Internal Control System of Mypet

Internal Control System of Mypet

Part A

The internal control systems are policies and procedures designed to identify, measure and supervise the key risks of the organization. An organization may be faced with a multitude of risks. However, not all the risks are of equal importance and worth employing time and resources. An efficient internal control and risk management system helps identify the key risks that can cause most harm to an organization (Eisenlohr, 2009)

Weaknesses in the internal control systems and their implications

Internal control weaknesses

Implications

1.There is no authorization of computer generated purchase orders of raw materials before sending

Unnecessary orders of raw materials can be sent or raw materials can be ordered when there are not enough funds to pay for them

2. Raw materials Goods Received Notes (GRNs) are not matched with invoices of suppliers and purchase orders. These GRNs should be sent to account payable for verification. Also raw materials GRNs are not pre-numbered

Wrong payment of invoices can be made for raw materials not yet received. Also there can also be delay in payment. It will be hard to follow up incomplete orders in the absence of pre numbering.

3. Raw materials are not checked inside of boxes to make sure bar codes and quantities correspond to actual materials ordered

Incorrect up gradation of records regarding code number and quantity.

4. There is no authorization of production orders for finished goods before sending. Also finished goods GRNs are not matched with invoices of suppliers. These GRNs should be sent to account payable for verification. Also raw materials GRNs are not pre-numbered. Another area of caution is that if the scanning process for raw materials is aborted, then there are no alternative documentation procedures

Un authorization of production orders can lead to ordering finished goods that are no longer needed. If GRNs are not matched supplier invoices, incorrect invoices of finished goods may get paid that are not yet received or there can also be a delay in payment while having sufficient evidence of delivery. It can put pressure on finished goods supply.

5. The internal controls reflect poor segregation of responsibilities. Production controller has the authority to both initiate and change the master file.

Master file is very critical considering the system and authority of changes and initiation should be done by personnel independent of production. This inappropriate segregation of responsibilities can lead to needless purchases

6. There is also no supervision of changes in the master file made by the production controller.

Lack of supervision can lead to inappropriate use of resources and embezzlement. By vesting entire authority to production controller, the company is running the risk of fraudulent activity.

Part B

An audit test is a test performed by internal auditor to evaluate the efficacy of internal control systems. The two broad categories of audit tests are substantive test and internal control tests. Both these types of tests are useful in achieving the objectives of audit process (Noorvee, 2006). As an organization conducts huge volume of transactions, these tests are usually ...