Assessing and Managing Risks of Corporate Credit Cards

The study investigates significant risks tied to corporate credit cards such as personal expenses, manipulation, and poor spending habits. It underscores the importance of comprehensive audits and setting spending limits across different categories to manage these issues effectively. The discussion points out that while corporate credit cards offer advantages in managing business expenses, they also present vulnerabilities that can be exploited for fraudulent activities if not properly controlled. Therefore, a well-structured internal control system is crucial for businesses to mitigate these risks. Regular reviews and updates of the control measures are recommended to ensure financial integrity and smooth business operations. The findings recommend issuing corporate credit cards primarily to sales staff due to their frequent small purchase needs, aligning with the study's focus on managing smaller transactional expenses effectively.

INTERNAL CONTROL
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Summarized overview of the sales process for Bucks Phyz........................................................1
2........................................................................................................................................................1
2.(a) Identification of internal control weaknesses in Bucks Phyz sales process...................1
2.(b). Impact of weaknesses on the business..........................................................................2
2.(c). Specific internal control................................................................................................2
3........................................................................................................................................................3
3.(a). Detailed review of the benefits and potential risks associated with corporate credit card
introduction.............................................................................................................................3
3.(b). Specific internal controls to minimize the risks involved.............................................3
3.(c). Recommendations to the CEO regarding who should be issued with a card with reasons
................................................................................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
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INTRODUCTION
Internal control can be defined as a procedure to make sure that all the operations are
carried out complying with the legislations, policies and regulations as well. It safeguard
business itself against any fraudulent activities, theft, embezzlement and any manipulation in the
financial reporting. Bucks Phyz is a medium sized organization getting a turnover of AUD 2.5
billion every year. The aim of the assignment is to critically investigate and evaluate its current
sales process to identify weaknesses and suggest specific control measures. Besides this, as
business is looking for introducing corporate credit cards to purchase smaller items. Therefore, it
will examine the relevant benefits and risk with necessary measures to eliminate it.
1. Summarized overview of the sales process for Bucks Phyz
In organization systematic sales process is followed and under this if any entity intends to
enter in to contract with company then in that case negotiation round are commenced. During
negotiation round entire details related to company is collected from the market and related
website in respect to credit rating (Van de Poel. and Vanstraelen, 2011). By doing so it is
identified whether front party is in good position and whether it will be right to do deal with
them. If all things are perfect the quotation are given to front party and contract is inked with
them.
2
2.(a) Identification of internal control weaknesses in Bucks Phyz sales process
There are lots of internal control weakness in the company sales process. In respect to
each transaction entry is done in the system. In single day large number of entries are done in the
accounting system. Due to this reason there are chances that wrong entry may be done in books
of accounts and computer systems. Hence, wrong results can be obtained from analysis of data
and firm can make wrong decisions. Thus, there is not control system that can ensure that all
accounting or transaction related facts are entered accurately in systems. This is one of major
weakness in the control system of the company. Apart from this, there are some other weakness
in the internal control system. Other major weakness in internal control system is that data once
enter in to system it’s double checking is not done (Mikalsen, Jones. and Roskilly, 2010). Hence,
if one enter wrong data then that will be considered as final one and wrong decisions will be
taken on basis of it. Apart from this, if individual that is doing entry of data if manipulate facts
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then in that case there will be no one who can catch such kind of incidents. After long time
period if something usual happened then in that case top managers will pay attention on this
situation. Thus, it can be said that there are loopholes in the internal control system. There is
need to make improvement in these systems to bring transparency in company operations.
2.(b). Impact of weaknesses on the business
All these weak points that are discussed above have some weakness on the business. It
can be observed that data that is stored is also analysed so that on real time basis business can be
analysed and decisions can be made in the business. If data is wrong then analysis will also show
wrong results which will lead to making wrong decisions in the business. This is one of the
major weak point of the company (Chen and et.al., 2014). Apart from this, many times
information does not received about credit worthiness of customers and then also contract is
signed with them. Such kind of careless behaviour can create problem for the company in future
time period in terms of non-receipt of bad debt or any other problem. This is second weakness
that is in firm business. Firm need to address these issues properly and on time so that business
can be operated smoothly.
2.(c). Specific internal control
There are some of the internal control that can be implemented by the firm in its business.
Under this it can prepare a rule under which double checking of records will be happened. By
doing so it will be ensured that all transactions are recorded at appropriate value and in proper
manner. After head of sales department certify that all data enter by data specialist is perfect raw
data will be considered as final data for analysis purpose. This is the one of the strategy that
company can follow in its business. Apart from this, there must be a good governance system
and it must be ensured that no manager can breach that system at its own discretion. It must be
ensured that before receipt of credit rating information no deal will be inked with any party even
its name is very popular in the market and have good image (Xia and et.al., 2012). By doing so it
can be ensure that there will be less loss and blockage of cash in the business.
