Assessment of Internal Control Weakness and Risks in Adam & Co.

Accounting information system

TABLE OF CONTENTS
Introduction......................................................................................................................................4
Report to Managing director............................................................................................................4
System flowchart of purchase system..........................................................................................5
System flowchart of cash disbursements system.........................................................................6
System flowchart of payroll system............................................................................................7
Description of internal control weakness in each system and risks associated with the
identified weakness......................................................................................................................8
Internal control weakness in purchase system.........................................................................8
Internal control weakness in cash disbursements system........................................................8
Internal control weakness in payroll system............................................................................9
Risk associated with the identified weakness in purchase system..........................................9
Risk associated with the identified weakness in cash disbursements system........................10
Risk associated with the identified weakness in payroll system...........................................10
Conclusion.....................................................................................................................................10
List of references...........................................................................................................................12

Executive summary
Internal control procedures are practices and guidelines complied by an organization in order to
protect its resources. Effective internal control activities assist in ascertaining priorities, attaining
department goals and accomplish compliance regulations. Present study relates to assessment of
internal control of Adam & CO. in order to analyze its internal control weakness and risk
associated with same. The purchasing system of company does not have adequate procedure
relating to ascertainment of items required to be order due to which risk related to out of stock
might be faced. Cash disbursement system is depended majorly on single authority which leads
to risk associated with unauthorized payments. Lastly, weak internal control management is
available in relating to recording to working hours which result in risk associated with wrong
payments to employees.

INTRODUCTION
Internal control system of an organization comprises set of rules, procedures and provisions
which are implemented to provide direction, enhance efficiency and strengthen the existing
policies (Bedford and Malmi, 2015). An organization is able to ascertain existing loop holes in
the management through assessing the effectiveness of internal control (Buckby, Gallery and
Ma, 2015). The same can be done through segregation of duties appropriately so that single
authority is not able to manipulate records as well as enter fake transactions. Present report
relates to analysis of internal control of Adam & Co., a Perth based wholesaler of industrial
supplies. Initially system flow chart of purchases system, cash disbursement system and payroll
system has been provided. Further, internal control weakness of each department has been
analyzed along with risk associated with same in detail manner.
REPORT TO MANAGING DIRECTOR
To
ABC
Managing director
Adam & Co
Subject: This report has been prepared to evaluate the risks and internal controls in the
operational processes for the expenditure cycle of business in order to determine internal control
weakness and risks associated to it in each system.