MARICAR B.

ALFARO GOV
BSAIS 2

ACTIVITY 2: Identify internal controls that are being implemented in the following business establishments.

1. DEPARTMENT STORE
 Security Measures: Installing surveillance cameras, alarm systems, and security tags on merchandise to
prevent theft and deter fraudulent activities.
 Segregation of Duties: Separating responsibilities among different employees to prevent fraud or errors.
 Authorization and Approval Procedures: Requiring managerial approval for certain transactions, such
as discounts, refunds, and voided sales, to ensure compliance with company policies and prevent
unauthorized actions.
 Financial Reporting Controls: Reviewing financial reports regularly to detect irregularities or
discrepancies, and ensuring compliance with accounting standards and regulations.
 Inventory Controls: Implementing procedures to accurately track inventory levels, such as regular
physical counts, barcode scanning systems, and reconciling inventory records with sales transactions.
 Employee Training and Supervision: Providing comprehensive training to employees on company
policies, procedures, and ethical standards, and implementing adequate supervision to monitor
adherence to internal controls.
 Customer Service Controls: Establishing guidelines for handling customer complaints, returns, and
exchanges to prevent fraudulent activities and maintain customer satisfaction.
 Vendor Management Controls: Implementing procedures to verify the legitimacy of vendors, approve
vendor invoices before payment, and reconcile vendor statements with purchase orders and receipts.
 Cash Handling Procedures: Enforcing strict protocols for handling cash, including limiting access to
cash registers, conducting regular cash counts, and implementing dual control for cash handling tasks.
 Point of Sale (POS) System Controls: Utilizing POS systems with built-in controls to track sales,
returns, discounts, and voided transactions. Access to POS terminals should be restricted to authorized
personnel.

2. BANK
 Segregation of Duties: this refers to assigning different employees separate tasks in order to avoid any
one person from being in total control of a transaction from start to finish. An employee should not be
the same person who begins a transaction and authorizes it, for instance.
 Access Controls: Based on an employee's roles and responsibilities, banks utilize access controls to
limit access to critical places and information. This covers both logical and physical access controls,
such as user authentication and computer system authorization, and includes keycard systems.
 Transaction Limits and Approvals: Banks set transaction limits for different types of transactions, and
transactions exceeding these limits typically require additional approvals. This helps prevent
unauthorized transactions or fraud.
 Account Reconciliation: Consistent account reconciliation helps guarantee that the bank's records of
transactions correspond with those of counterparties or customers. This procedure aids in the
identification of mistakes, inconsistencies, or unlawful transactions.
  Audit Trails: banks keep thorough audit trails that record all noteworthy transactions and activity. The
audit trails facilitate accountability and traceability, so enabling the bank to detect any abnormalities or
unapproved activities.
 Internal and External Audits: To make sure internal rules and legal requirements are being followed,
internal audit teams periodically examine the bank's operations, controls, and procedures. Stakeholders
are further reassured about the correctness of the bank's financial statements and the efficiency of its
internal controls through external audits conducted by independent auditors.
 Cybersecurity Measures: Banks make significant investments in cybersecurity measures to safeguard
their networks, systems, and client data in light of the growing threat of cyberattacks. This covers
intrusion detection systems, firewalls, encryption, and routine security audits.
 Anti-Money Laundering (AML) Controls: To identify and stop money laundering, banks put AML
controls in place. Due diligence on customers, transaction monitoring, and notifying regulatory bodies of
any questionable activity are some of these safeguards.
 Fraud Detection and Prevention: To identify potentially fraudulent transactions or activity in real-
time, banks implement sophisticated fraud detection systems that leverage artificial intelligence and
algorithms. By examining patterns, trends, and anomalies, these systems identify suspect activity and
mark it for additional inquiry.
 Training and Awareness Programs: To make sure staff members are aware of their obligations with
relation to internal controls, compliance standards, and moral behavior, banks offer training and
awareness programs. This supports the development of an integrity- and compliance-focused culture
within the company.

3. CONVENIENCE STORE
 Internal Audits and Reviews: Ongoing internal audits and reviews assist in locating gaps or
inadequacies in operational procedures and internal controls. This makes it possible for management to
make adjustments and raise productivity and effectiveness levels all around.
 Security Measures: to safeguard their technological assets, which include customer data and financial
records, as well as their physical assets, which include merchandise and cash. Security cameras, alarms,
safes, and safe computer systems are a few examples of this.
 Segregation of Duties: To avoid any one person having total control over a transaction, convenience
stores, like banks, should separate duties. For instance, the worker in charge of receiving goods shouldn't
be the one in charge of entering inventory into the system.
 Cash Handling Procedures: Clearly defined policies should be put in place for managing cash. These
should cover things like cash drawer limitations, cash drops, and register reconciliation. To reduce the
possibility of theft or mistakes, cashiers should receive rigorous training on adhering to these protocols.
 Inventory Management: In order to avoid shrinkage the loss of goods as a result of theft, spoiling, or
administrative errors effective inventory management controls are essential. This entails conducting
routine inventory counts, comparing physical counts to system data, and keeping an eye out for
inconsistencies.
 Cash Register Controls: To guarantee the integrity and correctness of transactions handled by cash
registers, controls must be in place. This entails giving each employee a unique set of login credentials,
limiting their access to the void and discount features, and checking transaction records for anomalies.
 Vendor Management: To guarantee the integrity of vendor relationships and transactions, controls
should be put in place. This could entail confirming the legality of suppliers, keeping accurate records of
purchases, and comparing bills to the items that were really received.
 Customer Service Control: Measures like refunds and returns of merchandise should be taken to
guarantee that customer transactions are accurate. This can entail creating a formal refund policy or
demanding administrative consent for specific transactions.
  Compliance with Regulations: Convenience stores have to go by a number of laws and rules, including
those pertaining to taxes, labor legislation, and food safety. Internal controls have to be planned to
guarantee adherence to these rules and reduce related risks.

