Accounting Information System - Internal Controls and Corporate Credit Cards

This report explores internal controls in the sales process of Bucks Phyz, reviews the impact of corporate credit cards, and provides recommendations to minimize risks. It emphasizes the importance of sound internal controls for financial success.

Accounting Information System
Student’s Name:
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Contents
Executive Summary:....................................................................................................................................3
Introduction:...............................................................................................................................................4
Overview of the sales process of Bucks Phyz:..............................................................................................5
Internal control operations in Bucks Phyz:..................................................................................................6
Review of impact of incorporation of credit cards......................................................................................9
Benefits and potential risks associated with the introduction of corporate credit cards within Bucks
Phyz:........................................................................................................................................................9
Specific Internal Controls which should be implemented by Bucks Phyz to minimize the impact and
occurrence of the risks:.........................................................................................................................10
Recommendation to the CEO regarding who should be issued with a corporate credit card and the
associated reason:.................................................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13
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Executive Summary:
There are various transactions involved in the company’s accounting system for which different
types of control should be implemented within an organisation to have an effective and efficient
operational process to be operated. The management of the company should strive to achieve and
operate an internal control system with the use of manual and programmed procedures in order
to reduce and eliminate the chances if various errors and frauds in the company. The application
of sound internal controls in the organization will bring financial success to the organization. The
corporate structure of the company needs to be in proper directions and the employees must be
assigned with appropriate responsibilities in order to manage the different affairs of company.
The corporate credit cards has emerged as a innovative way of making small business payments
in an economy and the use of this payment method will bring efficiency and effectiveness in
payment process.
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Introduction:
The major objective of the report is to assist the users in describing and understanding the
various types of risks and internal controls operating the sales process of company and the
recommendation of necessary improvements that can be made regarding these internal control
weaknesses. The report will include the introduction of sale process of the company Bucks Phyz
and identifying the weaknesses in the internal control while suggesting some improvements in
the same. The introduction of new credit card policy will be evaluated for the purpose of
increasing the efficiency level of payment process.
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Overview of the sales process of Bucks Phyz:
The sales process of the company indicates that once the sales order is received from the
customer of the company, the customer data is extracted from the sales contracts of the company
which includes the documents and information like business ID, contacts address etc of the
customer. The details extracted are entered as a new customer profile, and then the pricing
template is generated for the selling price to be established for the sales contract and the same
will be analysed fro the purpose if actual sales prices are different form the standard prices. The
contract of sales is then approved with the finance director of the company and the sales are
being made to the customer. The collection policy relates to the accounts receivable which is
being managed by the accounts receivable manager Mary and head of sales Barry (Aidoo-
Buameh, 2015, p.15).
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Internal control operations in Bucks Phyz:
Sales phase process Internal control
weakness
Business Impact of
these weaknesses
Recommendations (Specific
internal controls required)
Billing Lack of training –
By reviewing the
sales process of
company it can be
established that
there is no proper
training given to the
concerned staff of
billing process for
performing the
operations
efficiently and
effectively.
Profit – The profits
of the company will
be directly affected
with this as internal
control weakness in
billing will lead to
loss of revenues for
the company and
the same will
generate profit.
Revenues and cash
flows – There will
be a shortage of
revenue and cash
flows as there will
be embezzlement
and wrong billing
recognized (Simkin,
M. G., Norman, C.
S., & Rose, J. M.
2014, p. 20).
 Adequate and
proper training to be
given to the staff of
billing (Guragai, B.,
Hunt, N. C., Neri, M.
P., & Taylor, E. Z.
2015, p. 65-81).
 Ensuring in
the company that the
master data of
customers includes
accurate and relevant
information so that
accurate bills can be
generated.
 Ensuring the
pricing strategy and
correct prices
recognized for the
sales orders and
collections.
Sales order cash
collection
Segregation of
duties – It can be
observed that
Inappropriate
actions – The
excessive
 Adequate staff
to be appointed – In
order to reduce the
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finance director
Lucinda has lot of
responsibilities
regarding sales
process and
authorisation for
various contracts.
This creates an
excessive pressure
on the single senior
management staff
and results in
inaccurate and
inefficient
decisions. The
responsibilities
includes giving
authorizations and
looking for the
overall internal
process of Bucks
Phyz
responsibility
created on the
single staff results
in inappropriate
decisions to be
made which results
in heavy losses.
Risk of errors – The
unavailability of
proper time and
resources for
making
authorizations and
decisions results in
losses and reduced
profits due to errors
(Guragai, B., Hunt,
N. C., Neri, M. P., &
Taylor, E. Z. 2015,
p. 65-81).
excessive pressure
adequate personnel
must be appointed in
the company Bucks
Phyz so that finance
manager can have
sufficient time
(Balsam, S., Jiang,
W., & Lu, B. 2014, p.
178-201).
 Accurately
designing the internal
controls in order to
ensure that proper
segregation of duties
is maintained.
 Accountability
– There should be
appropriate
accountability of
various personnel
with their concerned
responsibilities.
Accounts
receivables and
reconciliations
Access to everyone
to the ERP system –
The customer data
of the company can
be accessed with
anyone and the
Loss of customers –
The inaccuracy in
maintaining the
customer data can
lead to loss of
customer data and
 Comparison
of accounts
receivables with
debtor’s verifications
– The comparison
will provide an
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information can be
changed
accordingly.
