Auditing of financial statements is important as it can be used to detect violation of company’s financial reporting. Having a strong internal control system on reporting of financial information is critical to ensure that there are accurate financial statements (Dickins & Fay, 2016). The given case involves Colorado Springs Company (CSC) that has been found to have inadequate internal controls. Some of the sections that were established to have a poor internal control included accounts receivables, account payable, accounting system for sales, and cash receipts. This paper analyzes the violations of some of the internal control principles and establishes proper recommendations so that CSC can implement correct the weakness.
Having a Poor System for Records
The principle involving documentation of procedures was violated in this weakness.
The recommendation to avoid the weakness is to have standardized documents that can be used to aid financial transactions such as invoices, inventory receipts, and internal materials to help in maintaining consistency over keeping of records.
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Having Late Cash Receipts Deposits
The principle entailing segregation of duties was violated for this weakness.
This will be mitigated by making sure that there are daily and independent checks of agreement between the daily cash summary and the bank deposit slips.
Receivable Balances that are High and Excessively Aged
The violated principle was also that of segregation of duties.
In order to solve the problem, the individual responsible for handling and managing the account receivable has to be independent of the person handling the general ledger control accounts. A separation of the two functions ensures that there is a better control on the specific account balances.
Showing Disregard Towards Making Early Payments for Invoice Discounts
The segregation of duties principle and having an independent internal verification were violated for the given case.
This can be solved by making sure that the individual that handles the cash that is due must always be accountable in case there are any late payments.
Having Late Accounts Payable Payments Sometimes Caused by Unavailable Cash
The principles that have been violated involve segregation of duties and having an independent internal verification.
In order to solve the problem, CSC should ensure that all orders that have been purchased should be compared with the invoice from the supplier. This should assist in having a better budgeting procedure and facilitate earlier payables payments.
Laxity Towards Duties Segregation
This is a violation of segregation of duties.
It will be recommended for CSC to resolve this through increasing having the job description to be specific. This will ensure that the appropriate individuals will be held responsible in case any such control weaknesses occur. All levels and sections of the organization should show that they have held principle of segregation of duties to ensure adequate running of the company (Henry, 2016).
Having Rules Regarding Application of Accounting Principles Relaxed
The principle that has been violated is that of documentation of procedures.
This can be solved by ensuring that every member of the company has a job description as part of the strategy of the company. Additionally, in case of breach of rules, the specific individuals should be held accountable. Without such accountability, improvements to abide by the accounting principles will be difficult.
Having Supervisors and Management That Are Unqualified
The principle violated for the given case is that of establishment of responsibilities.
Solving this will require actions from the HR department to ensure that compatible and competent staff are recruited. Additionally, there should be multiple appraisals of internal controls to assisting in making the control environment become more efficient.
Poor Control Procedures That Management and Supervisor Override
The principle violated is that of establishment of proper responsibility and physical controls.
This can be solved by having a board of directors that will be used to devise the hierarchy and the reporting lines to make sure that the management and supervisors are put in check.
Laxity in The External Board of Directors Oversight
The principle which has been violated is that of having independent internal verification.
This appears to be a significant issue as the board of directors are mainly responsible for the running of the company (Honggowati, Rahmawati, Aryani, & Probohudono, 2017). In order to correct this, the government and shareholders can ensure that appropriate steps have been undertaken to remove the current board of directors and then have a strong board.
References
Dickins, D., & Fay, R. G. (2016). COSO 2013: Aligning internal controls and principles. Issues in Accounting Education , 32 (3), 117-127.
Henry, L. (2016). Fraud prevention: An effective control environment can deter or minimize the occurrence of fraudulent activities. Internal Auditor , 73 (2), 17-19.
Honggowati, S., Rahmawati, R., Aryani, Y. A., & Probohudono, A. N. (2017). Corporate governance and strategic management accounting disclosure. Indonesian Journal of Sustainability Accounting and Management , 1 (1), 23-30.
