Report on Accounting Information Systems: Internal Control Weaknesses

This report provides a comprehensive analysis of internal control weaknesses within accounting information systems, focusing on a case study involving a company named Motherboards and More Pty Ltd. The report highlights the importance of proper documentation, well-defined business cycles, transaction authentication, and regular oversight and review procedures. It identifies various weaknesses, including insufficient documentation, outdated information systems, and lack of ethical policies, and their potential impact on a business. The report also addresses the threat of ransomware and its implications for data security. Furthermore, it offers recommendations for improvement, such as implementing analytical procedures, tests of controls, and substantive tests to strengthen the revenue cycle and overall financial health of the organization. The report concludes by emphasizing the significance of proactive measures to mitigate risks and ensure the consistency, transparency, and efficiency of business operations.

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Accounting Information Systems
Name
Affiliate Institution

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Executive Summary
This report outlines about internal control weaknesses. They can be prevented by ensuring that
all transactions are documented correctly, key controls are documented in major business cycles,
transaction authentication is done before allocating orders, main review procedures like financial
documentation are performed, and evaluation of information system is done among others. This
will influence consistency, transparency and efficiency of the business.
Controls test for the revenue cycle involves who receives and grant credit sales; the separation of
role for documenting, recording, and shipping sales orders; correct documentation for collating
and banking cash and filing the receipts; the right authority and records to permit discounts for
cash or early payments and purchase returns; and administration authorization to identify that an
account is uncollectable debt.

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Internal Control weaknesses............................................................................................................4
Ransomware....................................................................................................................................7
Conclusion.......................................................................................................................................7
Recommendation.............................................................................................................................7
References........................................................................................................................................8

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Introduction
Motherboards and More Pty Ltd is a company that deals with manufacturing of computer parts
such as motherboards, graphics card and microchips. When a client makes an order either over a
phone call, email or on the company’s website, the orders are received and forwarded to the
store. The system is designed in such a way that it only bills items shipped and not including
items on back order. The system then generates client’s invoice and a copy of it is sent to the
client. The client thus makes payment and is given a cash receipt upon payment and waits for
his/her shipment to arrive. Terms of trade include payment of the items within 14 days and if a
client pays within 3 days he/she is given a discount of 2%.
Internal Control weaknesses
Internal control insufficiency existing in small companies can lead to damage or loss of goods,
decline in revenue and loss of resources. These deficiencies can easily be corrected by slightly
modifying present processes or bringing in basic internal controls:
Insufficient documentation- documentation offers evidence of the existing transactions. It is the
input to build correct financial records. Financial files should be counted to make sure all
transactions are documented and accounted for. This will assist to avoid recording similar
transaction twice, since there should be no any redundant numbers in the system. With correct
numbering of records, tracking files that relate to questions and claims from owners or clients’
prior transactions will be simple. Correct documentation would likely offer sufficient answers to
most or all questions related to financial transactions. In addition, sufficient documentation will
simplify the process of assembling financial files and completion of tax returns. (Granof, 2016)
Wrongly defined major business cycles- some small organization processes appear easy. As
such, administrators and owners finds it unnecessary to create written procedures and policies or
primary flowcharts describing the main business processes. This however is likely to be one of
the most unutilized control techniques where the quality can be gained with little effort. An
efficient procedure can straighten business goals and aid in establishing most excellent operating
procedures. As businesses have varying focus sectors, distinct cycles will be essential to the
business, although in several businesses the following processes will be crucial. Banking
Procedures, Sales and Accounts Receivable, Accounts Payable, Cash Management, and
Purchases. For a business purchasing assets, inventory controls will be an essential cycle. Filing
key controls in every cycles will influence consistency, transparency, and particular duties and
responsibilities in every cycles can easily be allocated to particular individuals. When
improvements and adjustments are enhanced to the processes, workers can be informed quickly,
trained, and updated.
Inadequacy of control with authentication of transactions- authentication of purchases should
happen prior to the engagement of resources. Depending on the capacity of the business, stages
of authority can be brought in to eradicate the risk of improper spending. For instance, with
orders high in some dollar value, like $1,000, several quotations should be received which could

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minimize the general expenditure. Authenticating transactions before allocating orders offers the
owners the chance to analyze different purchasing alternatives, and ensuring services or items
received will aid the business goals. (Dauber, Shim, Siegel & Siegel, 2012)
Lack of oversight and review- small business managers normally get so occupied in the daily
operations of the business that they have a tendency of neglecting performing main review
procedures. Business managers should spare little time and interest in the financial
documentation. This is an essential aspect of deception prevention. Little time is needed to
examine monthly revenues, actual amounts versus budget, and variance, expense, and inventory
reports. prioritizing on approach will provide the owner with valueless report on how the
business is functioning and where any possible problem or inefficiency areas may exist.
Evaluation of the financial files is a crucial input and component for improved decision making.
The regularity of the analysis of financial information relies on the quantity of transactions and
the kind of business, however, the evaluation of financial information should be carried out on a
monthly basis.
Outdated information systems- generally small businesses perform on small resources and less
time is normally spent analyzing information systems. Sparing more time in this sector could
improve efficiencies in the long run. Outline the systems in the business and the major
performance measures required. Systematic operations will aid in competitiveness and
efficiency. Various user-friendly software systems are available which could decrease operating
and processing cycles and are cheap to operate.
Lack of logical and physical safety- lack of physical safety of business goods and resources
could lead to the damage or loss to goods and resources. Access to tools, check stock and petty
cash should be confined to right individuals and stored in a proper safe location. Computer
devices and networks should have password that is protected and these passwords should be
frequently changed. Firewalls and safeguarded equipment or software is a vital component to aid
in prevention of security breaches. safety of individual and banking information is becoming
increasingly essential with the increase in threats of identity card theft. Individual and employee
information should be encoded and kept in safe folders.
Lack of formal ethical procedures and policies- this control may seem to be less important for
the growth of a business, but lack of clear procedures on the usage of business resources and
anticipations, based on ethics and integrity from working staffs, businesses can experience
ineffectiveness and misappropriation of resources. A code of conduct is an open revelation of
the way a company functions. A well-structured ethics policy can act as a communication
channel that reflects essential values and objectives of the business. It can offer procedures of
how workers should handle potential misconduct and/ or misappropriation of resources and can
offer alignment regarding to organization commitments and values. (Studer, 2009)
Lack of clearly defined job duties and responsibilities - the most essential assets are the
employees and small business rely much on their workers. They are representatives with
competitors, customers, and suppliers. For this important resource to be efficient in the business

