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How would you mitigate risk for purchases, payroll, and fixed assets? Describe a possible internal control...

How would you mitigate risk for purchases, payroll, and fixed assets? Describe a possible internal control plan for purchases and fixed assets.

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Answer #1

The organisation faces risk of assets misappropriation, defalcation of cash, and risk of fraud which can be a serious issue for the organisation.

To overcome these issues the organisation must form in proper internal control system.
Although internal control system does not provide absolute assurance but it will provide reasonable assurance because internal control system has its own in her and limitation.

The internal control system may be defined as a set of rules, policies and procedures to help the organisation to obtain its objective and also, internal control system is not only helpful in prevention of fraud forgery but it is also useful for the organisation in certain other ways such as :

  1. In implementing policies.
  2. In increasing efficiency of employees in execution of work help.
  3. In maintaining proper accounts.

Possible internal control planes for purchase and fixed asset are:

1. For Purchases

  • keeping business and personal finances separate: sometimes when the organisation is in hurry to purchase material from suppliers in small businesses, the owner uses their personal accounts to make payments and it eliminates protection of funds for limited liability companies structure.
  • Assign purchase responsibility : the organisation shall employee and execute who will be responsible for all the procurement system he will have duties like
  1. Managing inventory
  2. Selecting vendor
  3. Inspection of purchased material etc.
  • Formalized purchase policy: The organisation should be aware about the risks of fraud or misappropriation and it should form purchase policy to overcome these risks. These policies must be regularly reviewed and updated as per need.
  • Proper purchase order system : Purchase order is completely different from invoices. it contains the details about the quantity of purchase and price of each unit of purchase. It allows in review of unnecessary purchases.
  • Inventory control: organisation must use Intel integrated online system to control its inventory , as the system help in managing inventory sales and deliveries.


2. For Assets

  • Segregation of duties: the duties of each employee must be different and interdependent on another. The employee responsible for safeguarding assets must not be assigned accounting records of these assets.
  • Each employee with specific duty: the responsibility assigned to each employee must be specific in nature. This helps in identification and prevention of fraud easily.
  • Rotation of employees duties: the employees duty must be regularly changed. so that misappropriation of assets, if happens can be stopped and identified in timely manner.
  • Use of electronic devices: companies can use several electronic devices to protect their assets such as cameras, entry and exit through punches, and hidden GPS chips in assets etc
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