Internal Control Measures for Efficient Operations

This assignment discusses the importance of internal controls in the Chips company, highlighting potential weaknesses and specific measures to be implemented, such as separation of duties, accounting system access control, physical audit of assets, weekly review of purchase order files, and approval requirements. By implementing these controls, the company can prevent deceitful behavior, promote accountability, and maintain efficiency and effectiveness in its operations.

Accounting Information
System

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Flowchart diagram...........................................................................................................................3
PART B............................................................................................................................................4
Internal control weaknesses relating to Chips expenditure..............................................................4
Impact of such internal control weaknesses on organization...........................................................7
Specific internal control that could be implemented.......................................................................7
CONCLUSION................................................................................................................................8

INTRODUCTION
Accounting information system is a computer based system software which deals with
the collecting, sting, processing and analyzing the financial transaction a business concern. The
reports generated by such information system are an important tool for the management that
assists them in their decision making (Maskell, Baggaley & Grasso, 2016). Different types of
accounting information system are ERP, SAP etc. In the present project report, there will be two
part in which part A will show a flow chart which will reflect the activities from purchase
requisition to payment system in Oriental Trading. Part B will show internal control weaknesses
in Chips, a manufacturer of computer parts and the impact of such weaknesses on the
organization.
PART A
Flowchart diagram
The expenditure starts with and ends in the chronological order as mentioned below:
purchase requisition prepared made by head of purchase department
1. Sent to purchase department
2. Verification of the requisition by purchase clerk
3. Reviewing of suppliers and placing of purchase order
4. Copies of purchase order sent to purchase department head, receiving department and
accounts payable department
5. Receiving department receives goods
6. Informs to Purchase order and filing of the same by receiving clerk
7. Receiving department gets copy of purchase orders and matches the quantity and actual
goods received
8. If any difference, then red line is marked and such stamped document is sent to purchase
department head
9. Accounts payable files the purchase order
10. Invoices are sent to the accounting department for authorization

11. cheque are prepared and authorized after the sign of treasure
12. Payment to the vendor

PART B
Internal control weaknesses relating to Chips expenditure

Internal control weaknesses Impact of internal control
weaknesses
Measures for mitigating the
weaknesses
Verbal communication The information may not
reach the intended person in
the same way as it was
intended by the information
provider. Also, verbally
notifying each department
slows the pace of operations in
the company which increases
the cycle of expenditure
process.
It can be mitigated by making
policy that every
communication shall take
place through official emails
through the authorized access
to the computers within the
organization. This will help in
reaching the information in the
manner in which it was
intended to be and by this
method the information will
more quickly along with the
privacy and security.
Need of verification of
confirmation that purchase
requisition has made by head
of purchase department
It is unnecessary hindrance in
the flow of expenditure of the
company which needs to be
eliminated as long expenditure
process calls for more working
capital, thus increase the cost
of operations of the company.
Creating a system of
authorized access to the
internal management system
where each of the person have
unique id and password for
login to access the system.This
will help in avoiding the
necessity of verification of the
order that it has been prepared
by the departmental head only.
Review of purchase order only
once in a month
Not reviewing of purchase
order book for so long
increases the probability of
omission and errors in the
recording of the transaction
that will affect the accuracy of
Timely and periodically
checking and reviewing of the
material registers, purchase
order books etc will help in
mitigating the risk control risk

the accounting and financial
reporting.
If any difference arises
between supplies ordered and
supplies received, then such
differences is highlighted in
the red ink.
This creates the control risks
meaning of which is
misstatement of materials
which could not be ascertained
or prevented by the tool of
internal control.
Computerization of this
activity so that no can misuse
the system of putting red ink
on the artificial difference
created by stealing the goods
before reaching the production
department.
Proper documentation of
records
The clerk manually files the
purchase order in the file on
the desk which increases the
chances of losing the essential
records of the company. This
reduces the reliability and
accuracy of the financial
reporting.
Proper documentation through
computerized system, Chips
can employ is setting the
standards for the financial
documentation so that
documents does not gets lost.
This will help in preparing the
financial reports with much
more accuracy and the
reliability of the reports will
help the internal stakeholders
for the rational decision
making.
Internal control is considered as one of the integral part of corporate governance. It can
be described as the set of rules, policy or procedure that a company follows for safeguarding
assets, for promotion of accountability, enhancing the efficiency and for preventing the
fraudulent behavior within an organization (What are Internal Controls, 2019). In simpler terms,
it means such a policy or procedure that a firm employs for stopping the employees and workers
from stealing any assets or committing any fraud at the workplace. There are basic three
functions of internal control which are described below:

