Essay On Internal Control Weaknesses In Bucks Phyz And The Impact Of Corporate Credit Cards.

The CEO is also considering the introduction of corporate credit cards for the purchase of smaller items for the business. At present, all purchases require a purchase order to be raised and sent to a

supplier. This process was an issue when they recently tried to book a training course for two team members and the bookings needed to be completed on line. The staff needed to book the course themselves and seek reimbursement from Bucks Phyz. The CEO would also like advice regarding the impact of the introduction of corporate credit cards and who should be issued with a card.

Using the information provided to you, you need to prepare a business report to the CEO including the following:

1.A summarised overview of the Sales Process for Bucks Phyz (1 mark). [T his should be no longer than one (1) paragraph and need to focus on the key relevant facts. The CEO is already aware of this information, but this overview helps bring your report together for other readers]

2.Identification of;

a.internal control weaknesses in Bucks Phyz sale process;

b.the impact these weaknesses could have on the organisation;

c.specific internal controls which could be implemented by Bucks Phyz in the coming weeks to mitigate the risks posed by the internal control weaknesses you have identified. The CEO does not want theoretical controls suggested. They want practical controls that they can implement.

3.A review of the impact of the introduction of corporate credit cards. This needs to include:

a.a detailed review of the benefits and potential risks associated with the introduction of corporate credit cards within Bucks Phyz.

b.the specific Internal Controls which should be implemented by Bucks Phyz to minimize the impact and occurrence of the risks you have identified?

c.a recommendation to the CEO regarding who should be issued with a corporate credit card and why?

Internal control weaknesses in Bucks Phyz sale process

The sales process is the succession of steps that a company takes from the moment it tries to capture the attention of a potential client until the final transaction is carried out, that is, until an effective sale of the product or service is achieved for the company. This process, when represented graphically, is funnel-shaped, since as it progresses, not all potential customers become real buyers. There are many schemes to draw on to explain the phases of the sales process, but one of the most classic is the one known as the AIDA model. This detail what are the steps that this model takes into account to explain the sales cycle from the beginning to the end  (Romney & Steinbart, 2017).

Internal control weaknesses in Bucks Phyz sale process

Currently, organizations are moving towards the search for best practices on the basis of efficiency and effectiveness which translates into the successful achievement of their proposed objectives, this in view of an increasingly competitive and demanding environment that demands daily greater challenges, in order not to remain isolated to the changes, economic, financial and technological that arerising (Soll, 2009).

It is in such a situation that the design and establishment of guidelines, mechanisms and procedures that at the organizational level regulate and guarantee a constant evaluation of their processes and operations with the purpose of verifying the adequate performance and adherence to the established policies and regulations, becomes more important; in order to verify that everything is proceeding accordingtoplan 

Similarly, the area related to income represents an aspect that must be monitored constantly as it is a vital element within any entity and driving force that injects the necessary potential to comply with the obligations and commitments made with personnel, suppliers and in general lines for the development of daily.

However, sometimes this process is much slower as is the case of the companies providing credit services, in the context of which are the sales companies belonging to the  sector, given that they are mostly 30 days, which makes the cash conversion cycle of your accounts receivable slower compared to the trading companies.

Impact these weaknesses could have on the organization

The weaknesses on sales lead to a company’s overall inefficiencies. For Bucks Phyz, weaknesses in the sales process leads to increased losses  (Bragg, 2005). This is because; the capacity of the company is compromised and in turn leads to inefficiencies. There is also fraud in sales revenue due to weak internal sales control of the company.

Impact these weaknesses could have on the organization

In addition to this, the personnel perform different functions intervening in unrelated areas such as accounts receivable and income; there is no periodic evaluation of the processes and the collection function is neglected(Bodnar & Hopwood, 2013).; All these aspects make it imperative the need to carry out an adequate control of the operations and processes at the organizational level in order to respond in a timely manner to suchaspects. In this reard, internal control does not provide absolute security but reasonable, as a result of wrong decisions or errors and failures" which is why it is necessary to give greater relevance to the treatment of sales - income, especially when working

Specific internal controls which could be implemented by Bucks Phyz

The internal control is that which refers to the set of automatic verification procedures that occur due to the coincidence of the data reported by various departments or operating centers. There should be sales registers, invoices and proper documentation should also be encouraged  (Bragg, 2005).

The line of inventories is generally the one with the greatest significance in current assets, not only in its amount, but also because the company's profits come from its management; hence the importance of the implementation of an adequate internal control system for this Physical sales count at least once a year, no matter which system is used. Make periodic or permanent counts to verify material losses.Make sure inventory control is done through computerized systems, especially if a variety of items are moved. The system must provide permanent control of inventories, in order to keep inventory updated, both in quantity and in prices.

Establish clear and precise control of goods receipts to the warehouse, reception reports for purchased goods and production reports for those manufactured by the company. The goods will leave the warehouse only if they are backed by dispatch notes or requisitions which must be duly authorized to guarantee that they will have the desired destination.

