Internal control 1

### Internal Control Notes

#### Nature & Principles

- Purpose: Enhance efficiency, reliability of accounting records, safeguard assets.

- Principles:

- Ensure accounting info reliability.

- Protect resources from fraud, waste, inefficiency.

- Compliance with laws and business policies.

#### Limitations

- Collusion (employees bypass controls together).

- Human error.

- High implementation costs.

- Difficult duty segregation with small teams.

- Requires regular review.

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### Key Control Areas & Strategies

#### Cash

- Purpose: Prevent theft/loss.

- Strategies:

- Separate cash handling and recording. (Prevents theft/falsification)

- Daily bank deposits. (Minimizes on-site cash)

- Senior approval for payments (cheque/bank transfer).

- Clear excess cash from registers regularly.

- Two signatures for large payments.

#### Accounts Receivable (Debtors)

- Purpose: Ensure debt collection and customer reliability.

- Strategies:

- Send monthly statements. (Verify accuracy, prompt payment)

- Separate cash handling and debtor recording.

- Senior approval for bad debt write-offs.

- Regular follow-up on overdue accounts.

- Conduct credit checks and impose credit limits.

#### Accounts Payable (Creditors)

- Purpose: Ensure timely payments and supplier relationships.

- Strategies:

- Match invoices with purchase orders/delivery notes.

- Senior approval for payments (cheque only).

- Separate creditor recording and cash handling.

- Negotiate payment terms/discounts.

- Automate payment reminders.

#### Non-current Assets

- Purpose: Safeguard and optimize use.

- Strategies:

- Security measures (cameras, guards).

- Record-keeping and maintenance schedules.

- Staff training and purchase approval processes.

- Insurance coverage.

#### Inventory

- Purpose: Efficient management and theft prevention.

- Strategies:

- Automated stock reordering.

- Secure storage (e.g., locked warehouses).

- Minimize waste (e.g., FIFO method).

- Regular audits and appropriate storage conditions.

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### Administrative vs. Accounting Controls

- Administrative Controls:

- Duty segregation.

- Secure asset storage.

- Limited employee decision-making authority.

- Accounting Controls:

- Invoice verification.

- Bank reconciliations.

- Regular financial reporting.

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Essential Practices

- Separation of Duties: Prevent fraud by dividing responsibilities.

- Secure Asset Storage: Limit access to authorized personnel.

- Regular Reviews: Update controls to address new risks.

- Efficient Accounting Systems: Ensure accurate financial reporting.