Essay: Evaluation Of Revenue Cycle And Weaknesses In RCITO Limited's Internal Control.

Establishment of Separate Departments to Enhance Internal Control

The organizations depend upon the information systems for carrying out along with managing all operations, interatom with the suppliers as well as customers, and competing within the marketplace. An information system is a components' integrated set to collect, process, and store data, along with to provide digital products, knowledge and information. An information system is used by organizations for processing financial accounts, reaching potential consumers with several online promotions, and for managing all human resources (Arshad et al. 2019). As information system helps enable more diverse activities of individuals, this exerts a profound influence upon society. For increasing the effectiveness of the information system, more data could be added for making the information much more accurate and using such information in several new ways.

This system helps quicken the pace of all daily activities, enables people in developing and maintaining new relationships, affects the mix along with the structure of the organization, changes the product types, and influences work's nature for individuals. An information system is used for maximizing the benefits of the organization. Information system helps to process data from the organizational inputs for generating information which is useful to manage all operations (Force 2020). This paper will provide a report for evaluating the revenue cycle of RCITO Limited. This paper will also discuss the potential weaknesses of internal control in the procedures of processing sales orders of this organization. Finally, this report will identify every potential risk associated with the weaknesses of internal control of this organization.

Inventory control helps ensure supply's appropriate amount is available within RCITO Limited. With appropriate internal controls, this practice ensures that this organization could meet all demands of the customers along with successfully delivering financial elasticity (Zakirova et al. 2021). Data is needed for a successful inventory control from several departments, purchases, customer satisfaction, turnover, reorders, warehousing, loss prevention, storage, shipping, and receiving. It helps the inventory control to enable maximum profit from minimum investment in the stock without affecting the satisfaction of the customers. While inventory management and inventory control might seem interchangeable, these aren't. Inventory control helps regulate what is within the warehouse already (Miller 2022). When managing the inventory process within RCITO Limited, several factors are considered.

Inventory management of this organization could be affected by both internal as well as external factors in several ways. However, inventory management regulates all things, from how this business gets all products to what is available within the warehouse of this organization. Inventory control also helps to avoid issues, like stockout events. Inventory control within RCITO Limited helps to avoid all additional regarding buying excessive inventory. The policies, along with practices of inventory control, apply to raw as well as finished goods (Fiolleau, Libby and Thorne 2018). Supply chain management (SCM) is inventory control's integral part that manages the overall flow of services, goods, and raw materials to a point where this organization and the customers consume all goods.

Weaknesses of Internal Control

It allows RCITO Limited to assess all current states regarding assets, financial reports, and account balances. Also, warehouse management falls into this area of stock control. Such a process involves integrating every product coding, product detail, reorder report and point, and inventory list. Warehouse management helps synchronize purchases as well as sales. The procedures of inventory control help ensure RCITO Limited is running at the most appropriate financial levels, along with products that meet expectations as well as the needs of the customers (Chang et al. 2019). This inventory control of RCITO Limited addresses the orders from the production and selling to purchasing the items.

The employees, senior management, and shareholders of the organization expect this to conduct the business securely, efficiently, and reliably, particularly in all financial transactions. This internal control of RCITO Limited ensures that all expectations are met by every business process. Hence, this is crucial in identifying the weaknesses of internal control within this system. The weakness in the internal control is the failure within the effectiveness or implementation of the internal control within the organization (Li, Han and He 2019). The bad actors could take full advantage of the weak internal control for evading the security measures. The operational weakness could result from human errors. The operational controls of RCITO Limited could become weakened when individuals conducting the operations do not follow all standards as well as policies placed by the organization.

If there exist inaccuracies within the financial statements, there could be an issue within the system of internal control of RCITO Limited. If one individual handles every duty, this is a weak internal control's sign. If inaccuracies happen within the financial reporting, the organization needs to consider looking at the accounting procedures used. Missing documentation like purchase orders or invoices is weak internal control's another sign (Tsai and Huang 2021). If any document could not be found, there exists a high chance that issues exist within the processes of RCITO Limited. All activities along with processes used by RCITO Limited must have some written procedures. Without any written procedure, the employees mightn't know the appropriate procedures along with might complete the activities in the wrong method.