1)A review of the impact of the introduction of corporate credit cards. This needs toinclude:

a detailed review of the benefits and potential risks associated with the introductionof corporate credit cards within Bucks Phyz.

Introduction of corporate credit cards within Bucks Phyz will have the following impact of on the business.  The introduction of corporate credit cards is likely to encourage larger and more frequent purchases. Also since this is a small company, the staff  are more likely to make inventory purchases on a regular basis because it has limited cash on hand.  There is also a risk of the company accumulating high interest payments and high debts when the corporate credit card is used in a bad way which causes major financial problem for the company. This is so because if the credit cards are not supervised by Lucinda or another high level manager like Mary, then those who use them can end up high interest payment.

Specific internal controls which could be implemented by Bucks Phyz

One of the benefits is that the credit card is that Bucks Phyz is able to access a credit line which makes it possible to make purchases and pay them later thus increasing the company’s purchasing power.

The second main benefit  of introducing corporate  credit cards is that they allow the company  to have funds  in cases of emergency, that is, in unexpected cases  where urgent payment has to be made and was not planned , the company is able to solve the problem.

International acceptance

Many of the corporate credit cards are accepted not only locally but also internationally, which allows the company  to make purchases as well as having cash in different parts of the world (Jobber & Lancaster, 2012).

They replace cash

Another advantage of  corporate credit card is that taking them with us can be much more practical and safer than carrying cash, especially when we have to pay large sums of money.

Risks that Bucks Phyz may face after introduction of corporate credit card include;

Risk of not controlling expenses

The same purchasing power of credit cards can turn against the cmpany, causing Bucks Phyz to lose control of the expenses, for example, when making purchases impulsively, causing accumulation of debts and high interest payments. Purchasing should be authorized by Lucinda as the finance director. (Jobber & Lancaster, 2012).

High costs

Other disadvantages of credit cards are their high costs, that is, the high interest rates that they charge us if we do not pay for purchases within the agreed term; which end up making our purchases more expensive, and considerably increasing our indebtedness. Just like any other company, Bucks Phyz faces this risk when they introduce a credit card (Holland & Young, 2010).

Loss of time and possibility of fraud

When paying by credit card, some problems may arise such as a possible loss of time when waiting for the credit to be authorized, or the possibility of fraudulent use of the card. However, the AR manager Mary should be incharge of making sure that there is verification to mitigate against the risk of fraud.

Specific internal controls that may be used to minimize the risk after introduction of credit cards

 in order to minimize the risks the company may get when corporate  credit cards are introduces the following internal controls may be put in place;

Buckz Phyz  should consider creating a formal credit card procedure that gives authority or dictates which employees are authorized to use Bucks Phyz corporate credit cards. For example Lucinda and the Finance Director should be incharge of implementing this policy. The policy should state the types of purchases that are allowable for Buckz Phyz  and the procedure for documenting  the expense made via the corporate credit card.

Regular statement review is yet another internal control that can mitigate any risk that the company faces with the introduction of the corporate credit cards. This should be checked by  George, the sales manager, because he knows a thing or two about pricing. Credit cards statements and supporting receipts should be reviewed by a senior employee who is knowledgeable in the operations of the business. The ideal employee to carry out this work is one who is not a credit card holder and should also be willing and comfortable to enforce internal control policy regarding to coding of expenditure and receipts.

Buckz Phyz should put in place a measure known as Substantiation. This is another internal control that involves submitting original receipts for all credit card charges. The original receipts should be verified by Lucinda the Finance director. This is because she has the overall responsibility in the finance department. She is supposed to substantiate the purchases made the the corporate card. The receipt also ensures that the charge was for a business expense that is legitimate (Holland & Young, 2010). The credit card receipts and the expense reports should be presented for reconciliation and review in a timely manner.

Other internal  controls that may help include setting monthly and overall credit limits for the credit card users. Disallowing cash advances and  Setting up online notifications for any unusual activity regarding the credit purchases (Hondius, Heutger & Jeloschek, 2016).

Recommendation of who should be issued with the credit card and why

As a finance director, Lucinda should be issued with a credit card, this is because she bares the overall responsibility in the finance department. Also, one of the AR specialist should be given the credit card for control purposes.  Buckz Phyz should also issue credit card to employees in the finance department who make regular purchases such as Barry.

References

Bodnar, G., & Hopwood, W. (2013). Accounting information systems. Boston [etc.]: Pearson Education.

Bragg, S. (2005). Inventory accounting. Hoboken, N.J.: John Wiley & Sons.

Holland, J., & Young, T. (2010). Rethinking the sales cycle. New York: McGraw-Hill.

Hondius, E., Heutger, V., & Jeloschek, C. (2016). Sales. Berlin, DE: Hamburger Edition HIS.

Jobber, D., & Lancaster, G. (2012). Selling and sales management. Harlow: Pearson.

Romney, M., & Steinbart, P. (2017). Accounting information systems. Harlow: Pearson Education Limited.

Soll, J. (2009). The information master. Ann Arbor: University of Michigan Press.