INTERNAL CONTROL EVALUATION a. Identify the physical control weaknesses depicted in th...

Internal control evaluation

Internal control evaluation is the process of examining the internal controls to ensure they are functioning effectively.

The Physical Control weakness identified in the flowchart given in “Problem 6” are as follows:

1. In such a system a clerk can misuse customer expenses on his account and can wrap up the robbery by making an alteration to the accounts receivable ledger. A credit sale is made to a customer, although the customer’s account is some months remains unpaid.

2. Puts off a customer from being payable for all the items ordered even though he has ordered only some items were shipped.

3. The shipping clerk obtains merchandise from the stockroom and distributing them to somebody who had not placed an order.

4. Loss of the sales invoice after the provision and not posted to the customer. The bill was certainly not found.

5. The wrong record posted to general ledger.

The IT controls that can be used to protect the above system are as follows:

1. Segregation of duties; do not allow one person to have the keeping of overheads and the capability to make a correction to the records; all adjustments to account receivable have to be approved.

2. Carry out a credit check and need managing authorization for all sales to accounts that are unpaid.

3. Billing should bring together the shipping report with the sales order.

4. The shipping clerk should not have right of entry to the stockroom.

5. All documents must be pre-numbered.

6. The internal control in the wrong record posted to general ledger can be detected by reconciling the accounts receivable control account to accounts receivable subsidiary ledger. And evaluate control totals of cash received with total credits to account receivable subsidiary ledger.