A strong system of internal control has written policies along with procedures for every business activity within the organization. A system should be delivered by RCITO Limited for ensuring that every customer is pleased with the services as well as products of this organization (Chalmers, Hay and Khlif 2018). There also exists a huge risk that RCITO Limited would incur some bad debts. It is due to the reason that there is a conflict of interest for the sales representative to maximize sales to the customers while being responsible to minimize arising bad debts' risk. This issue is compounded due to the fact that payments are received by the sales representative based upon the performance of work.

Potential Risks Associated with Weaknesses of Internal Control

Without an appropriate procedure to check the availability of the inventory, RCITO Limited could face several risks, such as markdowns, carrying costs, and stockouts if the manager of the warehouse prints the documents of shipping without information from the report of inventory checking, the clerk of the warehouse could face issues to pick up the items. It could be experienced mainly when every requested product is not in stock at that time (Jun-min, Ya-ting and Shao-zheng 2018). RCITO Limited could incur carrying costs for sourcing all products in this long run. Stockouts' threats could be prevented with the installation of a system which notifies the department of the warehouse when the economic order quantity of each item reaches.

This system to check the creditworthiness of the customers by a sales clerk involves the sales' risk to the customers having poor credits. The list provided by the department of accounting doesn't include new customers' names as RCITO Limited doesn't keep accounts of those new customers. Sales' likelihood to the customers having poor credits might lead to bad debts' rise (Kim 2021). IT solutions could be used by RCITO Limited for improving the condition to check the creditworthiness of the customers. For instance, automating credit limits as well as balances could enable the department of sales in checking the credit levels of all customers. In addition, emails to this organization's credit manager for the accounts requiring certain authorization could mitigate such risk.

The weaknesses of procedures of cash receipt could attribute to order's risks that aren't legitimate. All errors made by the firm's mail clerk while preparing a remittance list, particularly by including several unauthorized transactions, could result in an illegitimate order. This organization could face the fact the risks to fulfil orders which the customers did not place. Such dependence upon the treasurer and the mail clerk could increase fraudulent activities' risks (Akhmetshin et al. 2018). Every risk of customer credit, theft of money, and all other assets could be experienced as for the procedures of cash receipts of weaknesses of this organization. Treasurer's every manual record could pose fraudulent activity's risk. As the banks are dependent on all treasure records, any intentional omission or error could lead to the credit theft of the customers. This organization could introduce a system where the customers could remit to that bank directly. Then a notification is sent by the bank about the remittance to the firm's accounts department (Aksoy 2021). Using the system of bank remittance would promote the electronic list's creation for verification.

Based on every risk associated with internal control's weaknesses of the procedures of processing of sales orders along with cash receipt of this organization, employee fraud could occur. Such employee theft affects the output as well as business operations of RCITO Limited negatively. The treasure could engage in funds' embezzlement while recording all deposit slips manually. If that treasure omits a few deposits intentionally along with channels these to own account, a huge financial loss would be suffered by this organization (Nawawi and Salin 2018). These losses could influence all operations of RCITO Limited negatively, where additional funding is sourced by the organization for meeting all operational expenses for the operations. Lack of an appropriate system of internal control could increase employee fraud's chances. The employees could be involved in the fraud with the manipulation of this system for their gain that could lead to a loss for RCITO Limited.

The fraud of financial management could also happen due to internal control's weaknesses in the procedures of processing sales orders along with cash receipts of this organization. As the individuals head most departments, collusion between them might cause fraud in financial management. For example, a false list of remittances could be presented by the collusion among the treasurer and the central clerk to the accounts department of RCITO Limited as well as the bank. The fraud of financial management might happen in spite of the availability of regulations as well as rules (Setiawan 2018). Financial fraud is caused by the engagement of management within the fraudulent activities that could have an efficient effect upon RCITO Limited's performance. However, RCITO Limited could apply duties' segregation for preventing the fraud of financial management. Duties' segregation would help this organization address all fraud threats, IT modifications, collusion, and changes within management controls.

The fraud of financial management could be managed with the reduction of overdependence upon individuals within several departments. Duties' segregation would enable RCITO Limited's management in ensuring that all departments contribute to a transaction's completion. Hence, this would lower the overdependence upon one individual and department (Gupta 2018). The primary objective is to focus upon the appropriate procedure of internal control and to prevent all occurrences of all fraudulent activities. The employee fraud along with a fraud of financial management are applicable to internal control's weaknesses of the procedures of sales order processing along with cash receipts of RCITO Limited.

