HI5019 Potential Risk Of Internal Control: The Revenue Cycle Of XYZ Limited Assessment 1 Answer
Answer
EXECUTIVE SUMMARY
Internal control is the security line of the business organization that is used by the business organization to increase the assurance related to the business processes. Business organization has the various business function that is required to manage by the top management with the help of establishing the internal control. This report include the assessment of the potential risk of the internal control that can led to play havoc for the business activity. However, the potential risks associated with the sales and other program is also followed with a view to evaluate the audit and assurance program in the framework. Nonetheless, inherent, control and detection risk is associated with the related weakness in the internal control system.
INTRODUCTION
Business organization in order to be identical with other businesses, what is require to be competent. The accounting information system is used to record and classify the data in the accounting framework and help in strengthen the work program. In order to understand the business and its related risk factors how it affects the business, foremost vital aspect is to understand the word Business Risk. Business risk is “threat to firm’s goal” which if suspected on time could be converted into opportunity. Sometimes elimination of risk is tough but it could be indemnify through selecting the best internal control risk diminishing factors, recording the factors of risk, industry specific risk must be managed accordingly. Some key aspects to be keep in mind while mitigating the risk –
- Risk and its type
- How to recognize risk
- What is source or origin of risk
- How to supervise or control or avoid or mitigate the risk
POTENTIAL RISK ASSOCITED WITH REVENEUE CYCLE
Revenue cycle is continuous process which involves continuous exchange of good or service given to customers against the money or cash in consideration.
| Potential Associated Risk | Abstract | Physical level control | IT level control |
| Reputational risk | Risk that is directly associated with the company’s name. it is important for the company to maintain the brand that further depends on the employees and owners of the associated with the company (Rahim, Nawawi, & Salin, 2017). | It is important for the company to maintain Chinese wall strategy in the organization and maintain the price sensitive information through preventing and restricting the involvement of all the employees to price sensitive information of the company | In Today dynamic environment, it is quite vital for the company to maintain the strategy like enhancing the company’s brand name and its CEO reputation through media and other social platforms. Alike the the strategy used by the CEO of coca-cola to balance its image through media via intracting the public at large, which reduces the probability of circulating wrong rumors which can affect the company. |
| Deficiency in internal control | Internal control strengthens the organization’s risk mitigating probability but if there is lack of internal control in the organization which could lead to absence of security concern or ability to track performance or many more deficiencies. | Essence of internal control through good internal control administration or good hired hands through their intelligence leads to identify threats before this affect the organization (Donelson, Ege, & McInnis, 2017). | It is vital for the for concern to develop the software that manifest the performance of the employees and verify the work related to specified employee. |
| Commodity price risk | Price of good or services influenced by the world regulation procedures or completion any other factor. | Administrative personnel of the concern are required to analysis the future prices of commodity. | IT sector should be managed to build a data analysis software for prices of commodity of past or present performance. |
| Competition risk | To stand identical compare with other compeer concern, essence for an organization. | Organization key role should be to combat the competition with other organization. Completion within the organization within the staff should be avoided. | To identify the competitor in the market, the organization IT sector should be developed in such a specified way that limit the influence of new entrants in the market. |
| Compliance risk | It deals with regulation or governance of legal or material loss which can be alleviated. | Requirement of good professional with intelligence and quick situation based knowledge for acceptable quality of governance. | Compliance risk management could be expensive, through hiring experienced professional who charge high fees, so technology makes it easy for the concern to get the expertise consultancy at low price. |
DEFICIENCY OF INTERNAL CONTROL IN SALES ORDER
Deficency or weakness in internal control in sales order is due to involvement of no. of employees and where the internal control lacks in its efficiency to maintain the control over the personnel. This is the area of high exposure to risk. Thus it requires the oraganization to make accountable some specified personnel who are authorize to select the sales price or the credit limit, document approval requirement, approving the new employees or payment terms. Proided case study envisage the internal key area to keep in concern which affect the sales order proccessing system (Bentley-Goode, Newton, & Thompson, 2017).
Weak internal control and its impact on sales order process
- Inadequate system of Creditworthiness
- The foremost duty to regulate the creditworthness is of credit officer while the same work is done by the clear of the organisation that is not acceptable standard.
- Credit being removed authomatically without being analyised appropraitely.
- Consumer credit receivable account being maintained since past three years and new consumers creditworthiness is being judged on the basis of past consumer information.
- Inadequate system of warehouse maintainance process
- Due to lack of security maintainance due to involvement of clerks in operative as well as cash collection procedure there is lack of segregation of work which lead to inadequate and insufficient system of warehouse maintainance.
- Due to lack of sepration of assigned work to different personnel it expose the organisation to risk of security financially.
Wrong policy maintained for cash receipts process
- Illegitimate process
- no segregation of duty of the personnel in the company which lead to complication and poor performance and increase the chances of fraud.
- It reduces the efficiency of the personnel as the single personnel being diversified in different work.
- Lack of programmed work which reduces the ability of the concern to make more money.
- Data being recorded mannually and lack of programmed procedure
- As the data being recorded mannually which inculcate the chances of error or frauds (Nguyen, 2020).