4. SUPERMARKET
Cash Controls:
 Segregation of duties between cashiers, cash handlers, and supervisors.
 Reconciliation of cash register totals with sales receipts and deposits.
 Cashiers' accountability through unique login credentials and tracking of voids and discounts.
Inventory Controls:
 Regular inventory counts to reconcile physical stock with recorded quantities.
 Proper storage procedures to prevent theft, spoilage, or damage.
 Controls over receiving goods, including verification of deliveries and matching with purchase orders.
Point of Sale (POS) Controls:
 Restricted access to the POS system to authorized personnel.
 Monitoring of sales transactions for accuracy and consistency.
 Controls over refunds, exchanges, and voided transactions.
Security Measures:
 Surveillance cameras to monitor store premises and critical areas.
 Security personnel or loss prevention measures to deter theft.
 Safes or secure areas for storing cash and valuable merchandise.
Vendor Management:
 Verification of vendor credentials and compliance with contracts.
 Reconciliation of invoices with goods received and purchase orders.
 Vendor performance evaluation to ensure quality and reliability.
Employee Controls:
 Background checks and screening for employees handling cash or sensitive tasks.
 Training programs on internal controls, ethics, and compliance.
 Supervision and performance monitoring to detect and prevent employee misconduct.
Compliance Controls:
 Adherence to regulatory requirements such as food safety standards, labor laws, and tax regulations.
 Documentation and record-keeping to support compliance efforts.
 Regular audits and inspections to assess compliance levels and identify areas for improvement.
Customer Service Controls:
 Procedures for handling returns, exchanges, and complaints.
 Authorization requirements for exceptional customer transactions.
 Monitoring of customer interactions to prevent fraudulent activities.
Data Security Controls:
 Protection of customer information and payment data from unauthorized access.
 Implementation of cybersecurity measures to prevent data breaches.
 Compliance with data protection regulations such as GDPR or CCPA.
Internal Audits and Reviews:
 Periodic internal audits to evaluate the effectiveness of internal controls.
 Review of financial records, operational processes, and compliance with policies.
 Remediation of control deficiencies and implementation of corrective actions.

ACTIVITY 3: Demonstrate to the class how the five components of internal control operate together. Create a
hypothetical business and illustrate specific examples.

Let's illustrate how the five components of internal control affects the operation of hypothetical business called
"Boogle Mart," a convenience store.

CONTROL ENVIRONMENT:
Boogle Mart’s management fosters a culture of integrity, ethics, and accountability. They lead by example and
communicate the importance of internal controls to all employees.
Example: The CEO of Boogle Mart regularly communicates the company's values and expectations regarding
ethical behavior during town hall meetings and through written communications.
RISK ASSESSMENT:
Boogle Mart conducts a risk assessment to identify potential risks to its operations, such as inventory shrinkage,
fraudulent transactions, and compliance risks related to food safety regulations.
Example: During the risk assessment process, Boogle Mart identifies the risk of selling expired products due to
ineffective inventory management. This risk is prioritized for further control measures.
CONTROL ACTIVITIES:
Boogle Mart implements control activities to mitigate identified risks and achieve its objectives. These activities
include segregation of duties, authorization procedures, physical controls, and IT controls.
Example: To address the risk of selling expired products, Boogle Mart implements a control activity where
designated employees regularly check expiration dates and remove expired items from shelves. Additionally,
only authorized personnel are allowed to restock shelves with new inventory.
INFORMATION AND COMMUNICATION:
Boogle Mart establishes effective communication channels to ensure that relevant information is shared
throughout the organization. Information systems are utilized to capture and communicate data for decision-
making.
Example: Boogle Mart uses a digital inventory management system that tracks product expiration dates, sales
data, and inventory levels. This information is accessible to managers and employees, enabling them to make
informed decisions about restocking and product rotation.

MONITORING ACTIVITIES:
Boogle Mart conducts ongoing monitoring activities to assess the effectiveness of internal controls and detect
any deficiencies or deviations from established policies and procedures.
Example: Boogle Mart’s management regularly reviews inventory reports and conducts spot checks to ensure
compliance with inventory management procedures. Additionally, internal auditors perform periodic audits to
evaluate the effectiveness of internal controls and identify areas for improvement.