Lack of
independence and
existence of
relationship – It can
be observed that the
head of sales Barry
is related with AR
manager Mary and
this creates a risk
on the
independence of the
concerned
personnel.
the orders will not
be fulfilled timely
resulting in loss of
customers (Aidoo-
Buameh, 2015, p.
22).
Losses in collection
– The inappropriate
collection policy
due to lack of
independence will
result in loss of
profits and
revenues.
accurate
reconciliation and
proof of accuracy and
correctness in
maintaining records.
 Continuous
monitoring of
accounts receivables
and independent
verification – The
accounts receivable of
company should be
investigated for
independence and
appropriate recording.
 Credit is
separate from
processing – AR
subsidiary ledger
should be different
and separate from
general ledger.
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Review of impact of incorporation of credit cards
Benefits and potential risks associated with the introduction of corporate credit cards
within Bucks Phyz:
The corporate credit facility refers to the facility provided to the company with which small
business expenses that are approved and are related to the business of company can be paid off
very easily and timely. The various benefits and potential risks that are associate with
introducing this facility in Bucks Phyz are as follows:
Benefits:
 Better control on spending – The classification of all transactions with the help of
importing the card statement within an expense report in which the details about all the
expenses can be gathered and analysed for the purpose of establishing control on the
expenses. The expenditure can be tracked with the related budgets and improvements can
be made in expending process (Yu, J., Zhang, Z., & Zheng, S. X.,2016, p. 17-24).
 Lower processing fees and cash rebates – There are very less processing fees involved in
these cards and the interest rates provided are competitive compared to market rates. The
cash rebates are available on time and accurately.
 Increased straightforward processing of various expenses – The application of corporate
credit program in Bucks Phyz will make the expense management process more efficient
and straightforward. The granular details about the transactions incurred can be generated
from the expense report. The additional reports required for the processing will be added
by the card holders in the concerned expense report. The export of this expense report
will allow for more accurate ad rapid billing of the clients.
 Reduced frauds – There are expense fraud chances existing in the system where
employees pause themselves for the expenses and then reimbursement is made to them.
The provision of this corporate credit card to the employees will eliminate the
possibilities of fraud in two ways in which credit card statement can be directly extracted
and reconciliations can be made accordingly and there is no chance of refund to be
processed in another card (Simkin, M. G., Norman, C. S., & Rose, J. M. 2014, p. 18).
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 Be projected – The use of corporate credit card will provide extra protection which not
other ways of payments can provide and these includes theft coverage, implementation of
various misuse policies .
Risks:
 Internal risk – The same is concerned with fraud conducted in internal sources of
company where the employees or the person having authorization of that card can misuse
the card. The frauds will include personal spending on behalf of the company card
expenditure and this will create loss of profit. Also there will be bad spending habits
concerned with employees.
 External risk – Te external frauds will include theft of the credit card and the misuse of
the company balances by the external sources. Also the inappropriate charges applied
will also result in additional spending (Yu, J., Zhang, Z., & Zheng, S. X.,2016. p. 23).
Specific Internal Controls which should be implemented by Bucks Phyz to minimize the
impact and occurrence of the risks:
The internal controls required for controlling these risks are:
 Tracking the cards issued – The corporate credit cards should be issued to the concerned
person with distinct numbers so that accountability can be established.
 Setting the limits of credit card – The limits of the credit cards must be implemented
based on the needs and the appraisal of the user.
 Reviewing the cad statements – By appropriately reviewing the card statements provided
expenses can be checked for authenticity and spending can be controlled.
 Quickly reporting the unauthorized misuse – There should be proper system for
recognizing the theft and misuse of credit card and appropriately reporting to the
concerned authority (Balsam, S., Jiang, W., & Lu, B. 2014, p. 180).
Recommendation to the CEO regarding who should be issued with a corporate credit card
and the associated reason:
The corporate credit card of the company Bucks Phyz should be issued to the employee who is
independent and he should not take any misuse of the corporate credit card for personal
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spending. In the concerned case the sales manager George can be issued this card (Khairi, &
Baridwan, 2015, p.122).
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Conclusion
It can be concluded that the accounting information system plays a significant role in managing
the business affairs and operational cycle of the company as it provides the required information
and appropriate accounting system to record all the transaction of the company. The management
of Bucks Phyz will be recommended to improve and increase the efficiency level of sales
procedure of company by applying the appropriate internal control within the company. The
issue of corporate credit fro small payments will be beneficial for company.
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References
 Aidoo-Buameh, J. (2015). Accounting Information Systems.
 Balsam, S., Jiang, W., & Lu, B. (2014). Equity incentives and internal control
weaknesses. Contemporary Accounting Research, 31(1), 178-201.
 Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
 Guragai, B., Hunt, N. C., Neri, M. P., & Taylor, E. Z. (2015). Accounting information
systems and ethics research: Review, synthesis, and the future. Journal of Information
Systems, 31(2), 65-81.
Yu, J., Zhang, Z., & Zheng, S. X. (2016). The effect of internal control weakness on firm
valuation: Evidence from SOX Section 404 disclosuresAuthor-Name: Li, Yingqi. Finance
Research Letters, 17(C), 17-24.
 Jacoby, G., Li, Y., Li, T., & Zheng, S. X. (2017). Internal control weakness, investment and
firm valuation. Finance Research Letters.
 Khairi, M. S., & Baridwan, Z. (2015). An empirical study on organizational acceptance
accounting information systems in Sharia banking. The International Journal of Accounting
and Business Society, 23(1), 97-122.
 Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting
information systems. John Wiley & Sons.
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