their Purpose within an Organization. Pressbooks. Retrieved November 10, 2021. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
AuditBoard (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. AuditBoard Inc. Retrieved November 10, 2021. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
Kenton, W. (2021). Internal Controls. Investopedia. Retrieved November 10, 2021. https://www.investopedia.com/terms/i/internalcontrols.asp
ERANDIO, JANNA A. (2019-103533)
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls help to reduce risks and protect assets, guarantee record accuracy, enhance efficiency, and promote compliance with policies, rules and regulations, and laws. Internal control is a system is to help an entity safeguard itself and minimize risk to its objectives. Comprehending the risks will help you decide if there are sufficient controls to mitigate the uncertainties in those areas. One of the objectives of internal controls is to protect the organization’s assets and thus address financial statement affirmations. The fundamental element of internal control is the segregation of duties (SOD). Internal controls including, proper SOD and help to prevent fraud. Also, it helps to anticipate financial statement errors and misstatements.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The failures of the internal control of The Machine Manufacturing Company is the failure to have accounts receivable and deposit bookkeeping performed by people other than those performing cash or general accounting functions resulted in a lack of internal control. Internal control was lacking, except for accounting control over a few special classes of inventories and a few physical inventory checks. The failure to keep a record with complete descriptions of securities weakened the otherwise high internal control. Unsatisfactory internal control failed to check and reconcile balances shown by vendor's statements and balances shown by accounts payable detail. Generally, the biggest mistake or failure of the company is the poor or lack of internal controls.
I recommend improving their internal controls to avoid uncertain risk or failure of the Machine Manufacturing Company; the first step is to determine which methods should be authorized to different parties. Ensure that no single person has complete control over a process from beginning to end. Ensure that new employees are well-trained and knowledgeable about their job. Make sure that employees only have access to information relevant to their job. Regularly review reports to ensure that tasks and processes are correct.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The auditor provided the list of recommendations that are might help to improve the internal control of the Machine Manufacturing Company because of the poor internal control. In my opinion, the auditors listed all the possible risks and recommendations. For me, needs to emphasize more is a proper organizational chart and setting the right roles for the employees, reviewing reports and procedures quarterly or annually.
References:
Audit Board (2018). Internal Control Compliance: 7 Reasons to Maintain Your Program. Retrieved: November 10, 2021. From: https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
E. Zhang (2016). The Importance of Internal Controls in Accounting. Retrieved: November 10, 2021. From: https://www.carrtegra.com/2016/06/importance-internal-controls-accounting/
AICPA Committees. 1950. Committee on Auditing Procedure, "Machine manufacturing company; Case studies in internal control". American Institute of Certified Public Accountants. p. 10 - 12
Joseph Ian C. Yap
2019-106172
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ReplyDeleteOnce again, not having to meet the effective and efficient use of internal control will only result to a catastrophe in any business or organization, just like what happened to the machine manufacturing company. After reading and analyzing the scenario from the case study, I have learned that the said company failed to effectively implement their chosen internal control. The machine manufacturing company has a weak internal control however its biggest failure is in the cash section. Evidences are found which unveils that the cash being received and disbursed are not segregated properly, which leads to erroneous records in the bank reconciliation. Additionally, there’s deficiency in proving that the cash being disbursed are the true amount of the disbursement which signifies a fraud or swindling of money. My recommendation to improve this failed internal control would be, first, the company must define the function of each line item in the cash section, by doing so, confusion can be eliminated and the segregation of cash received and cash disbursed can be done properly. Second, having different employee to handle different cash would not cost that much as compare to the possible loss if fraud happens, if this is not done, plus it will also help in eradicating any other suspicious act to arise.
As per the case study, there are also a list of recommendation provided by the auditor to help improve the failed internal control used by the machine manufacturing company. Among those recommendation, the most significant one that should have been emphasized more is the reconciliation of the suppliers' statements to the accounts payable data. Because it ensures factual and error-free statements which will lead to proper records and such, avoiding the frauds or any accounting mistakes to happen. If it is not emphasized, then, the risk of losing an amount of money is highly expected. For instance, paying doubled-amount of price might happen, as well as, misstatements of financial records.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine manufacturing company; Case Studies in Internal control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/aicpa_comm/104
Kenton, W. (2021). Investopedia. Internal Controls. Retrieved on November 9, 2021 from https://www.investopedia.com/terms/i/internalcontrols.asp
AJY B. PALAMO
2019-106334
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control can help the organization to achieve its overall objectives and strategies by assessing and minimizing the risks of the company. Risks are one of the hindrances for the company in reaching its goals. With the help of having internal control, controllable risks will be identified and be managed. Internal auditors can assess if these risks will greatly affect the company or if it is just immaterial and acceptable. By addressing these kinds of risks, mistakes, irregularities, and failures can be prevented. Internal controls can also help the organization by protecting its assets. A business or a company value their financial standing, and with the help of this control, it can prevent any financial losses and assure that it is still effective and efficient because of the accuracy and reliability of the accounting data.
