Modus Operandi to improve internal controls


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Plan of action to improve internal controls of small scale manufacturing industries.

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Modus Operandi to improve internal controls

  1. 1. Modus Operandi to Improve Internal Controls of Small Scale Manufacturing Companies<br />Presentation by: Vikas Kalyanshetty<br />B Com, CA Final (Group I cleared)<br />
  2. 2. Contents<br />Organisation Chart<br />Work Scope <br />Authority/ Responsibilty<br />SOPs<br />ERP implementation<br />Planning of sales orders<br />Order wise status updates<br />Determination of Overall Capacity<br />9. Evaluation of over/under employment<br />10. Allocation of Work <br />11. Co-ordination amongst Departments<br />12. Establishment of Costing System<br />13. Establishment of Internal Audit Department<br />
  3. 3. Determination of overall capacity of the company<br />Overall capacity with respect to the following:<br />A) Capacity of No of employees<br />B) Capacity of No of workers<br />C) Production capacity <br />This shall help in overall planning of annual budgets and recruitment of employees<br />
  4. 4. Organisation Chart of Management Hierarchy<br /><ul><li>A proper Hierarchy of Management to be charted out consisting of names of </li></ul>Top level management<br />Department Heads and <br />Senior Managers within the Departments<br />
  5. 5. Determination of work scope for all departments<br />Written scope for each and every department<br />All departments should work within their scope, requiring proper authorisation for exceeding the same.<br />
  6. 6. Detailed Planning for each Sales Order<br /><ul><li>Proper planning at every stage of manufacture
  7. 7. Starting from the date of buying till the date of completion of order
  8. 8. Documentation of the plan in a pre-determined format
  9. 9. Approval of each plan with the senior management
  10. 10. Reasons for deviations from the plan should be strictly analysed.</li></li></ul><li>Authority/Responsibility in each Department<br />Determining the authority and responsibility of department staffs<br />Every Head of Department to allocate the work to the department staff and clarify his job profile<br />Such allocation of work to be given in writing which would be incorporated in the systems manual<br />
  11. 11. Standard Operating Procedures (SOP) for each department<br />Laying down of SOPs for every department <br />These SOPs should be strictly followed <br />Monitoring their execution by department heads<br />
  12. 12. Preparing the ground work for ERP implementation<br />Before implementation of ERP, system documents/ manual to be prepared <br />Documentation of each SOP<br />Preparation of Flow charts such as Flow of Documents, Process flow etc.<br />Preparing Pro Forma of the input/output documents<br />
  13. 13. Order wise status updates <br />Each Department head to give order status updates to senior management fortnightly <br />Format for such status update to be prepared<br />Revision of targets considered in these meetings <br />
  14. 14. Evaluating the need for employing new staff or reducing excess staff<br />Evaluation of the need to hire more personnel in various departments<br />Locating departments having excess staff and review the need for inter departmental staff transfer<br />Appointment of qualified staff in order to improve the efficiency of strategically important departments such as Finance/Marketing.<br />
  15. 15. Proper Allocation of Work<br /><ul><li>Department heads to ensure adherence to SOPs
  16. 16. Such adherence possible only when intra department allocation of work is properly performed
  17. 17. Every department head to give the names of their employees and their scope of work in writing
  18. 18. Review of such allocation of work by the internal auditors</li></li></ul><li>Accentuating on better co-ordination amongst departments<br />Higher level management to constantly work towards better co-ordination between various departments<br />A monthly meeting of all department heads to brainstorm areas for improvement and Locate loopholes in the flow of process to eliminating the same <br />
  19. 19. Establishment of Costing System<br />Cost Plus method of pricing to be made standard for all the orders<br />A proper system for costing to be established to avoid non recovery of costs due to improper estimation<br />This system to be maintained by the Finance Department in co-ordination with Production Department.<br />
  20. 20. Establishment of Internal Audit Department<br /><ul><li>A third party Internal Audit Department to be established
  21. 21. Scope of Work:</li></ul>Preparation of System Manual containing all the SOPs, Flow Charts, Pro Forma of documents etc<br />Preparation of Standard cost sheet pro forma<br />Perpetual review of newly established system to ensure adherence to SOPs<br />Directly report to the Managing Director of the company<br />To work with senior management to improve the internal controls of the company.<br />
  22. 22. THANK YOU<br />