Benefits and Limitations of Cloud Accounting

The report is prepared to be presented to the CEO of Bucks Phyz that deals with the implementation of specific internal controls for mitigation of risks posed by the existing sales process of organization. In the current sales process, accountant is required to raise the purchase order and then it is required to be sent to suppliers. Raising the purchase order took long time and when transactions was to be made online, the existing sales process is regarded as an issue because of delaying. Analysis of the given case depicts that sales process of Bucks Phyz is not capable of doing online transactions. Staffs are required to undergo any training course for which they need do the bookings online by making payment and reimbursing the same amount from Bucks Phyz. Introduction of corporate credit cards is likely to solve the issue with the existing sales process (Susanto, 2016).

The sales process of organization does not have proper and adequate design of information technology in general and control of applications (Davis et al., 2017). This would prevent the information technology associated with the sales system from providing accurate and complete information that are consistent with the current needs and objectives of financial reporting. Due to complexity level in the sales process, there is no proper segregation of duties such as separation of authorization, record keeping relating to sale transactions and custody.

Sales staffs and members of team are required to make booking for their course themselves and seek reimbursement might lead to conducting of fraud activities (Toldbod & Israelsen, 2014). This is indicative of the fact that there is no proper authorization of activities and transactions.

Existence of such weakness in the internal control system of organization has several impacts in terms of size and scope of business and it requires management to rely on different reports for controlling the operations effectively. It is certainly possible that organization is not complying with the applicable laws and regulations and this will impact of reduced financial information reliability. Established control might experience breakdowns because of misunderstanding of instructions on part of sales staffs or they might make some errors due to distractions, fatigue and carelessness (Davis et al., 2017). Moreover, there is the possibility of collusion within the organization as individual staffs acting together with another supplier, customer and another sales staffs might conceal and perpetrate fraud so that their detection can be prevented using internal controls. This would make the component of control environment of internal control ineffective and indirectly hampers the ethical values and integrity of organization.

Internal Control System for Mitigating Risks

Identification of risks needs to be mitigated by effective implementation of some specific internal controls that are listed below:

• Proper authorization of duties and transactions relating to sales activities

There should be proper authorization of transactions and it can be specific and general as well. Management of organization is required to create subordinates and establish policies and only the transactions within the limits as per policy should be approved.

• Independent check on performance

Organization should have proper internal verification as there is possibility that personnel are likely to intentionally or forget the procedures or they become careless unless their performance is evaluated. Internal verification prices should incorporate computerized accounting system for making the sales process automated (Du et al., 2015).

• Information processing

Bucks Phyz should undertake variety of internal control that should be performed for checking completeness, accuracy and authorization of transactions. For example, a purchase or customer order should only be accepted only after making reference to an approved credit limit and approved customers.

• Performance indicators

Some of the factors that serve as control activities are corrective and investigative actions, relating different sets of data to one another such as operational and financial and analysing the relationships. For instances, percentage of orders comprising rush orders, variances relating to purchase prices and return percentage to sales orders (Xu et al., 2015).

• Adequate separation of duties

For conducting any inappropriate action and reducing the risk of errors, duties should be segregated among different staffs. For instance, there should be separate individual for recording transactions, handling authorization and relates assets handling.

• Adequate documentations

Adequate records and documentation such as sales invoice, purchase invoice and sales journals should be maintained in electronic format. For adequate control over assets and proper recording of transactions, there should be sufficient documentations.

The introduction of corporate credit cards has been suggested by CEO of company and it has got its own benefits and limitations that are illustrated below:

Benefits of corporate credit cards:

Corporate credit cards are a tool used by management for controlling costs and curtail expenses incurred by staffs in course of doing business. It provides organization with the opportunity to closely monitoring the spending of their staffs. A business is able to exercise incredible control over expenditures of their staffs and indirectly helps in determining credit worthiness of company. Employees are authorities to perform certain transactions on behalf of organization that are later accounted for. Therefore, it also helps in minimizing the risk of errors and fraud. Track of spending across different departments of can kept by management using credit cards and helps in streamlining of accounting process (Dasc?lu & Nasta, 2015). Hence, it helps in facilitating record keeping.

Corporate Credit Cards: Benefits and Limitations

 Furthermore, it comes with benefits such as potential for deductions of taxes, creating segregation between work and personal expenses, options for accounting of personal and business liability. Nonetheless, there should be policies regarding spending limits, procedures and restrictions that should be followed by employees.

