The Controls in the Organization - Assignment Example

ACCOUNTING By Name Course Instructor Institution Location Date Question 1 To prevent fraud from occurring, the non-profit government organization should strictly adhere to the rules and regulations of internal control. Internal control involves the adoption of procedures and methods in an organization (IBISWorld, 2016).It is aimed to safeguard the assets of the organization, to ensure that the financial information prepared in the organization is reliable and accurate, ensure that the organization is run according to operational and financial requirements and also to assist in achieving the various objectives set by the management of the organization (Razaee, 2002). To avoid fraud n an organization like this, duties should be adequately separated. For instance, custody of particular assets in the organization should be separated from accounting; if a temporary or even a permanent custody of certain assets is allowed to undertake the both duties, then there are chances that the parson will adjust the documents so as to avoid responsibility. For example, if a particular person in the organization serves both duties of receiving the cash and entering the customer into the books of account (IBISWorld, 2016).Then there are chances of that person receiving the cash and keeping it for his or her use and they make adjustments on the customer’s account to show that the payment was received and spent under the organization To avoid this, the organization should separate duties hence preventing fraud n the organization. Also, transactions’ authorization should be separated from the custody of assets related; people authorizing transactions should be prevented from controlling the property related to avoid fraud n the organization. Again, there should be adequate separation of responsibilities; that is, operational and record keeping duties should be separated to prevent bias in the records as the involved try to adjust the transactions to achieve balanced records (Razaee, 2002). To prevent fraud in this organization, activities and operations should be duly authorized. This is done to prevent chaos and to satisfy the controls in the organization. Authorization in a big organization like this can be specific or general. Under the general authorization, the policies are made for the whole organization whereas specific authorization deals with individual transactions within the organization(IBISWorld, 2016).To avoid fraud in this group, general permission should be assigned to highly skilled people who can apply skills of internal control with a lot of ease otherwise some people can be easily confused due to large volumes of transactions that they deal with hence opening the organization to fraud and corruption (Razaee, 2002). Documents and records should be adequate in this kind of an organization to help trace any element of fraud. Reports keep records for day to day transactions and to avoid fraud in this organization, the rules, and regulations for coming up with credible records should be properly followed (Deagan, 2009). The documents should be prepared according to the international accounting standards. They should be numbered consecutively so that in case one record gets lost, it can be easily identified, they should also be prepared immediately a transaction occurs or few minutes after so that one does not forget and cause chaos in the organization as far as that particular transaction is related, they should be simple to allow non-professional users to even understand the information communicated and finally, they should allow multiple uses where possible to reduce many forms which can give the management some challenges when identifying errors or which are difficult to correct (Razaee, 2002). Records and assets should be physically controlled to maintain internal audit hence avoiding frauds in this organization. Leaving assets without protection can easily contribute to their disappearance or failing to accord proper protection to the records can call for their damage or theft or even get lost hence losing the information used to ensure that there is no fraud in the organization (IBISWorld, 2016). Normal operations and the accounting process of the organization are disrupted if either the records or the assets get lost opening the organization for fraud and other elated acts which may call for its failure. To ensure that the records and the assets are safe from theft, precautionary measures should be followed; for example, for the departments in the organization which use computer to keep its records, measures such as the use of passwords and patterns should be employed to avoid unauthorized persons from accessing them (Razaee, 2002). Independent performance checks should be employed at any level of the organization to maintain internal control hence preventing any act of fraud. Some people carry out their activities with a lot of carelessness if at the end their performance will not be evaluated hence causing a lot of confusion and opening the organization to fraud. To avoid this, performance checks should be employed hence avoiding carelessness and increasing the accuracy of the organization’s records (Deagan, 2009). Auditing should also be applied at the end of every financial year to check whether the organization’s records are accurate and whether they have been prepared well. Even though auditing does may not trace some elements of carelessness, it makes the employees carry out their activities carefully hence reducing errors and avoiding fraud (Razaee, 2002). Periodic monitoring of the internal control’s performance and quality also helps in reducing fraud in an organization like these. An internal audit should be established to ensure regular monitoring of the organization’s activities and to discuss the appropriate policies that will steer the team towards the right direction and also help the management achieve the targets they lay in the management plans within the specified period and with the specified financial budget (Razaee, 2002). Question 2 Bank reconciliation is a process of comparing the balances of the bank as per the accounting records of the company with the balances which are stated by the bank statements. It is normal for the bank balances of a company to be different from the bank account’s balances because of the timing difference (IBISWorld, 2016).Some transactions may be recorded at a given time by a certain entity, but you find that they are updated in the system of the bank after a particular period. Also, some transactions may be entered n the financial system of the bank before they are incorporated by the company into its accounting system. This results in a timing difference and it appears as an item