PART C – INTERNAL CONTROL

SESSION 11
 Internal Control System
 Five Components of Internal Control
 Documenting Internal Control System
 Internal Control Deficiencies
 Test of Control Procedures
 Limitations of an Internal Control System
 IT controls

SESSION 12
 Revenue System
 Purchase System
 Payroll System
 Inventory System
 Cash & Bank System
 Capital Expenditure – Non Current Assets System

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 SESSION 12 – SYSTEMS IN A COMPANY

REVENUE SYSTEM
The objective is to ensure all valid sales recorded accurately and cash
received promptly

STEP - 1 STEP - 2
STEP - 3
Order Goods
Invoice Sent
Received Despatched

STEP - 4 STEP - 5
Transactions Cash
Recorded Received

CONTROL OBJECTIVES OF SALES SYSTEMS

 Goods are only supplied to customers who pay promptly and in

full.

 All orders are processed.

 Orders are despatched promptly and in full to the correct customer.

 All orders are despatched. Invoicing

 All goods despatched are invoiced.

 Invoices are raised accurately.

 Only valid sales are recorded.

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  All sales and related receivables are recorded and in the correct
accounts.

 Revenue is recorded in the period to which it relates.

 Sales are recorded accurately and related receivables are

recorded at an appropriate value.

 Cash received is allocated against the correct customer and

invoices to minimise disputes.

 Overdue debts are followed up on a timely basis.

 Irrecoverable debts identified and written off appropriately.

PURCHASE SYSTEM

STEP 1 – Order
Placed

STEP 2 – Goods STEP 5 – Cash

Received payments

STEP 3 – Invoice STEP 4 –

Received Transactions
Recorded

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 CONTROL OBJECTIVES OF PURCHASE SYSTEMS

 All purchases are made with suppliers who have been checked for
quality, reliability and pricing.

 Purchases are only made for a valid business use.

 Orders are placed taking consideration of delivery lead times to

avoid disruption to the business.

 Only goods ordered by the company are accepted.

 Goods received are recorded promptly.

PAYROLL SYSTEM

The control objectives for the payroll cycle are as follows:

 Only work done is paid for
 Pay is accurately calculated
 Pay is correctly made
 Pay is authorised

Deductions are correctly calculated and paid

Clock Cards Gross pay deductions and

submitted net pay calculated and input
and Input into the computer

Processing Standing
Payment
and recording Data Input
made to staff
of payroll

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 INVENTORY SYSTEM

Goods Received Goods Despatched

Receipt Despatch
Recorded Recorded

Movements posted
to nominal ledger and
Inventory cards

The Control Objectives here includes –

 Inventory levels meet the needs of production (raw materials and

components) and customer demand (finished goods).

 Inventory levels are not excessive, preventing obsolescence and

unnecessary storage costs.

 Inventory is safeguarded from theft, loss or damage.

 Inventory received and despatched is recorded on a timely basis.

 All inventory is recorded.

 Inventory should be recorded at the appropriate value.

 Only inventory owned by the company is recorded.

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 CASH & BANK SYSTEM

Request for
Payment

Payment
Authorized

Payment made Receipt

Payments and
receipts recorded

Control Objectives here includes –

 Payments can only be made for legitimate business expenditure.

 Petty cash levels are kept to a minimum, preventing theft.

 Cash is safeguarded to prevent theft.

 Cash movements are recorded on a timely basis

 Cash can only be withdrawn for business purposes.

 Receipts are banked on a timely basis to prevent theft.

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 CAPITAL EXPENDITURE – NON CURRENT ASSETS SYSTEM

Control Objective here includes –

 Assets only purchased if needed by business

 Assets are purchased at appropriate price

 Company can afford capital expenditure proposed

 Capital expenditure is completely and accurately recorded in the

accounting records

 Assets exist at the business

 Assets are covered by adequate insurance to prevent loss to the

company

 Asset documents are safeguarded from fraud or theft

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