Limitations of corporate credit cards:

An organization is required to conduct monthly scrutiny and reviewing of all bills for confirming that all the purchase as mentioned in the account is actually reflected by it. This should be done for enquiring that there are no signs of any fraudulent use of credit card (Fitriati & Mulyani, 2015). There is a possibility of employees overspending as it entrust temptation and there are drawbacks in relation to employees.

Bucks Phyz might be facing some risks due to issuing of corporate credit cards to their employees in terms of fraudulent activities and taking undue advantage. In order to facilitate better accounting of expenses pertaining to employee’s credit card, an organization is required to have a written credit card policy as it serves as the foundation of good credit expense control system. The guidelines regarding the reimbursement of expenses should be established within this policy document (Wong & Wong, 2017). The probability of occurrence of fraud within this area would be reduced by following list of controls apart from written policy.

• Criteria determination for eligibility and requirement of credit cards (Marin, 2015).
• Employees who have been issued with credit cards are required to provide them with overall and monthly credit limits.
• Performing annual and initial credit checks of employees who have been issued with cards.
• Purchases should be individually substantiated and itemized and therefore, the items that have been listed for reimbursement are provided with the submission of original receipts (Mohammadi 2014).
• Receipt of credit cards and expense reports should be submitted on timely basis for the purpose of processing so that expense items are reconciled and a proper view is provided.
• Expenses amounts should be compared budgeted amounts’ and prior period.
• For each purchased items, purpose of business should be described.
• Obtainment of cash advances should be prohibited from the use of these cards.

For recommending CEO of Bucks Phyz regarding whom credit cards should be issued requires determination of criteria who needs a corporate credit card and who is eligible. Credit cards should only be issued to trust worthy employees who are competent enough for conducting business seamlessly without getting engaged in unethical and fraud activities (Prasad & Green, 2015).

Conclusion:

From the analysis of system of sales process of Bucks Phyz, it can be inferred that there are several weakness prevalent in the internal control system of organization. In this respect, it is required by organization to implement adequate internal control system that will facilitate prevention of risks posed by the internal control. It can also be demonstrated that issuing of corporate credit cards comes with advantages as well as disadvantages. The risks of occurrence of fraudulent activities concerning credit card issuance can be mitigated by having proper internal control system in place (Simkin et al., 2014). However, Bucks Phyz will be able experience better tracking of their expenses and for this there should be adequate internal control system facilitating of valid, authorized and appropriate business expense payments.

References list:

Dasc?lu, E. D., & Nasta, L. (2015). Managerial Accountability–a Key Factor in the Implementation of Internal Control Systems. Ovidius University Annals, Series Economic Sciences, 15(2).

Davis, J. T., Ramamoorti, S., & Krull Jr, G. W. (2017). Understanding, Evaluating, and Monitoring Internal Control Systems: A Case and Spreadsheet Based Pedagogical Approach. AIS Educator Journal, 12(1), 59-68.

Du, K., Huddart, S., & Xue, L. (2015). Accounting Information Systems and Asset Prices.

Fitriati, A., & Mulyani, S. (2015). Factors that affect accounting information system success and its implication on accounting information quality. Asian Journal of Information Technology, 14(5), 154-161.

Marin, R. M. (2015). The Possibility of Developing a Sustainable Financial-Accounting Information System. Valahian Journal of Economic Studies, 6(1), 103.

Mohammadi, J., Ghaffari, A., Hadavi, A., & Mohammadi, K. (2014). Analysis of the role of internal control in performing the responsibility of managers of public sector. European Online Journal of Natural and Social Sciences: Proceedings, 2(3 (s)), pp-2321.

Prasad, A., & Green, P. (2015). Organizational competencies and dynamic accounting information system capability: impact on AIS processes and firm performance. Journal of Information Systems, 29(3), 123-149.

Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting information systems. John Wiley & Sons.

Susanto, A. (2016). The Effect of Internal Control on Accounting Information System. International Business Management, 10(23), 5523-5529.

Toldbod, T., & Israelsen, P. (2014). The role of interactive control systems in obtaining internal consistency in the management control system package. In Manufacturing Accounting Research Conference. European Institute for Advanced Studies in Management.

Wong, H., & Wong, R. (2017). Students’ Perceptions on Studying Accounting Information System Course. International Journal of Business Administration, 8(2), 1.

Xu, H., Lin, Z., & Wang, X. (2015). Relationship-Based Transaction, Internal Control and Earnings Management: Empirical Evidence from Accrual and Real Earnings Management. Journal of Accounting and Economics, 3, 005.