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Introduction
Internal control refers to rules and regulation meant to enhance the reliability of the
financial data and at the same time, prevent fraudulent activity. Such processes include separation
of duties and steps, promoting the accountability of the employees, as well as protecting the
organization’s cash and monitoring of the organization’s financial transactions (Ahsan, n.d). These
procedures and policies are faced with issues that may affect their applicability and the reliability
of the entity's data and information in general. This paper discusses the three inherent limitation
of the internal control system and four internal control systems that can be utilized to ensure the
effectiveness of the Amazing (Pvt) Limited.
Inherent limitations of Internal Control system
Misunderstanding of the System Elements
Usually, the internal control system of an enterprise can only be effective if the members
of the organization fully understand it and follow the procedures correctly. For example, a
company’s policy may require all the workers to ensure that computers are shut down when
stepping away from their desks to avoid exposing important and delicate financial statement to an
unauthorized person (Sanusi et al., 2015). In this case, workers may fail to understand that the
policy applies to even when leaving the office for a short break hence exposing the confidential
information of the entity to the outsiders.
The limitation can be minimized by ensuring that employees are well-trained on how the
internal control system works, give the instances of scenarios that they ought to apply the
procedures, as well as clarify on the responsibility of each worker in ensuring the effectiveness of
the system (Soileau et al., 2015) Explaining to the workers the importance of the control system is
also crucial in ensuring that they follow them thoroughly.
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Human mismanagement and Error
An entity may obtain the best-trained employees in the market but still experience
erroneous activities. Sometimes, too much work may result in the decline of the effectiveness of
an employee. Lalić et al. (2011) assert that the lack of experience may lead to loss of data after
accidental deletion of the data. In such a case, an employee may choose to do nothing and continue
with the entry, thus leading to a misrepresentation of the information (Vollbehr, 2014). Proper
training and adequate mentorship of the newly-employed employees can help to minimize the
incidences of the accounting errors.
Managerial Override and Collusion
In some cases, employees may decide to work against the set procedures and policies
despite the in-depth training by the organization. Workers may conspire and work together to
commit fraud, thus interfering with the accuracy and correctness of the accounting information
(Effah, 2011). An accountant may choose to fill in ghost employees’ salary and work with their
colleagues for the approval and ensure that the money is paid in the accounts. Again, the
management may choose to overlook some steps; thus, the manipulation of the financial data and
stealing from the firm.
It is essential for the entity to identify clearly on the punishment that one is likely to receive
in case of such an instance. Besides, the rotation of the employees is also essential as it helps
identify errors and mistakes committed by other employees, thus rectifying them on time.
Recommendations
There are several processes that the Amazing (Pvt) limited can uphold to ensure productive
accounting activities. In the case of the erroneous updates and cutoffs, the company can utilize
effective communication to the employees on the processes and procedures. The entity should train
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and educate their workers on the exact methods they need to follow on each time. Documentation
of the processes can help the employees with a document from which they can refer w stuck during
their operations (Mahadeen et al., 2016). Besides, it is crucial to communicate the importance of
the processes and the consequences that employers are likely to face in case they fail to follow
them thoroughly.
In the case of the timesheets that are only in hardcopy and not in the system, Amazing (Pvt)
Limited should develop the policies and procedure that are both in writing and system. Typically,
having procedures that need to be followed will make it easy for the entity to monitor its processes
and also conduct internal audits (Kedia et al., 2016). Mismatch in the methods in the system and
those in hard copy can result in misrepresentation or omission of critical financial data of the
enterprise (Cheng et al., 2018). Updating of the policies and procedures in the system also makes
it easy to follow up on the activities of the employees of the company.
Amazing (Pvt) Limited should install monitoring and evaluation procedure to help in the
checking and differentiating between the authorized and tent in the system. According to Wangerin
(2017), monitoring and evaluation processes are essential in following up and ensuring that all
steps and procedures are followed thoroughly during the accounting processes (Rekiat, 2016).
Monitoring also helps in identifying issues that might affect the correctness and accuracy of the
financial statements.
Finally, Amazing (Pvt) limited should develop strong and unique password and user names
used to access the company’s system. A typical password and user name expose the confidential
company information at risk of exposure to the unauthorized personnel. It is essential to ensure
that passwords and usernames of the entity change with departments and if possible, each person
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personnel to have their own. Password ensures accountability as it is easy to locate people
responsible for fraudulent activity in the company.
Conclusion
The internal control system is essential for ensuring accurate and correct accounting
information. The system ensures that people are well-informed on the processes, procedures, as
well as policies they need to follow while conducting their duties.
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