Internal Control Weaknesses Of Motherboards and More Pty Ltd

Question: Discuss about the Internal Control Weaknesses Of Motherboards and More Pty Ltd. Answer: Introduction Motherboards and More Pty Ltd is a company that deals with manufacturing of computer parts such as motherboards, graphics card and microchips. When a client makes an order either over a phone call, email or on the companys website, the orders are received and forwarded to the store. The system is designed in such a way that it only bills items shipped and not including items on back order. The system then generates clients invoice and a copy of it is sent to the client. The client thus makes payment and is given a cash receipt upon payment and waits for his/her shipment to arrive. Terms of trade include payment of the items within 14 days and if a client pays within 3 days he/she is given a discount of 2%. Internal Control weaknesses Internal control insufficiency existing in small companies can lead to damage or loss of goods, decline in revenue and loss of resources. These deficiencies can easily be corrected by slightly modifying present processes or bringing in basic internal controls: Insufficient documentation- documentation offers evidence of the existing transactions. It is the input to build correct financial records. Financial files should be counted to make sure all transactions are documented and accounted for. This will assist to avoid recording similar transaction twice, since there should be no any redundant numbers in the system. With correct numbering of records, tracking files that relate to questions and claims from owners or clients prior transactions will be simple. Correct documentation would likely offer sufficient answers to most or all questions related to financial transactions. In addition, sufficient documentation will simplify the process of assembling financial files and completion of tax returns. (Granof, 2016) Wrongly defined major business cycles- some small organization processes appear easy. As such, administrators and owners finds it unnecessary to create written procedures and policies or primary flowcharts describing the main busin ess processes. This however is likely to be one of the most unutilized control techniques where the quality can be gained with little effort. An efficient procedure can straighten business goals and aid in establishing most excellent operating procedures. As businesses have varying focus sectors, distinct cycles will be essential to the business, although in several businesses the following processes will be crucial.Banking Procedures, Sales and Accounts Receivable, Accounts Payable, Cash Management, and Purchases. For a business purchasing assets, inventory controls will be an essential cycle. Filing key controls in every cycles will influence consistency, transparency, and particular duties and responsibilities in every cycles can easily be allocated to particular individuals. When improvements and adjustments are enhanced to the processes, workers can be informed quickly, trained, and updated. Inadequacy of control with authentication of transactions- authentication of purchases should happen prior to the engagement of resources. Depending on the capacity of the business, stages of authority can be brought in to eradicate the risk of improper spending. For instance, with orders high in some dollar value, like $1,000, several quotations should be received which could minimize the general expenditure. Authenticating transactions before allocating orders offers the owners the chance to analyze different purchasing alternatives, and ensuring services or items received will aid the business goals. (Dauber, Shim, Siegel Siegel, 2012) Lack of oversight and review- small business managers normally get so occupied in the daily operations of the business that they have a tendency of neglecting performing main review procedures. Business managers should spare little time and interest in the financial documentation. This is an essential aspect of deception prevention. Little time is needed to examine monthly revenues, actual amounts versus budget, and variance, expense, and inventory reports. prioritizing on approach will provide the owner with valueless report on how the business is functioning and where any possible problem or inefficiency areas may exist. Evaluation of the financial files is a crucial input and component for improved decision making. The regularity of the analysis of financial information relies on the quantity of transactions and the kind of business, however, the evaluation of financial information should be carried out on a monthly basis. Outdated information systems- generally small businesses perform on small resources and less timeis normally spent analyzing information systems. Sparing more time in this sector could improve efficiencies in the long run. Outline the systems in the business and the major performance measures required. Systematic operations will aid in competitiveness and efficiency. Various user-friendly software systems are available which could decrease operating and processing cycles and are cheap to operate. Lack of logical and physical safety- lack of physical safety of business goods and resources could lead to the damage or loss to goods and resources. Access to tools, check stock and petty cash should be confined to right individuals and stored in a proper safe location. Computer devices and networks should have password that is protected and these passwords should be frequently changed. Firewalls and safeguarded equipment or software is a vital component to aid in prevention of security breaches. safety of individual and banking information is becoming increasingly essential with the increase in threats of identity card theft. Individual and employee information should be encoded and kept in safe folders. Lack of formal ethical procedures and policies- this control may seem to be less important for the growth of a business, but lack of clear procedures on the usage of business resources and anticipations, based on ethics and integrity from working staffs, businesses can experience ineffectiveness and misappropriation of resources. A code of conduct is an open revelation of the way a company