An organization also needs to be assured that the operations’ effectiveness and efficiency are still stabilized, because one of the factors of achieving its objective is the maximization of the effectiveness and efficiency. The internal control will be the one to check if they are still using the standard practices in the entire organization. While in financial reporting, there might be some risks such as integrity risk. Internal control will monitor and check if the reports are accurate and if the one who did the report is honest and can be trusted so that mistakes or any error in reporting will be controlled. Internal control can also help the organization to achieve its goal by measuring the quality of information and effectiveness of communication because the understanding of each individual in an organization is really important. If information is conveyed wrongly then there is a possibility of having a problem and misunderstanding that may result in not attaining success at all. Lastly, internal control can help an organization, by assessing and controlling the compliance of the organization in any government department or law.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of the Machine Manufacturing Company is the lack of internal control in the financial reporting specifically in its assets such as cash. Because one of the reports emphasized in the case study is the poor internal control in a cash account that results in many failures. One of these is failure to control blank and voided checks, failure to segregate the functions of receiving cash, and failure to have supporting evidence for all the petty cash. We all know that financial reporting is significant to a company because it has the assets, liabilities, and equity of the company, that is why it should be doubled check by the internal auditors and should have internal control. By lacking internal control, a company can really be in trouble and will not be successful. That is why I recommend that they should have a strong internal control system not just in financial but also in operational and compliance objectives. They should know the policies and the functions they portray and monitor the activities if the standard policies are still being used throughout the company.
CARANDANG, Celine D.
2019-104928
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
The recommendations that should have been emphasized more are Cash and General. Cash because I believe that it has the greatest number of failures and lack of control. They should give their attention to finances because there are also a lot of risks that they may encounter if they will not immediately make a plan to correct or solve it such as being bankrupt that may result in a liquidation of the company. Also, the General because it only recommended a few but in reality, in an organization the chart or flow of authority is important. Directing the things to do and procedures to undergo represents a big role because it is the overall performance of an organization.
REFERENCES
Accounting Made Easy. (2021, November 6). Understanding Internal Control. [Video]. YouTube. https://www.youtube.com/watch?v=On_rpxwNcS0&list=PLqmYUi2kytZYI68mPBCbv ZLlQETDe8tat&index=7
American institute of Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Study in Internal Control” (1950). AICPA Committees. 104. https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1103&context=aicpa_comm
Knowledge Leader Blog. (2020, March 12). Five components of the COSO framework you need to know. Retrieved from https://info.knowledgeleader.com/bid/161685/what-are-the-five- components-of-the-coso-framework
Murdock, H. (2016). Operational auditing: The principles techniques for a changing world (1st ed.). Auerbach Publications. https://doi.org/10.1201/9781315368733
CARANDANG, Celine D.
2019-104928
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls play a critical role not only in public companies but also in private companies, because internal controls establish safeguards to an organization’s assets and minimize the opportunities of committing fraud and allowing errors to go undetected in an organization’s daily operations. (Zhang, The Importance of Internal Controls in Accounting - Houston, The Woodlands, Sugar Land | Carrtegra, LLC 2021) According to AICPA, effective internal control reduces the risk of asset loss, and helps ensure that plan information is complete and accurate, financial statements are reliable, and the plan's operations are conducted in accordance with the provisions of applicable laws and regulations. Internal control should be based on a systematic and risk-oriented approach, to ensure that there are adequate individual controls in areas with high risk, and that they are not excessive in areas with low risk. Before making the decision to adopt a control, analyze the costs of establishing and maintaining it, and consider:
The potential benefits the control will provide
The possible consequences of not implementing it
(AICPA, Internal controls and safeguarding plan assets plan advisory 2021)
Internal control effectively mitigates the risk of asset loss and assists in ensuring that strategy information is comprehensive and correct, financial statements are dependable, and plan activities comply with relevant laws and regulations. When internal control is successful, you may be reasonably certain that your strategy is meeting its financial reporting goals.