 Efficiency and effective of the operations the company
 Accuracy and reliability of the financial reporting
 Adherence with the enacted laws and regulations(Maas, Schaltegger & Crutzen, 2016).
Chips is a manufacturer of computer parts, is a medium size company that supplies
motherboard, microchips and graphic cards throughout Australia. The system of expenditure
procedure of the company is prone to many loopholes that is affecting the efficiency and
effectiveness of the operations which eventually is increasing the cost of operations firm, thereby
decreasing the profitability of the company.
One of the internal control weakness is the manner in which the communication between
different departments flow thin the organization. The purchase requisition can be initiated by the
department head of purchase which is verified by one of the clerk of the purchasing department.
This creates the risk of authorization of the transaction within the business firm.
Second is the verbal transmission of information which questions the reliability of the
information passed from one department to other. This slows down the pace of operations in the
company. The accuracy of the information also gets distorted.
The purchase clerk checks the purchase file order only once in a week which is not
satisfactory. This is one of the internal control weakness because the e expenditures shall be
reviewed at least once in a week instead of neglecting it.
.There is another of risk of loss of documentation and records as the purchase clerk files
the documents on the desk manually.
Impact of such internal control weaknesses on organization
Such internal control weaknesses adversely affects the productivity and operational
efficiency of the Chips. Without proper internal control system, Chips is more prone to number
of risks such as improper recording of the accounting transactions, which in turn would affect the
reliability and accuracy of the financial reports of the company. If the internal control is system
is not strong and effective, then t would increase the probability of fraud and misappropriation of
company’s financial resources. Lack of good internal control system results in the inability of
chips to track the performance against the set standards mentioned in the budgets, forecasts etc
(Xu, Lin & Wang, 2015). Unauthorized access of the data and other material information could
significantly hampers the functioning of company in terms of security breaches and misused

accounts. Also, the probability of misusing the assets of the company increases in the event of no
strong policies and procedures for the employees in the Chips organization
Specific internal control that could be implemented
Management of the company can employ some control measures for mitigating the
internal control weaknesses of the expenditure process. There are different internal control
measures that could be applied by the company which are discussed below:
Separation of duties : The Chips organization can segregate the duties and responsibilities
of book keeping, deposits, auditing and reporting for better functioning of the operations.
Accounting system access control : Privacy, lockouts, passwords, electronic access can
help in preventing unauthorized people in accessing the data of the company.
Physical audit of the assets : It involves counting of the cash physically by the
responsible clerk in the organization and physical verification of the assets such as inventory,
stores&spares, tools, materials etc (Osadchy & Akhmetshin, 2015).
Weekly review of the purchase order file : The purchase order clerk should review the
purchase order file of the company at least once in a week instead of only once in a month. This
will help in preventing any fraud at this level by the junior employees.
Approval requirements : The company can increase the authority approval requirements
for ensuring effective control system.
CONCLUSION
From the above report, it can be summarized that internal control system is very essential
for the efficiency and effectiveness of the operations in the Chips company. If the internal
control measures that are such rules and regulations that prevents the deceitful behaviour within
the organization, and which promotes the accountability of the accounting of the company are
weak then it could lead to serious damages to the company in the form of high costs of
operations,low productivity and low profitability.

REFERENCES
Books and Journal
Maskell, B. H., Baggaley, B., & Grasso, L. (2016). Practical lean accounting: a proven
system for measuring and managing the lean enterprise. Productivity Press.
Osadchy, E. A., & Akhmetshin, E. M. (2015). Development of the financial control system
in the company in crisis. Mediterranean Journal of Social Sciences. 6(5). 390.
Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production. 136.237-248.
Xu, H., Lin, Z., & Wang, X. (2015). Relationship-Based Transaction, Internal Control and
Earnings Management: Empirical Evidence from Accrual and Real Earnings Manage-
ment. Journal of Accounting and Economics, 3(005).
Online
What are Internal Controls. 2019. [Online].Available through
<https://www.myaccountingcourse.com/accounting-dictionary/internal-
controls>