- Human error can be avoided through maintainance of proper computer technique.
- The chance of fraud could be reduce if data would be maintained by the software as the personnel could be made accountable for the work they have been engaged into or assigned of.
RISK BEING RELATED TO WEAKNESS IN INTERNAL CONTROL
Internal control guarantees an organisation objective to achive within the limited time with more efficeiency and effectiveness. Internal control is all about managing the internal system, internal procedures, internal personnels. Internal control refers to internal check on the company. Internal control can be either through appointing mangment form within the company or appointing mangement from outside the company. When the involvement of employees increase in an organisation with that requirement to srutinize the organisation control is must.
Verifying the creditworthiness is must wherther it is verfying the creditworthiness of vendors, suppliers, or customers. This institutes the risk mitigating policy in the company. These are some work that an owner is need undertake inorder to retain the company from the losses.
- CREDITWORTHINESS AND INTERNAL CONTROL-
Both the term are related with each other. If the creditwothiness is not verified as per standard norms then it would be difficult for the owner to recover the company from out of losses. That could arise due to bad debt if the cosumer solvency is not being checked or verified appropriately. Verification or validation of any consumer creditworthiness depends on the internal control by the assigned mangement of the company. It there is lack of internal control then it may cause loss to company through deficiency in maintaining the accredation of its customers (Akhmetshin, Vasilev, Vlasova, Kazakov, Kotova,& Ilyasov, 2019).
- Atrocious quality of inventory managment-
Poor quality of inventrory managment lead to inefficiency in the organisation as inventroy require the accurate procedure to compute the correct proportion or quantity of commodities being sold out or purchased in by the company.To maintain the the category of custormers between the regular consumers and non regular consumers. This can be checked through good professional internal control measurement being undertaken by the company. Internal check validates the company‘s inventory and provide security from fraud and malpractices. Internal control keep a check on the employees who are directly work under the company inventory and are in a position to take advantage of their position.
- Lack of segregation or difersification of assigned work-
The direct effect of no segeregation of duty is inefficeiency in the work of the employee. If the employee being assigned diversified work then one or the other task would give insignifcant result .
Sometime managment of the company take advantage of their position and to save money for themselves does not appoint more personnel even when it requires. This affects the results of the company. standarised internal control norms regulates check on these malpractices and make sure that the required work is to be performed by the suitable personnel (Harini, Kurniawan, & Umiyati, 2019)
Therefore, it can be said that the internal control is measure towards the assurance of suitable and appropriate working condition in the company and regulates and work as goverance on the company .
PREDICTABLE FRAUDS IN THE ORGANISATION
- Falsification of funds-
Lack of internal control in the company lead the space for the falsification or manipulation in the funds of the company.
Misaapropriation of funds or falsification of funds are charged with strict offences but due to lack of segregation of work in the company and lack of internal control the funds falsification is hard to identified. This persuade the poor economic condition of the organisation and company incurr looses. Company needs to equip with the latest techniqe and good professional which inculcate the good environment in the comapny and personnel should be encouraged to work for the company goal. If employee work only for the personal benefit and steal the funds of company then it would incurr loss to the company and could lead to dissolution (Safonova, & Petukh, 2017).
- Inappropriate goverance on mail procedure lead to mail fraud-
As the consumer‘s remittance and its related information being maintained by the company then it is vital to keep such procedure under the internal control as any personnel can take advantage of the personal information and deceit or defraud consumer. Technical personnel who is appointed for the job should not be the only authority to regulate the email and related work, there should be a authority to regulate the work of such technical personnel. Due diligence keeps check on the employees work make them accountable for the work done by them. Such personal information that can harm any individual privacy should not be allowed to circulate futher. Strict policy by the company should be maintained to focus on such risk exposure details.
- Erroneous assumptions of employee lead to false sale receipts-
The sale receipt highlights the amount of cash the company has earned in a particular time period. The amount should be appropriate and and does not involve any manipulation in funds of company. when the company personnel or employee maintain the sale receipt through manually then it lead to chances of frauds or misappropriation or falsification of the frauds. Thus it is required for the company to have access to the role played by the accountants who maintain the receipts and have futher regulatory authority to regulate them (Trilaksana, 2019).
Thus, abovementioned factors provides the requirement of maintainance or goverance on proper and appropriate role played by the personnel. In order to establish renounced and identical company compared with other competitiors regulatory maintainance to achive the required goals of the company within the prescribed time. To save the company from risk exposure the assurance of proper control of internal managment is must (Vovchenko, Holina, Orobinskiy, & Sichev, 2017).
CONCLUSION
Above mentioned para focus on the strong and well developed internal control in an organisation. Natural causes, economic causes or human couses affects the company in its operation thus the internal control is being maintained by the company for efficeint performance of the company in long run and competing in the market. With the dynamic environment it is essence for a company to have professionals to guide and analyis the risk exposure factor and threats to the company and achieve the goals. Internal control is a protection to the company from future threats which is identied by the professional through their acknowledged power of wit. Quality of quick identification of frauds or misaapropriation of funds safegaurds the company‘s assets and property from the personnel or mangers or owners who work for their personal benefit and take advantage.
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