An internal control is a method a company uses to ensure the integrity in the business and keeps it running in an effective and efficient way. Internal controls safeguard the assets of the company and prevent fraud from happening. There are administrative controls and financial controls, administrative control is dealing with documents and preventing fraud and financial control is safeguarding assets etc.
The purpose of Internal controls
Internal controls are put to use because this can help a company run effectively and efficiently, internal controls can also stabilize and strengthen your predicted outcomes to make them more accurate, it also safeguards a company’s assets and can detect fraud, errors and theft, for example installing cameras and alarms in the storage area to prevent people from stealing goods, or checking and reviewing the document and files of a company to ensure that there is no fraud and errors. With internal controls in place a company can run smoothly, and doesn’t cause the owner to lose valuables such as trading stock and equipment which can impact the company’s current ratio also known as the liquidity ratio since it affects their inventory.
The role of an internal auditor
Designing the internal control
The internal auditor is responsible to design the controls and develop long range audit plans, they also tests the control systems of a company to find problems in the system; they then give the company recommendations of how they could improve their system and how to make it more efficient.
Implementing the internal controls
The internal auditor is responsible to maintain the controls. While implementing the internal controls the internal auditor m...
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...on that is in charge of the business, not anyone random.
• Each employee must be in charge of specific debtors, this could reduce the possibility of fraud, theft or errors.
Documents and recording
• Every debtor should have their own books and be recorded separately
• All documents must be locked up in a safe
• All accounts should be put in a safe that indicates the time left for them to pay, for example the first level of the safe means that all the debtors have 3 months to pay off their account and the second level means that they have 2 months to pay off etc. and at the end of every month you move all the books one level up and the debtors that didn’t pay should be moved to another safe or dealt with immediately.
• If a debtor pays late it should be recorded and interest should be charged.
• All bad debtors should be considered black listed.
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