I am writing to raise a concern over an essential aspect of internal control and the weakness I noticed in it. I think it is necessary to draw more attention to the fact that only one employee is responsible for keeping the accounts receivable and payable records, paying bills, and bank reconciliation. This situation poses a threat to Capital Food Supplies, and a solution to the problem is necessary to protect the enterprise’s finances. Despite the trust in the employee performing these duties, the risk to the audit and the company’s assets still increases if there is no separation of responsibilities.
Financial documents and reports are often the basis for decisions both internally and for potential investors. Understanding the financial state of the enterprise can contribute to more effective management decisions and help raise additional funds (Younas & Kassim, 2019). Moreover, accurate financial statements are necessary to comply with laws and avoid reputation risks (Younas & Kassim, 2019). Accounts payable and accounts receivable, which also contain the bills data, reflect the financial condition of the company, its stability, and its solvency. Bank reconciliation is necessary to verify the accuracy of the company’s financial statements. The procedure requires checking the accounts payable and receivable records; in case of inconsistency, it is crucial to find its cause. For this reason, internal control is essential for accuracy and error prevention.
Internal control is necessary to ensure that the company achieves the established goals of compliance and transparency. At the same time, the separation of duties is a critical element in this process (Younas & Kassim, 2019). This measure guarantees that no one has sufficient control over the company’s financial operations to hide fraudulent actions or increase the chance of error. It is necessary to delegate responsibility so that each process will be independent of the other, or the employee performing it could also check the correctness of the data. In this way, the employee must scan accounts payable and receivable during bank reconciliation at Capital Food Supplies.
The lack of separation of duties has negative consequences for the audit, the security of assets, and the company’s well-being. From the point of view of an audit, the execution and control of all financial transactions by one employee reduces monitoring capabilities and affects risk management. From a safety point of view, such a situation increases the likelihood of fraud and error, which threatens the stability of the company (Handoyo & Bayunitri, 2021). In particular, by controlling all data and operations, an employee can hide the deception and change records so that the action is not noticeable. The sole responsibility for all transactions increases the likelihood of unintentional error. In particular, the chance of noticing a discrepancy decreases since the data written by the employee will already be familiar to them, and they will not give them the necessary attention.
The importance of monitoring and the likelihood of fraud and errors are critical reasons why identified weaknesses in internal controls need to be eliminated. In the case of a limited number of employees, the minimum required measure is to regularly conduct additional checks of all financial records to ensure their accuracy. Let me know if you have any questions, and I will gladly answer them. I appreciate our cooperation and hope the information I provided was helpful and will help secure Capital Food Supplies.
References
Handoyo, B. R. M., & Bayunitri, B. I. (2021). The influence of internal audit and internal control toward fraud prevention. International Journal of Financial, Accounting, and Management, 3(1), 45-64. Web.
Younas, A., & Kassim, A. A. (2019). Essentiality of internal control in audit process. International Journal of Business and Applied Social Science, 5(11), 1-6. Web.