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you will require to offer clear guidelines and describe appropriate duties and responsibilities for
every employee. Job responsibilities and duties should be understandable and be written form.
This will simplify the process of differentiating duties. Fresh applicants will be capable to
reference back faster to their roles and understand their responsibilities better.
Multiple roles to an employee- small businesses are exposed to deception by their own working
staffs since they may have a few staffs with multiple duties. Every employee should be assigned
particular job roles, through writing to make sure confusion is avoided in allocated job duties and
responsibilities. Generally, allocating different individuals the role of authenticating
transactions, filing transactions, and managing custody of related resources like credit cards and
cash offers more efficient internal control and less chances for misappropriation of
resources. (Crain, 2015)
Insufficient backups, disaster recovery, and business continuity plans- the essentiality of business
continuity and backups are under-emphasized some times. Systems can be structured to
automate back-ups performance and on a frequent basis. Backups should be created based on
volume of transaction and kept off-site. To re-generate information can be time consuming and
painful. Business Continuity plans list the process of recovery accomplishment in case of a
danger. Long term power disruptions, unavailability of offices for long periods, and decrease of
employees are common and can happen. Planning prior is vital to the success of the business. A
threat recovery plan involves a continuity plan, an emergency plan, and disaster recovery plan.
Internal control weaknesses Impact control
Insufficient documentation Transaction redundancy correct numbering of records
Wrongly defined major
business cycles
Inconsistency and lack of
transparency
Filing key controls in major
business cycles
inadequacy of control with
authentication of transactions
improper spending transaction authentication
before allocating orders
Lack of oversight and review fraud main review procedures like
financial documentation
should be performed
outdated information
systems
inefficiencies Regular updates of
information system
Lack of logical and physical
safety
damage or loss to goods and
resources, security breaches
Use of passwords, firewalls
and burglarproofing
Lack of formal ethical
procedures and policies
ineffectiveness and
misappropriation of resources
well-structured ethics policy
Lack of clearly defined job
duties and responsibilities
inefficiencies Clear job description
Multiple roles to an
employee
fraud Clear job description
Insufficient backups, disaster
recovery, and business
continuity plans
Unavailability of resources Early planning and creation
of backups

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Ransomware
Ransomware is a subset of cyber-attacks in which the information on a victim's computer device
is blocked, by encoding, and payment is needed before the ransomed information is decoded and
access granted to the victim. The intentions for ransomware threats focuses on money, and unlike
other kinds of threats, the victim is normally alerted that an abuse has happened and is given
directions on how to recover from the threat. Payment is normally required in a virtual currency,
like bitcoin, to hide the cybercriminal's identity. Examples of ransomware are Wannacry and
CryptoLocker.
Conclusion
In conclusion, internal control weakness can be prevented by ensuring that all transactions are
documented correctly, key controls are documented in major business cycles, transaction
authentication is done before allocating orders, main review procedures like financial
documentation are performed, and evaluation of information system is done among others. This
will influence consistency, transparency and efficiency of the business.
Recommendation
The following are some of the recommendation for Motherboard;
Analytical Procedures- the auditor must test the accounts receivable account to make sure it is
not exceeding sales. If it is, this could show that the organization is a risk to credit and may lead
to cash flow challenges in the future.
Tests of Controls- controls test for the revenue cycle involves who receives and grant credit
sales; the separation of role for documenting, recording, and shipping sales orders; correct
documentation for collating and banking cash and filing the receipts; the right authority and
records to permit discounts for cash or early payments and purchase returns; and administration
authorization to identify that an account is uncollectable debt.
Substantive Tests- These tests involve analyzing the trial balance generated by the accountant at
the end of the cycle, approving receivable amounts with the organization or individuals with
debts and assessing the correctness of the allowance for written-off accounts by inspecting the
past entity.

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References
Granof, M. H. (2016). Government and not-for-profit accounting, binder ready version:
Concepts and practices. John Wiley & Sons Inc.
Dauber, N. A., Shim, J. K., Siegel, J. G., & Siegel, J. G. (2012). The complete CPA reference.
Hoboken, N.J: John Wiley & Sons.
Studer, Q. (2009). Straight A leadership: Alignment, action, accountability. Gulf Breeze, FL:
Fire Starter Publishing.
Bragg, S. M. (2014). Bookkeeping guidebook: A practitioner's guide.
Crain, M. A. (2015). Essentials of forensic accounting.
Albrecht, W. S. (2012). Fraud examination. Mason, OH: South Western, Cengage Learning.
CRUMBLEY, D. L. (2017). FORENSIC AND INVESTIGATIVE ACCOUNTING. S.l.: CCH
INCORPORATED.
Kim, W. C., & Mauborgne, R. (2015). Blue ocean strategy: How to create uncontested market
space and make the competition irrelevant.