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LUIB, BEVERLY JANE B. 2019-105706
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteThe biggest failure of the internal control of The Machine Manufacturing Company had was the Cash Control. Cash is a company's most liquid asset, which means it can easily be used to acquire other assets, buy services, or satisfy obligations. For financial reporting purposes, cash includes currency and coin on hand, money orders and checks made payable to the company, and available balances in checking and savings accounts. (CliffNotes, Cash Controls 2021)
The case study listed ten (10) internal control failures for cash. Since cash is a practical, liquid, and valuable asset. An organization must have proper controls in place to avoid theft or other cash misappropriation. I would like to recommend what I have found useful in fixing their internal problem control through:
• Cash operations must be subject to daily supervisory review. To minimize the potential for mistakes in cash operations and/or misappropriation of cash, cash duties should be separated among employees so that in all instances one person (preferably a supervisor) will check the work performed by another. (General Ledger - Internal Controls over Cash - Hamilton College 2021)
• Segregation of duties. Cash is generally received at cash registers or through the mail. The employee who receives cash should be different from the employee who records cash receipts, and a third employee should be responsible for making cash deposits at the bank. Having different employees perform these tasks helps minimize the potential for theft. (CliffNotes, Cash Controls 2021)
• Proper authorization. Only certain people should be authorized to handle cash or make cash transactions on behalf of the company. In addition, all cash expenses should be authorized by responsible managers. (CliffNotes, Cash Controls 2021)
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LUIB, BEVERLY JANE B. 2019-105706
• Adequate documents and records. Company managers and others who are responsible for safeguarding a company's cash assets must have confidence in the accuracy and legitimacy of source documents that involve cash. Important documents such as checks, are prenumbered in sequential order to help managers ascertain the disposition of each document. This helps prevent transactions from being recorded twice or from not being recorded at all. In addition, documents should be forwarded to the accounting department soon after their creation so that recordkeeping can be handled professionally and efficiently. Allowing documents that describe cash transactions to go unrecorded for an unnecessarily long period of time increases the likelihood that fraudulent or inaccurate records will pass undetected through the accounting department. (CliffNotes, Cash Controls 2021)
ReplyDelete• Physical controls. Cash on hand must be physically secure. This is accomplished in a variety of ways. Cash registers should contain only enough cash to handle customer transactions. When a cashier finishes a shift—or perhaps more frequently—excess cash should be moved from cash registers to a safe or another location that provides additional security. In addition, daily bank deposits are made so that excess cash does not remain on the premises. Blank checks, which can be used for forgery, are stored in locked, fireproof files. (CliffNotes, Cash Controls 2021)
• Independent checks on performance. Employees who handle cash or who record cash transactions must be prepared for independent checks on their performance. These checks should be done periodically and may be done without fore-warning. Having a supervisor verify the accuracy of a cashier's drawer on a daily basis is an example of this type of control. (CliffNotes, Cash Controls 2021)
• Other cash controls. Most companies bond individuals that handle cash. A company bonds an employee by paying a bonding company for insurance against theft by the employee. If the employee then steals, the bonding company reimburses the company. Companies may also rotate employees from one task to another. Embezzlement or serious mistakes may be uncovered when a new employee takes over a task. Although specific cash controls vary from one company to the next, all companies must implement effective cash controls. (CliffNotes, Cash Controls 2021)
3/5
LUIB, BEVERLY JANE B. 2019-105706
3. Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized.
ReplyDeleteThe recommendations that should have been emphasized more that was provided by the auditor in the case study of The Machine Manufacturing Company are:
1. All receipts should be under accounting record control if not deposited immediately.
– The risks that the organization may get: majority of cash thefts occur prior to the receipt being recorded. Once a documentation is created, tracing a theft becomes much easy. Deposit all cash proceeds in their whole as soon as possible, ideally the same day or the following working day. Undeposited cash is more vulnerable to theft.
2. All branches should have two bank accounts: one for receipts and subject to withdrawal only by the home office; the second for branch disbursements and reimbursed by the home office on an imprest basis.
– The risks that the organization may get: money laundering. These records serve as evidence that you control your accounts, preserving them might assist you in defending your claims in court or when contesting transactions with bank management.
3. Occasional pay distributions to employees should be made by an employee other than the person regularly making the pay-off. – The risks that the organization may get: losing or inefficient employees. A well-compensated and stimulating society promotes people to remain in their positions for the long haul. The longer someone works for you, the more familiar they get with your company's processes, traditions, and purpose. This may increase their productivity and help build better teams and ties inside the workplace.
