Mon2Fri Company’s Internal Controls Report (Assessment)

Introduction

This analysis paper examines the strengths and weaknesses of the internal controls that are currently in place in Mon2Fri that is a company specializing in electronics with ageing information systems.

Weaknesses in Internal Controls

1. The sales department comprising of three salespeople however there is no control over verification of orders received over the telephone. There are no controls over the preparation of sales order form and it lacks authorization. This could result in fictitious sales and the company could face problems.
2. The sales order recorded by the sales team is not matched with the purchase order from the client. This may lack accuracy and completeness (Kutz, 2003)
3. There are no recording controls over the sales order form. No sale journals are maintained to record and match the pre-numbered sales order form. Too much dependence on the sales team without segregation of duties could be a problem for the company.
4. There is no control over the verification of the sales order copy and client’s order when it is received by the shipping department. Non segregation of duties could result in problems for the company and possibility of fraud is at high levels (Kutz, 2003).
5. Creditworthiness of existing and new customers is not checked that could pose a greater challenge for the company. The company expects 10% of sales to be bad debt during a year however this estimation does not seem in line with the poor controls over checking credit worthiness of clients and actual results could differ significantly.
6. There are no controls over the shipping of goods as there are checks of quality and returns of goods dispatched. This could result in sales being rejected and returned at the expense of the company.
7. The inventory controls do not check any goods that have been physically damaged and are not saleable. Major inventory can be written off if damaged goods are not recorded.
8. The invoice issued by the billing department is not pre-numbered and its content is not verified and authorized (Bragg, 2009). This could result in lost documentation and sales may remain unpaid.
9. The receipt of cheques and consequent deposit in the bank does not have any controls. Loss of cheques and revenue can be expected from this.

Strengths of Internal Controls

1. The sales order forms are pre-numbered that allow tracking of orders placed by clients and goods shipped to them.
2. The sales order forms are sent along with the shipment and authorized by customers that establish clients’ commitment to unpaid goods.
3. Creditworthiness of customers requiring above $5,000 is checked that could avoid major earnings turning into bad debts (Kutz, 2003).
4. The warehouse clerk checks every day the stock in hand and determines the quantities dispatched to clients. This keeps a regular check on the goods in the company’s warehouse.
5. Cheques are received with duplicate invoice that allows tracking of payments and balancing of outstanding payments from clients.

Recommendations

There are major flaws in the internal controls including operational, accounting and financial that could cause major problems for the company. Suggestions could be made to remove the weaknesses as identified in the previous section and also to keep a regular check so that such weaknesses may not arise again. Major suggestions could include segregation of duties, oversight of the ordering, dispatching, invoicing and recording of receipts are required. Moreover, implementation of computerized system could overcome some of the weaknesses in the internal controls and allow better decision making (Porter & Norton, 2009).

References

Bragg, S. M. (2009). Accounting Control Best Practices. New York: John Wiley and Sons.

Kutz, D. W. (2003). Policies and Procedures Manual for Accounting and Financial Control. Carol Stream, IL: CCH.

Porter, G. A., & Norton, C. L. (2009). Financial Accounting: The Impact on Decision Makers. New York: Cengage Learning.