Conclusion

Appropriate internal control within RCITO Limited would keep this organization operating effectively as well as efficiently. These internal controls could help in maintaining compliance with the regulations. The key controls within the internal controls would help in mitigating the risks without depending upon the secondary controls. The compliance of internal control plays a crucial role to ensure that the reporting, compliance, strategic, and operational objectives of RCITO Limited are met. The internal controls within RCITO Limited provide reasonable assurance with regards to operational objectives' achievement, like efficiency as well as the effectiveness of operations, compliance with all applicable regulations, and reliability, along with accurate financial reports.

A significant environment of internal controls ensures that the resources of RCITO Limited are used for every intended purpose and minimize misuse's risk. It allows for much greater efficiency when appropriate guidelines, as well as processes, are outlined. An established internal control within RCITO Limited would be able in reducing the scope, fees, and time of an external auditor. With appropriate internal control within the organization, there is also a lesser need for any revisions along with rebuilding all programs after the review of the external auditor. This paper discussed the weaknesses of the internal control in the procedures of processing sales orders along with cash receipts of this organization. This paper also discussed every potential risk associated with the weaknesses of internal control. Finally, this paper discussed all possible frauds due to those risks within the internal control of this organization.

References

Akhmetshin, E.M., Vasilev, V.L., Mironov, D.S., Zatsarinnaya, ?.I., Romanova, MV and Yumashev, AV, 2018. Internal control system in enterprise management: Analysis and interaction matrices.

Aksoy, T., 2021. The effectiveness of the internal control system in preventing operational risks to income statement issuance: A practical risk-based internal audit perspective. In 37nd EBES Conference Program and Abstract Book. EBES Publications.

Arshad, M., Farooq, M., Afzal, S. and Farooq, O., 2019. Adoption of information systems in organizations: Understanding the role of institutional pressures in a collectivist culture. Journal of Enterprise Information Management.

Chalmers, K., Hay, D. and Khlif, H., 2018. Internal control in accounting research: A review. Journal of Accounting Literature.

Chang, Y.T., Chen, H., Cheng, R.K. and Chi, W., 2019. The impact of internal audit attributes on the effectiveness of internal control over operations and compliance. Journal of Contemporary Accounting & Economics, 15(1), pp.1-19.

Fiolleau, K., Libby, T. and Thorne, L., 2018. Dysfunctional behavior in organizations: insights from the management control literature. Auditing: A Journal of Practice & Theory, 37(4), pp.117-141.

Force, J.T., 2020. Control baselines for information systems and organizations. NIST Special Publication, 800, p.53B.

Gupta, S., 2018. corporate frauds and the auditor's responsibility. NICE Journal of Business, 13(2).

Jun-min, ZHANG, Ya-ting, L.U. and Shao-zheng, F.U., 2018. Quantitative Internal Control Weakness Identification Standards and Internal Control Audit Pricing. Commercial Research, 60(7), p.96.

Kim, S., 2021. Does Engagement Partners' Effort Affect Audit Quality? With a Focus on the Effects of Internal Control System. Risks, 9(12), p.225.

Li, W., Han, Y. and He, J., 2019. How does the heterogeneity of internal control weakness affect R&D investment?. Emerging Markets Finance and Trade, 55(15), pp.3591-3614.

Miller, S.T., 2022. Strategies and Internal Control Procedures for Decreasing Fraud in Faith-Based Nonprofit Organizations.

Nawawi, A. and Salin, A.S.A.P., 2018. Internal control and employees' occupational fraud on expenditure claims. Journal of Financial Crime.

Setiawan, S., 2018. The effect of internal control and individual morality on the tendency of accounting fraud. Asia Pacific Fraud Journal, 3(1), pp.33-41.

Tsai, Y.C. and Huang, H.W., 2021. Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements. Finance Research Letters, 41, p.101833.

Zakirova, A., Klychova, G., Dyatlova, A., Ostaev, G. and Konina, E., 2021. Internal control of transactions operation in the sustainable management system of organizations. In E3S Web of Conferences (Vol. 258). EDP Sciences.