Goodner Brothers
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Internal control is a process in which a companys board of directors, executive management, and all other employees are affected. Internal controls are normally designed to give a sound assurance on the subject of the efficiency and effectiveness of a companys operations. Internal controls validate the consistency of laws and regulations and how these are reported. There are five internal controls that can be identified within Goodner Brothers sales office:
Segregation of duties between employees
Authorized transaction process
Internal audit trail
Limitation to physical access
Independent reconciliation
There are several key internal control weaknesses shown within the company: easy access to
the accounting system, many transactions not be recorded timely, no segregation of duties, lack of management supervision, and inventory not being counted properly. Several of the key employees within Goodner had unrestricted access to the accounting system. These employees included the bookkeeper, the sales manager, and two sales representatives. The sales representatives were able to review and update their customer accounts. The sales representatives had a bad habit of jotting down a sales transaction on a scrap piece of paper and then entering it into the system. It should be policy that the sales representative must enter the order into the system when speaking with the customer. The sales representatives lack segregation of duties because there is access to the accounting system to change customers accounts and had direct access to the inventory. Management was not reviewing transactions periodically or properly. Transactions were being entered that were not approved. This lack of supervision can be a direct culprit of fraud. Inventory was not being counted in a timely manner. It was being counted every 15 to 20 months which is definitely too long. Employees tend to steal if the inventory is not routinely counted. Each task within a company should be handled by separate individuals. This is considered a segregation of duties. It is a excellent idea for management to define each employees responsibilities. This establishes accountability. Installing surveillance cameras is an excellent way to detect theft within a warehouse. Also, installing a security alarms and metal detectors can eliminate the ease of theft. Having surprise inventory counts can also control theft and balance the inventory properly. Some companies have a fraud hotline or a concerns hotline. If the employee has seen or knows about some illegal activity, he/she can call the hotline anonymously and report the issue. Offering training and education is one way that a company can avoid fraudulent activities.