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3
3.(a). Detailed review of the benefits and potential risks associated with corporate credit card
introduction
Corporate credit cards are different from personal card. It is provided by company to
their employees to pay business related expenditures within approved limit such as travelling
expenditures. In accordance with the scenario, CEO of Bucks Phyz is considering to introduce
corporate credit cards to purchase small items so as to eliminate the lengthy procedure of placing
purchase order and sending it to supplier. There are many benefits as well as drawbacks with
such plan. By issuing corporate credit card, Bucks Phyz’s workers will be able to float funds
themselves means they are not required to incur expenditures first using their own money and
reimburse it later (Pofeldt, 2013). It also will be helpful as it saves length processing time by
electronic payment and they do not need to pay cash. Electronic expense reporting can be linked
with the firm’s own expense list, in which, employee just need to report those expenses that were
not made by the card.
However, at the same time, it is subjected to risks or violation of the business policies too
by purchasing a costlier item that unnecessarily increase firm’s expenditures. It is necessary for
every worker to keep card at safe place valuing its security aspect. If in case, it is being lost, than
immediately, it needs to be informed to prevent the occurrence of fraudulent charges. If worker
is unaware of card lost that on any suspicion purchase, company must contact the worker. It also
have a risk that sometime, card holder may incur personal expenses and mix it with the business
spending to benefit themselves that is against the business policies. Unlike traditional reports, it
offers real time information (Pofeldt, 2013). However, it is possibility that it may encourage bad
spending habits among workers which must be avoided otherwise, it will have an adverse impact
on Bucks Phyz’s profitability.
3.(b). Specific internal controls to minimize the risks involved
Bucks Phyz must create a corporate credit card policy setting out its usage, eligibility and
requirements as well. It contains statutory rules regarding its acceptable & unacceptable use and
expense occurring, its reimbursement, limit of credit cards and others. By assigning a fixed limit
on every card, it will help in managing spending level and do not develop bad spending habits
among workers. The policy also must mention the type of workers who have eligibility to get
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credit card. In despite of this, expenditures reports must be thoroughly examined and evaluated
with the evidences so as to discover whether the money is spent for the business use or personal
purpose (Traver, 2017). Thus, thorough analysis of expense report will help to determine
fraudulent or manipulation acts, in which, worker had used the card for self-benefits. In despite
of this, firm must set spending limit for every spending heads and category. Sudden audit of
expense report will create a fear among workers and restrict them to not use the card for personal
purpose. In this respect, strict policies must be framed, in which, if any employee is recognized
in default or fraud, then, he or she must be terminated or temporarily suspended.
3.(c). Recommendations to the CEO regarding who should be issued with a card with reasons
Corporate credit card should be issued to the sales staff. It is because; they make small
purchases of required items for the business and as company is targeted to introduce it for
purchase of smaller item. It is appropriate to issue the card to salesperson of the firm.
CONCLUSION
The findings of the study concluded that corporate credit card is subjected with several
risks like personal expenses, manipulation and bad spending habits. Therefore, a complete audit
of the expense report and setting-spending limit for separate spending head will be followed to
put necessary control measure.On basis of above discussion it is concluded that there is
significant importance of internal control system for the business firms. Managers need to review
their internal control system time to time so that loopholes from same can be removed on time
and business can be run smoothly and effectively.
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REFERENCES
Books and journals
Abbott, L.J. and et.al., 2016. Internal audit quality and financial reporting quality: The joint
importance of independence and competence. Journal of Accounting Research. 54(1).
pp.3-40.
Chen, Q. and et.al., 2014. Development and evaluation of a real-time method of simultaneous
amplification and testing of enterovirus 71 incorporating a RNA internal control
system. Journal of virological methods. 196. pp.139-144.
Mikalsen, R., Jones, E. and Roskilly, A.P., 2010. Predictive piston motion control in a free-
piston internal combustion engine. Applied Energy. 87(5). pp.1722-1728.
Van de Poel, K. and Vanstraelen, A., 2011. Management reporting on internal control and
accruals quality: insights from a “comply-or-explain” internal control regime. Auditing: A
Journal of Practice & Theory. 30(3). pp.181-209.
Xia, C. and et.al., 2012. Voltage disturbance rejection for matrix converter-based PMSM drive
system using internal model control. IEEE Transactions on Industrial Electronics. 59(1).
pp.361-372.
Online
Pofeldt, E., 2013. Should I give employees company cards? [Online]. Available through: <
https://www.creditcards.com/credit-card-news/give-employees-company-credit_cards-
1585.php>.
Traver, E., 2017. How to create an Internal Corporate Credit Card Policy Agreement. [Online].
Available through: < https://fitsmallbusiness.com/corporate-credit-card-policy/>.
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