4/5
LUIB, BEVERLY JANE B. 2019-105706
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal Control is crucial in an organization as it is designed to provide reasonable assurance regarding the achievement of the entity’s objectives such as, the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations (COSO,1992). The purpose of control is to ensure that a specific function in an organization is performed according to the established standards, policies, and procedures.
Business processes need to be well controlled so that there is an organization and coordination of methods and measures adopted by the entity to promote its operational efficiency, to check the accuracy and reliability of its accounting data, and to encourage adherence to prescribed managerial policies. So, by having an effective internal control, the organization will have a reasonable assurance that it can achieve its objectives.
To avoid deficiency in internal control, the control designed, implemented, or operated should be able to prevent, or detect and correct the misstatements in the financial statements on a timely basis.
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Ericka Manalac
2015-100842
1. Identify the biggest failure of the Internal Control of The Machine Manufacturing Company and what will be your recommendation to improve their IC that should have prevented risks?
DeleteAs per the case study, there is practically no internal control in any of the branches for the following reasons: no proper control environment, as there is a lack of an organization chart that stop the organization for having a smooth flow of information; poor risk assessment, since the organization failed to identify, measure, and analyze the risks and its likelihood and impact in the business; no control activities developed, there is an inadequate manual of operating procedures; relevant information couldn’t communicate accordingly since there is a confused lines of authority; and certain components of internal control were not monitored if were present and functioning well.
I highly recommend that the organization should start to educate its board of directors, management, and other personnel the importance of internal control. There should be a proper establishment of organizational structure, authority, and responsibility, effective risk assessment to mitigate the unexpected risks that will occur during the course of business, the policies and procedures must be clear and ensure that are functioning well, the information should be communicated accordingly to the right authority, and there should have a collection of suggestion and feedbacks abut the internal control of the organization.
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Ericka Manalac
2015-100842
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if recommendations have not emphasized?
DeleteThe general recommendations of the auditor: (1) Organizational chart should be reviewed periodically and (2) Manuals of operating procedures should be prepared, should be emphasized as having an established organizational structure will result to proper accountable of the responsibilities of the authority consequently, the information will be communicated in a smooth flow. And manuals for operating procedures will help the BOD, management, and other personnel to ensure that the procedures and process are accordance to the laws and regulations.
If these recommendations have not emphasized, business, compliance, and integrity risks are more likely to occur.
References:
American Institute of Certified Public Accountants. Committee on Auditing Procedure, “Machine Manufacturing Company; Case Studies in Internal Control” (1950). AICPA Committees.104
Chambers, A., & Rand, G. (2010). The Operational Auditing Handbook: Auditing Business and IT Processes (2nd ed.) [E-book]. Wiley.
International Federation of Accountants. (2018). HANDBOOK OF INTERNATIONAL QUALITY CONTROL, AUDITING, REVIEW, OTHER ASSURANCE, AND RELATED SERVICES PRONOUNCEMENTS. (Vol. 1) [E-book]. IFAC.
Murdock, H. (2016). Operational Auditing: Principles and Techniques for a Changing World (Internal Audit and IT Audit) (1st ed.). Auerbach Publications.
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Ericka Manalac
2015-100842
References:
ReplyDeleteZhang, E. (2016, June 1). The Importance Of Internal Controls In Accounting - Houston, The Woodlands, Sugar Land | Carrtegra, LLC. Carrtegra, LLC. https://www.carrtegra.com/2016/06/importance-internal-controls-accounting/.
Internal Controls And Safeguarding Plan Assets Plan Advisory. (2021, April). AICPA. https://www.aicpa.org/resources/download/internal-controls-and-safeguarding-plan-assets.
Internal Controls Practices. (2021, September 23). Internal Controls Practices. https://blink.ucsd.edu/finance/accountability/controls/practices.html#Cash.
Cash Controls. (n.d.). Cash Controls. https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-i/cash/cash-controls.
General Ledger - Internal Controls Over Cash - Hamilton College. (n.d.). Hamilton College. https://www.hamilton.edu/offices/business/general-ledger/internal-controls-over-cash.
