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The Internal Control System - Assignment Example

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Summary
The paper 'The Internal Control System' is a perfect example of a finance and accounting assignment. The internal control system which was missing and would help to reduce the chances of fraud are as improved monitoring: It is imperative that the restaurant looks at increased monitoring which can be achieved to a large extent…
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Extract of sample "The Internal Control System"

Question 1 The internal control system which was missing and would helped to reduce the chances of fraud are as Improved Monitoring: It is imperative that the restaurant looks at increased monitoring which can be achieved to a large extent by segregating the duties. Having different people assigned different roles within the organization would enable to improve the process of monitoring. The process would help to verify the actual data and match the values. In case any discrepancy arises the same can be sorted out. The process can also be instigated by having external agent hired for the process who carries out the process of monitoring and ensuring that no frauds take place. The role of the agent to be work on behalf of the owner and to carry out the process of monitoring. This will reduce the chances of frauds as the fear of being caught would prevent such incidents and would provide the required framework through which better business performance will be achieved. Improved Accounting: The process of accounting also needs to be improved and a mechanism needs to be adopted where the verification process improves. On the forefront the bills which are issued should be automatically number and no one should be allowed to make any changes in it. The same should be entered in the cash register so that the there is no mismatch between the bill value and the values entered. This process will prevent the cashier or any other person to remove the bills in between and would provide an opportunity to verify all the records. The process can be further improved by having a mechanism where physical verification of the bills are done with the actual payments received and entered so that any discrepancies can be resolved. Improving the mechanism of accounting will help to take care of the different transactions and will improve the process through which books of accounts are maintained. Continuous Verification: The process of verification needs to be improved. Since, the business deals in petty cash so the process of verification needs to be carried out daily. It is important that all the bills which are issued are matched with the bills which are entered and the same is verified with the closing balance. This needs to be done every day as it will help to measure the cash balances every time. The process will help to verify the cash values and will provide an opportunity through which cash balance maintenance process will improve. Improved Auditing: The restaurant can also look to take help of the auditors and ensure that the books are audited on a regular basis. This will help the owner to certify that all the transactions are correct as the auditor will look at ensuring that the details which are provided are correct and true. The process of auditing should be carried out by external parties and should be done on a continuous basis. This can be matched by random checking where the auditor or the owner carried out the checking randomly without informing the cashier. This will create a fear in the mind of the cashier that any frauds will be caught and would prevent the person from carrying out such acts. The process would lead towards improving overall efficiency and would help to develop the required process through which better controls will be exercised over the business. The business owner needs to thereby work on different dimensions and parameters through which the overall working in improved. Working on the different dimensions will improve the internal control system and would provide an opportunity through which business fundamentals would improve. Question 2 Bank Reconciliation Statement is a statement which is prepared to check the bank balance as per company accounting records with the balance which the bank accounts show. Differences in the balance between the bank statement as per company records and bank balance as per bank records arise due to the difference in the timing of the transaction. Certain transaction are recorded in the bank after a certain time lag and some transactions are directly carried out by bank which the company is unaware and is recorded after certain time interval which results in differences in balances. Bank Reconciliation Statement is prepared with the objective of removing those differences so that both the accounts show similar balances. Some of reasons which has led towards the preparation of bank reconciliation statement is as The bank reconciliation statement helps to find out the errors which occur either in the accounting records of the company or the bank. The statement provides an opportunity where the errors can be found out and appropriate action can be taken at the correct time so that both the accounts reflect the correct balances. This will help to improve the authenticity of the accounts and would provide the user with correct and relevant information which they are looking for. The bank reconciliation statement helps to control cash and ensures improved monitoring as it helps to find out the irregularities in cash transaction such as unauthorized withdrawals. This helps to reduce leakages and provides an opportunity where the fraud transactions can be identified quickly. The process would thereby enable to ensure that cash control is better and also the discrepancies are identified quickly. The preparation of bank reconciliation statement would also prevent people from undertaking any fraud transactions as the chances of being caught will be high and would thereby limit the chances through which misappropriation of funds would take place. The bank reconciliation statement when prepared if matches with the bank statement which it should helps to ensure that all the transactions are correctly recorded. This helps to provide an opportunity through which it can be certified that the books of accounts have been correctly prepared. This will ease the pressure and would help to mitigate the risk through which better controls can be exercised. It will thereby help to authenticate the books of accounts and certify that the accounts which are prepared and presented are fair and accurate and free from any error. This will thereby help to improve the overall effectiveness of working and create the required model through which operational gains will be achieved. Preparing the bank reconciliation statement helps to monitor the cash flow and provides an opportunity through which the business is able to manage the cash needs better. The process helps to understand the sources and application of funds and which would provide an opportunity through which better results would be achieved and better cash management would be ensured. It thereby helps to control one of the most important aspect of business and provides an opportunity through which the business will be able to find out the different areas through which performance can be further improved in the future. Question 3 AGL Energy Limited is an Australian based company which provides energy products and services to the people of the country. The company carries out business both in the generation and retailing of electricity for domestic and commercial users. The company started its operation in 1837 by the name of The Australian Gas Light Company which was finally transformed to AGL Energy Limited in 2006. The company has over 3.8 million customers which includes both residential and commercial users. The company operates mainly in New South Wales, Victoria, South Australia and Queensland. The company is also the largest private operator in Australia who are owner and generator of renewable energy. To ensure smooth operations and to reduce misuse and leakage of funds AGL Energy Limited have determined an internal control mechanism which helps to control the different activities. The internal control mechanism which has been identified is as AGL Energy Limited looks at carrying out auditing of their accounts at regular time intervals. The financials of the company are audited at the quarter, half yearly and yearly basis so that any discrepancies, frauds and misappropriation of funds can be easily found out. In addition to it AGL Energy Limited also ensures continuous monitoring and auditing so that the financials can be verified time and again and if any differences are found then appropriate steps can be taken so that the issues can be solved at the earliest. This will help AGL Energy Limited to bring about the required dimensional changes in the manner different activities are carried out and would help to strengthen the manner in which accounting is done. AGL Energy Limited has also identified the code of conduct which all employees within the organization have to follow. The code of conduct has been developed keeping in mind the principles of corporate governance and looks at achieving parity so that the interest of the stakeholders can be protected. Through the code of conduct the business looks at improved monitoring and ensuring that the roles of each employees are distinguished and are carried out with the correct mechanism. This has helped to provide the required check and prevents people from indulging into acts which could be fatal for the long term prospect of the business. This has helped them to strengthen the internal control as every employee is aware about the fact that they are being monitored through different mechanism. This helps to keep the employees on their feet and prevents them from carrying out any activities which could have an impact on them. As a result the internal control has strengthened and has helped AGL Energy Limited to ensure better policies. AGL Energy Limited also looks towards the policy of full disclosure and looks to provide all material information to the stakeholders. This has become possible due to agents which are being hired by the organization so that effective monitoring takes place. The agents look at protecting the interest of the stakeholders and take steps so that all misleading information is removed. This has helped to improve the internal control mechanism as it has strengthened the manner in which different activities are carried out and has helped AGL Energy Limited to be able to justify the different mechanism through which corrective accounting can be achieved. Having agents has helped AGL Energy Limited to improve the process of monitoring as they are external parties whose job is to bring forward any incidents which could impact the shareholders. Having those agents protect the organization as the chances of taking risk gets marginalized and the company as a whole operates in a more peaceful manner. Read More
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