functions. A well-structured ethics policy can act as a communication channel that reflects essential values and objectives of the business. It can offer procedures of how workers should handle potential misconduct and/ or misappropriation of resources and can offer alignment regarding to organization commitments and values. (Studer, 2009) Lack of clearly defined job duties and responsibilities - the most essential assets are the employees and small business rely much on their workers. They are representatives with competitors, customers, and suppliers. For this important resource to be efficient in the business you will require to offer clear guidelines and describe appropriate duties and responsibilities for every employee. Job responsibilities and duties should be understandable and be written form. This will simplify the process of differentiating duties. Fresh applic ants will be capable to reference back faster to their roles and understand their responsibilities better. Multiple roles to an employee- small businesses are exposed to deception by their own working staffs since they may have a few staffs with multiple duties. Every employee should be assigned particular job roles, through writing to make sure confusion is avoided in allocated job duties and responsibilities. Generally, allocating different individuals the role of authenticating transactions, filing transactions, and managing custody of related resources like credit cards and cash offers more efficient internal control and less chances for misappropriation of resources.(Crain, 2015) Insufficient backups, disaster recovery, and business continuity plans- the essentiality of business continuity and backups are under-emphasized some times. Systems can be structured to automate back-ups performance and on a frequent basis. Backups should be created based on volume of transaction and kept off-site. To re-generate information can be time consuming and painful. Business Continuity plans list the process of recovery accomplishment in case of a danger. Long term power disruptions, unavailability of offices for long periods, and decrease of employees are common and can happen. Planning prior is vital to the success of the business. A threat recovery plan involves a continuity plan, an emergency plan, and disaster recovery plan. Internal control weaknesses Impact control Insufficient documentation Transaction redundancy correct numbering of records Wrongly defined major business cycles Inconsistency and lack of transparency Filing key controls in major business cycles inadequacy of control with authentication of transactions improper spending transaction authentication before allocating orders Lack of oversight and review fraud main review procedures like financial documentation should be performed outdated information systems inefficiencies Regular updates of information system Lack of logical and physical safety damage or loss to goods and resources, security breaches Use of passwords, firewalls and burglarproofing Lack of formal ethical procedures and policies ineffectiveness and misappropriation of resources well-structured ethics policy Lack of clearly defined job duties and responsibilities inefficiencies Clear job description Multiple roles to an employee fraud Clear job description Insufficient backups, disaster recovery, and business continuity plans Unavailability of resources Early planning and creation of backups Ransomware Ransomware is a subset of cyber-attacks in which the information on a victim's computer device is blocked, byencoding, and payment is needed before the ransomed information is decoded and access granted to the victim. The intentions for ransomware threats focuses on money, and unlike other kinds of threats, the victim is normally alerted that an abuse has happened and is given directions on how to recover from the threat. Payment is normally required in a virtual currency, likebitcoin, to hide the cybercriminal's identity. Examples of ransomware are Wannacry and CryptoLocker. Conclusion In conclusion, internal control weakness can be prevented by ensuring that all transactions are documented correctly, key controls are documented in major business cycles, transaction authentication is done before allocating orders, main review procedures like financial documentation are performed, and evaluation of information system is done among others. This will influence consistency, transparency and efficiency of the business. Recommendation The following are some of the recommendation for Motherboard; Analytical Procedures- the auditor must test the accounts receivable account to make sure it is not exceeding sales. If it is, this could show that the organization is a risk to credit and may lead to cash flow challenges in the future. Tests of Controls- controls test for the revenue cycle involves who receives and grant credit sales; the separation of role for documenting, recording, and shipping sales orders; correct documentation for collating and banking cash and filing the receipts; the right authority and records to permit discounts for cash or early payments and purchase returns; and administration authorization to identify that an account is uncollectable debt. Substantive Tests- These tests involve analyzing the trial balance generated by the accountant at the end of the cycle, approving receivable amounts with the organization or individuals with debts and assessing the correctness of the allowance for written-off accounts by inspecting the past entity. References Granof, M. H. (2016).Government and not-for-profit accounting, binder ready version: Concepts and practices. John Wiley Sons Inc. Dauber, N. A., Shim, J. K., Siegel, J. G., Siegel, J. G. (2012).The complete CPA reference. Hoboken, N.J: John Wiley Sons. Studer, Q. (2009).Straight A leadership: Alignment, action, accountability. Gulf Breeze, FL: Fire Starter Publishing. Bragg, S. M. (2014).Bookkeeping guidebook: A practitioner's guide. Crain, M. A. (2015).Essentials of forensic accounting. Albrecht, W. S. (2012).Fraud examination. Mason, OH: South Western, Cengage Learning. CRUMBLEY, D. L. (2017).FORENSIC AND INVESTIGATIVE ACCOUNTING. S.l.: CCH INCORPORATED. Kim, W. 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