5/5
LUIB, BEVERLY JANE B. 2019-105706
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ReplyDelete1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
Internal control, also known as an internal control system, is the integration of an organization's people's actions, plans, attitudes, rules, and efforts to offer reasonable confidence that the company will fulfill its objectives and purpose. The attitude toward internal control and control consciousness developed and maintained by an organization's management and workers is referred to as the control environment. It is a result of management's philosophy, style, and supporting attitude, as well as the organization's people's competency, ethical ideals, integrity, and morale. The control environment is shaped by the organization's structure and responsibility connections. Risks are occurrences that put the achievement of goals at jeopardy. They have an effect on an organization's capacity to carry out its objective. The process of discovering, analyzing, and deciding how to handle these occurrences is known as risk assessment. Internal and external risks exist at every level of an organization, posing a threat to the achievement of specified goals. In an ideal world, management would try to avoid these dangers. However, there are situations when management is unable to prevent a risk from arising. In such situations, management must determine whether to accept the risk, lower it to a manageable level, or avoid it altogether. Management should guarantee that each risk is analyzed and handled effectively in order to have reasonable certainty that the firm will accomplish its objectives.
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
Failure to separate the functions of receiving cash from those that deal with sales invoices and customer statements, customer ledgers, mailing or delivering checks, bank reconciliations, cash disbursements, and general accounting records. If not promptly deposited, all proceeds should be kept under accounting record management. The banks should stamp any duplicate deposit slips. The main office should perform all reconciliations, with all branch checks submitted directly to the home office by the depositories each month.
Salapare, Daryll A.
CBET-01-501
2019-102486
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ReplyDelete3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
All consumers who purchase on credit should receive a monthly statement. The failure to have accounts receivable and deposit bookkeeping conducted by people who were not doing cash or general accounting tasks resulted in insufficient internal control. Failure to review and reconcile amounts listed on suppliers' statements and balances displayed on accounts payable detail resulted in unsatisfactory internal control. Recommendations in auditor's report enhance behavior that, if applied, are intended to increase organization performance. The proper and timely application of audit recommendations agreed upon by management is critical to reaping the full benefits of an audit. Moreover, if accounting firms perform the audit, they must exercise caution to preserve their autonomy and not depose company's obligation for preparing financial statements. "We've developed a process to walk that line when they do need our help to ensure we sustain our independence," Killian explained. A strong internal audit report conveys the objectives, scope, and findings of an auditing process obviously and encourages its followers to read internal audit's recommendations.
References
Implementation of Audit Recommendations | Australian National Audit Office. (2015, October 22). Australian National Audit Office (ANAO). Retrieved November 9, 2021, from https://www.anao.gov.au/work/performance-audit/implementation-audit-recommendations
Machine manufacturing company; Case studies in internal control. American Institute of Accountants. Retrieved November 11, 2021, from Machine manufacturing company; Case studies in internal control (olemiss.edu)
Salapare, Daryll A.
CBET-01-501A
2019-102486
1. How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are the systems used by an organization to manage risk and diminish the occurrence of fraud. The internal control structure is made up of the control environment, the accounting system, and procedures called control activities. Several years ago, the Committee of Sponsoring Organizations (COSO), which is an independent, private-sector group whose five sponsoring organizations periodically identify and address specific accounting issues or projects, convened to address the issue of internal control deficiencies in the operations and accounting systems of organizations. They subsequently published a report that is known as COSO’s Internal Control-Integrated Framework.
Internal control keeps the assets of a company safe and keeps the company from violating any laws, while fairly recording the financial activity of the company in the accounting records. Proper accounting records are used to create the financial statements that the owners use to evaluate the operations of a company, including all company and employee activities. Internal controls are more than just reviews of how items are recorded in the company’s accounting records; they also include comparing the accounting records to the actual operation of the company.
For example, a movie theater earns most of its profits from the sale of popcorn and soda at the concession stand. The prices of the items sold at the concession stand are typically high, even though the costs of popcorn and soda are low. Internal controls allow the owners to ensure that their employees do not give away the profits by giving away sodas and popcorn.
ASPILLAGA, HERMANA D. (2020-110283)
2. Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
ReplyDeleteInternal control ensures that all your business processes meet those expectations. However, it’s critical that you identify the internal control weaknesses in your systems. An internal control weakness is a failure in the implementation or effectiveness of your internal controls. Bad actors can take advantage of weak internal controls to evade even the strongest security measures.
The wide range of internal controls, numerous new technologies, and the increasing spread of malware make it crucial that you monitor your internal controls. Doing so lets you test the effectiveness of your controls and strengthen internal control deficiencies before malicious actors can exploit them. Internal controls are the rules, mechanisms, and procedures you use to safeguard your financial information, promote accountability, and prevent and detect fraud. Internal controls help you comply with laws and regulations and are key to fraud prevention and asset security.
