The Salient Internal Control Policies and Procedures that ought to be applied are:
- Segregation of Duties –the recording and processing of a whole transaction is not left in the hands of one individual.
- Physical control – restriction to the access of certain assets is made, like cash put in safe.
- Authorization and approval – transactions before commencing are authorized by the personnel in charge.
- Supervisory controls – monitoring controls by operational management.
- Arithmetical and accounting controls – accounting reconciliations and procedures that safeguard assets.
- Personnel controls – methods that ensure that those carrying out duties within the firm are able and competent to carry out the necessary tasks.
- Internal checks – checking done on a daily basis like a control total.
The internal control policies and procedures outlined above will apply in broad terms to both divisions. However, the detailed procedures may differ since the divisions differ. The main difference entails that one section provides a service, while the other sells goods at a profit.
Therefore, for example the fitness retail division will hold an internal check of inventory, which comprises the counting of inventory. This will not apply to the other section because it does not hold any stock. Yet certain policies and procedures will be the same for the two divisions. For instance the physical control on cash and accounting records will be adopted for both divisions, because both of them hold such items.
The aforesaid internal controls should not be taken lightly by management, because they are very effective in safeguarding the assets of the organization. If they are not in place they will provide vast room for fraudulent activities that may shaken the financial health of the firm. For instance, if there are no segregation of duties and the ordering and issuing of inventory in the fitness retail division is left in the hands of one person.
In such case such individual can easily steal stock without being detected and/or collude with the supplier where even though not all the stock is delivered to the company the person responsible will still mark that everything was received in exchange of a commission from the supplier.
Combined Companion Unit 10 (2004). Managing Systems and People. London: BPP Professional Education.