of reconciliation in the statement of agreement by the bank (Deagan, 2009). Bank reconciliation is done to help in identifying errors in either the company’s accounting records or bank’s accounting records (Deagan, 2009). Bank reconciliation also helps in protecting the cash from unauthorized withdrawals from the bank. Bank reconciliation confirms that bank transactions are correctly registered in the archives of the company. Bank reconciliation’s monthly preparation helps in monitoring the cash flows associated with an individual business or project. According to Karl, 2010, clear demonstration of how bank reconciliation works is shown below: Step 1: adjust balances correctly as per bank Adjust the bank statement balances to the adjusted, corrected or true balance. In this case, add the deposits in transit, the amounts which have already been received and entered in the books of accounts by the company but the bank has not yet entered them into its books of accounts. Deduct the checks which are outstanding (CPA Australia Ltd, 2007).These are checks which are written in the cash account of the company but the bank account is waiting for them to be cleared. Finally, at this stage, deduct or add the bank errors. These are the mistakes the bank makes by entering the wrong amount or omitting some amount from the bank statement of the company. Step 2: adjust the balances correctly per book The balance which is in the cash account of the bank should be tailored to match the correct, adjusted or true balance. In this step, deduct service charges by the bank. This includes the fee that is deducted by the bank from the bank statement of the company for offering the service of processing account activity checks (IBISWorld, 2016).Also, deduct NSF fees and check. NSF checks are the ones which the bank does not honor if the company or the person writing the particular check has insufficient balance. Also, deduct the printing charges for the check, this is charged by the bank where the business requests for its check reordering. Finally, add the interest earned and the receivable notes collected by the bank. Step 3: compare the balances after adjustments After the balances are adjusted per bank and per book in steps 1 and two respectively, compare the two amounts to checking whether they are equal. If the two amounts are unequal, the process must be repeated until they are equal. The balances are supposed to be correct at the time bank reconciliation is done. Step 4: Prepare final journal entries It is always advisable to prepare journal entries after adjustments made in step 2. Adjustments that will lead to the increase in cash balances require journal entries that will debit the cash account and credit the other (CPA Australia Ltd, 2007).To make changes aimed at decreasing cash balances, the cash account must be credited while the other account should be debited. Question 3 A summary of what the company does • Conducting commerce and marketing itself on the internet. This helps the company develop significantly within its experiments, and it motivates it to find more profit in the process. • Encouraging the government to fund some of the high capital demanding processes by being increasingly efficient on the internet and by substantially cautioning the individuals within the government (IBISWorld, 2016).This has resulted to greater access implications and new technology embracement by the government. • Being one of the most critical players in developing the local systems. This includes being required to contribute utility and substance materials in working systems. • Acting as a major informal network for the other companies (CPA Australia Ltd, 2007).There is a tendency of decentralization among the non-profit communities and substantial interdependency. This company has been acting as a network, but informal one to ensure that there is shared understanding and perception of issues. • Stressing collaboration and cooperation among the other companies. Companies share similar constituencies with the community and therefore they are required to operate under the community representatives’ governance (IBISWorld, 2016). • Using its content for the purpose of educating the constituents. The company includes in its programs some educational components. • Seeking constantly, new strategies and solutions. The company tackles problems which are difficult to tackle. It spends a lot of time trying different kinds of approaches, re-examining issues without forgetting, evaluating its wok’s efficacy. • Building the community (CPA Australia Ltd, 2007).The company is grounded deeply to the community’s services. It strengthens families, communities, and individuals via their work. Specific Control Activities that this company may have implemented as part of their internal control I. Monitoring This involves periodic or ongoing assessment of management’s performance after a certain period. It helps in ensuring that internal control is maintained and fraud reduced (CPA Australia Ltd, 2007). In this company, evaluation and modification information is expected to come from many sources such as existing studies of internal control and reports of internal auditors, control activities’ exemption reports and regulatory reports (AICPA, 2005). II. Adequate records and documents Records and documents may have been kept adequately in this company to maintain internal control and avoid fraud (CPA Australia Ltd, 2007).These documents should be numbered consecutively to ensure that in case any material is lost or misplaced, it can be identified. The documents too should be prepared immediately a transaction takes place or after that to avoid bias or to forget to enter them. The documents should also be made in a way that they can allow correct preparation (AICPA, 2005). III. Identification and analysis of risks. This may be an ongoing process in this company and an efficient component of internal control. The management of the company must take account of all the risks in the different levels of the company and take the appropriate measures to minimize or control them (AICPA, 2005). References American Institute of Certified Public Accountant (AICPA, 2005). “Management Override of internal controls”. New York: Wiley Carl, S.W. (2010). Survey of accounting. Cengage Learning. Retrieved on April 2012 Deagan, C.M. (2009).In Financial Accounting theory. North Ryde, N.S.W: McGraw-Hill. Razaee, Z.R. (2002). Financial statement fraud: prevention and detection. New York: Wiley IBISWorld (2016): Origin Energy Limited - Premium Company Report Australia 30-06-2015, 25 pages. Retrieved from https://www.ibisworld.com.au/car/default.aspx? entid=35 CPA Australia Ltd (2007): Internal controls for small business. Melbourne Vic 3000 Australia Read More