Internal Control and Corporate Credit Cards at Bucks Phyz

This assignment analyzes the internal control system at Bucks Phyz, focusing on the issuance of corporate credit cards. It identifies weaknesses in their system that could lead to fraud and recommends improvements for better expense tracking and risk management. The analysis delves into the advantages and disadvantages of using corporate credit cards and emphasizes the importance of a robust internal control system for mitigating risks associated with card usage.

Running head: INTERNAL CONTROLS
Internal controls
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Internal control weakness in sakes process of Bucks Phyz:............................................................2
Weakness impact on organization:..................................................................................................2
Implementation of specific internal control:....................................................................................2
Benefits and potential risks associated with introduction of credit cards:.......................................2
Implementation of specific internal control for minimizing the occurrence and impact of
identified risks:................................................................................................................................2
Recommendation to CEO regarding issuing of corporate credit cards:..........................................2
Conclusion:......................................................................................................................................2

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Introduction:
The report is prepared to be presented to the CEO of Bucks Phyz that deals with the
implementation of specific internal controls for mitigation of risks posed by the existing sales
process of organization. In the current sales process, accountant is required to raise the purchase
order and then it is required to be sent to suppliers. Raising the purchase order took long time
and when transactions was to be made online, the existing sales process is regarded as an issue
because of delaying. Analysis of the given case depicts that sales process of Bucks Phyz is not
capable of doing online transactions. Staffs are required to undergo any training course for which
they need do the bookings online by making payment and reimbursing the same amount from
Bucks Phyz. Introduction of corporate credit cards is likely to solve the issue with the existing
sales process (Susanto, 2016).
Discussion:
Internal control weakness in sales process of Bucks Phyz:
The sales process of organization does not have proper and adequate design of
information technology in general and control of applications (Davis et al., 2017). This would
prevent the information technology associated with the sales system from providing accurate and
complete information that are consistent with the current needs and objectives of financial
reporting. Due to complexity level in the sales process, there is no proper segregation of duties
such as separation of authorization, record keeping relating to sale transactions and custody.
Sales staffs and members of team are required to make booking for their course
themselves and seek reimbursement might lead to conducting of fraud activities (Toldbod &

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Israelsen, 2014). This is indicative of the fact that there is no proper authorization of activities
and transactions.
Weakness impact on organization:
Existence of such weakness in the internal control system of organization has several
impacts in terms of size and scope of business and it requires management to rely on different
reports for controlling the operations effectively. It is certainly possible that organization is not
complying with the applicable laws and regulations and this will impact of reduced financial
information reliability. Established control might experience breakdowns because of
misunderstanding of instructions on part of sales staffs or they might make some errors due to
distractions, fatigue and carelessness (Davis et al., 2017). Moreover, there is the possibility of
collusion within the organization as individual staffs acting together with another supplier,
customer and another sales staffs might conceal and perpetrate fraud so that their detection can
be prevented using internal controls. This would make the component of control environment of
internal control ineffective and indirectly hampers the ethical values and integrity of
organization.
Implementation of specific internal control:
Identification of risks needs to be mitigated by effective implementation of some specific
internal controls that are listed below:
 Proper authorization of duties and transactions relating to sales activities
There should be proper authorization of transactions and it can be specific and general as
well. Management of organization is required to create subordinates and establish policies and
only the transactions within the limits as per policy should be approved.

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 Independent check on performance
Organization should have proper internal verification as there is possibility that personnel
are likely to intentionally or forget the procedures or they become careless unless their
performance is evaluated. Internal verification prices should incorporate computerized
accounting system for making the sales process automated (Du et al., 2015).
 Information processing
Bucks Phyz should undertake variety of internal control that should be performed for
checking completeness, accuracy and authorization of transactions. For example, a purchase or
customer order should only be accepted only after making reference to an approved credit limit
and approved customers.
 Performance indicators
Some of the factors that serve as control activities are corrective and investigative
actions, relating different sets of data to one another such as operational and financial and
analysing the relationships. For instances, percentage of orders comprising rush orders, variances
relating to purchase prices and return percentage to sales orders (Xu et al., 2015).
 Adequate separation of duties
For conducting any inappropriate action and reducing the risk of errors, duties should be
segregated among different staffs. For instance, there should be separate individual for recording
transactions, handling authorization and relates assets handling.
 Adequate documentations

