Implementing Effective Internal Controls to Mitigate Risks in Business Operations

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Implementing Effective Internal Controls to Mitigate Risks in BusinessOperationsBased on the internal control procedures outlined in the proposal, explain how segregation ofduties contributes to reducing fraud and errors in the purchasing, cashdisbursements, and payrollprocesses. Provide specific examples from the proposal to illustrate the importance of thesecontrols.Word Count Requirement: 500-700 words

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Controls For OutflowsJust as a company needs internal controls for inflows of assets, controls for the outflows mustbe in place to detect and deter errors and fraud.Internal controls are also needed so anorganization can conduct business in an efficient manner, protect assets and resources, ensureaccuracy of accounting data, produce reliable financial and management data, and ensureobservance of the organizations policies and procedures ("Business Dictionary", n.d.).Thisproposal will offerappropriate controls for the processes of purchasing, accounts payable, cashdisbursements, finance, investments, and payroll.PurchasingA company is in business to make money, but to make money it has to spend a large part of itsbudget on goods and services.These acquisitions can be numerous and involve big dollaramounts so internal control procedures are important to this process.A company should havewritten policies regarding purchasing activities that are reviewed regularly by management anddepartmental employees.Consistent review of policies and procedures allow regularunderstanding of what is expected as well as the realization of needed changes andupdates.Many times mistakes are made because employees do not understand protocol or thepurchasing functions are falling behind because of rapid company growth.The followingsuggestions will permit better internal control of purchasing functions:• Segregation of duties–different employees should be assigned to approving purchases,ordering items, receiving ordered items, authorizing invoices, posting infinancial software andmaintaining inventory counts.• Maintain ethical buying practices–Determine what purchase amount will require writtenproposals, review periodically who is authorized within the company to make contracts with

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external suppliers, verify invoice payment terms and authorize to pay appropriately to takeadvantage of discounts offered, and reconcile actual purchases against contracts, agreements andpurchase orders.• Reconcile purchase orders, packing slips, and invoices–verify that items ordered wereactually received or that services were performed, verify the supplier or service providerinvoiced for the correct amount, and reconcile the appropriate expenses to the correct generalledger account.If purchases result in an accumulation of inventory, the inventory should be kept in a securelocation.Only authorized individuals should be allowed in this location and periodic inventorycounts should be done by employees other than the individuals with authorization to receiveinventory and that are allowed in the restricted location.Cash DisbursementsThe objectives of internal control for cash disbursements are to have proper authorization forcash transactions and that these transactions are recorded properly.Segregation of dutieshappens when a transaction is handled by separate employees, so that no one transaction iscompleted from start to finish by one person. This is one of the most important aspects ofinternal controls with cash disbursements.Another aspect of internal controls is to ensure thatthe check signing within the organization is completed by only authorized management.The number of authorized signers should be used depending on the amount of the cashdisbursement.For example, if the check is for $1,500 for reimbursement of travel expenses,management should authorize two signatures for this request.The following is an internalcontrols checklist that will help in mitigating loss within the organization.• Are all cash disbursements made by pre-numbered checks?

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