In addition, internal controls can help your company operate more efficiently by ensuring your financial reporting is accurate and timely. It’s important that you implement data security controls to protect your data from all types of cyberattacks. These controls help you detect threats early, then neutralize them to protect all your data storage resources from attacks. You must implement data security controls to protect your financial reports, as section 404 of the Sarbanes-Oxley Act of 2002 (SOX) mandates.
Occasionally, your company’s system may fail to implement its internal controls effectively. This is an internal control weakness. At this point, hackers can use this opening to destroy your company. However, you can stop this with the help of regular security check-ups, which help you more rapidly identify malware. A good governance, risk management, and compliance software can do a lot of the work of monitoring, measuring, and filling gaps, often automatically.
3. Of all the recommendations provided by the auditor, as per the case study. What recommendation should have been emphasized more and what are the risks you can see if the recommendations have not emphasized.
The Army should develop a management plan (and include it in the Guide) that defines the integration of management roles, responsibilities, and communications across activities by risk management functions (e.g., operations, safety, environmental protection, emergency preparedness, and public outreach).
Loss control and risk reduction are two results of the same critical calculation for rating and competitive advantage. Verisk’s Risk Improvement Recommendations give you insights on building and occupancy hazards that help you reduce insured risks, control losses, and offer the most competitive quote.
Verisk’s experienced field analysts — specifically trained to identify loss exposures — conduct thorough on-site surveys of thousands of commercial buildings and businesses each year. The recommendations are the result of that extensive expertise and experience, and they provide another way to reduce your time and expense for underwriting and rating.
References:
https://opentextbc.ca/principlesofaccountingv1openstax/chapter/define-and-explain-internal-controls-and-their-purpose-within-an-organization/
https://reciprocity.com/how-to-identify-internal-control-weaknesses/
https://www.nap.edu/read/5872/chapter/6#53
https://www.verisk.com/insurance/products/prometrix-next-generation/risk-improvement-recommendations/
ASPILLAGA, HERMANA D. (2020-110283)
How can an Internal Control (IC) help achieve the overall objectives and strategies of an organization?
ReplyDeleteInternal controls are processes designed to help safeguard an organization and minimize risk to its objectives. Internal controls minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws. A well design internal controls keep the organization operating efficiently and effectively and the controls can help maintain compliance with regulations. Internal control helps the organization to achieve its objectives by mitigating risk. It also ensures that the resources of the organization are being used properly in effective way.
Identify the biggest failure of the internal control of The Machine Manufacturing Company and what will be your recommendation to improve their Internal Control that should have prevented risks.
The biggest failure of the internal control of the Machine Manufacturing Company is that they lack of an organization chart and manual of operating procedures resulted in confused lines of authority and responsibility, duplication of effort, inadequate procedures and poor internal control. There is practically no internal control in any of the branches due to the fact that all records maintained in the branches are under the supervision of the branch managers. It is impossible to remedy this situation in view of the limited number of personnel at the branches except by means of strengthening home office controls over the branches. Primarily the principal weakness in the system of internal control is that the cash is not properly segregate the function of receiving cash from those relating to sales invoices and customer statements, disbursing cash from those relating to bank reconciliations and payroll preparation and failure to have supporting evidence for all petty cash disbursements. And poor internal control in their notes and accounts receivable, customer deposits, property plant and equipment, accounts payable, sales, purchases and expenses and payroll that resulted from failure to have specific checks made of payroll computations. As for recommendation to improve their internal control they must have strong organization chart that should be reviewed periodically and maintained in a current status. And the manuals of operating procedures should be prepared.
Of all the recommendations provided by the auditor, as per the case study. What recommendations should have been emphasized more and what are the risks you can see if the recommendations have not been emphasized
In the case study the auditor recommended that to improve their internal control they must have a strong organization chart so that every member can know and do their roles and responsibility properly. And as the auditor provided in the recommendation it is important that in the cash and property, plant and equipment must emphasize to avoid any risk. To avoid any fraud that may happen all about related to cash should properly written in the report.
References:
Internal Audit (2018). Internal Control Compliance. 7 reasons to maintain your program. https://www.auditboard.com/blog/7-reasons-to-maintain-your-internal-controls-compliance-program/
CASTOS, Channel
2019-101672