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Adequate records and documentation such as sales invoice, purchase invoice and sales
journals should be maintained in electronic format. For adequate control over assets and proper
recording of transactions, there should be sufficient documentations.
Benefits and potential risks associated with introduction of credit cards:
The introduction of corporate credit cards has been suggested by CEO of company and it
has got its own benefits and limitations that are illustrated below:
Benefits of corporate credit cards:
Corporate credit cards are a tool used by management for controlling costs and curtail
expenses incurred by staffs in course of doing business. It provides organization with the
opportunity to closely monitoring the spending of their staffs. A business is able to exercise
incredible control over expenditures of their staffs and indirectly helps in determining credit
worthiness of company. Employees are authorities to perform certain transactions on behalf of
organization that are later accounted for. Therefore, it also helps in minimizing the risk of errors
and fraud. Track of spending across different departments of can kept by management using
credit cards and helps in streamlining of accounting process (Dascălu & Nasta, 2015). Hence, it
helps in facilitating record keeping.
Furthermore, it comes with benefits such as potential for deductions of taxes, creating
segregation between work and personal expenses, options for accounting of personal and
business liability. Nonetheless, there should be policies regarding spending limits, procedures
and restrictions that should be followed by employees.
Limitations of corporate credit cards:

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An organization is required to conduct monthly scrutiny and reviewing of all bills for
confirming that all the purchase as mentioned in the account is actually reflected by it. This
should be done for enquiring that there are no signs of any fraudulent use of credit card (Fitriati
& Mulyani, 2015). There is a possibility of employees overspending as it entrust temptation and
there are drawbacks in relation to employees.
Implementation of specific internal control for minimizing the occurrence and impact of
identified risks:
Bucks Phyz might be facing some risks due to issuing of corporate credit cards to their
employees in terms of fraudulent activities and taking undue advantage. In order to facilitate
better accounting of expenses pertaining to employee’s credit card, an organization is required to
have a written credit card policy as it serves as the foundation of good credit expense control
system. The guidelines regarding the reimbursement of expenses should be established within
this policy document (Wong & Wong, 2017). The probability of occurrence of fraud within this
area would be reduced by following list of controls apart from written policy.
 Criteria determination for eligibility and requirement of credit cards (Marin, 2015).
 Employees who have been issued with credit cards are required to provide them with
overall and monthly credit limits.
 Performing annual and initial credit checks of employees who have been issued with
cards.
 Purchases should be individually substantiated and itemized and therefore, the items that
have been listed for reimbursement are provided with the submission of original receipts
(Mohammadi 2014).

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 Receipt of credit cards and expense reports should be submitted on timely basis for the
purpose of processing so that expense items are reconciled and a proper view is provided.
 Expenses amounts should be compared budgeted amounts’ and prior period.
 For each purchased items, purpose of business should be described.
 Obtainment of cash advances should be prohibited from the use of these cards.
Recommendation to CEO regarding issuing of corporate credit cards:
For recommending CEO of Bucks Phyz regarding whom credit cards should be issued
requires determination of criteria who needs a corporate credit card and who is eligible. Credit
cards should only be issued to trust worthy employees who are competent enough for conducting
business seamlessly without getting engaged in unethical and fraud activities (Prasad & Green,
2015).
Conclusion:
From the analysis of system of sales process of Bucks Phyz, it can be inferred that there
are several weakness prevalent in the internal control system of organization. In this respect, it is
required by organization to implement adequate internal control system that will facilitate
prevention of risks posed by the internal control. It can also be demonstrated that issuing of
corporate credit cards comes with advantages as well as disadvantages. The risks of occurrence
of fraudulent activities concerning credit card issuance can be mitigated by having proper
internal control system in place (Simkin et al., 2014). However, Bucks Phyz will be able
experience better tracking of their expenses and for this there should be adequate internal control
system facilitating of valid, authorized and appropriate business expense payments.

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Dascălu, E. D., & Nasta, L. (2015). Managerial Accountability--a Key Factor in the
Implementation of Internal Control Systems. Ovidius University Annals, Series
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Monitoring Internal Control Systems: A Case and Spreadsheet Based Pedagogical
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Du, K., Huddart, S., & Xue, L. (2015). Accounting Information Systems and Asset Prices.
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