Assignment:
Human resource department
Internal control weakness:
• No proper verification of all credentials and background of the employee made while recruiting and bribing are present in current recruitment.
• Lack of effective HR policy and implementation which may lead to a future lawsuit.
• Can access all personal details of employees and chances of misuse is high.
Control mechanisms:
• Appropriate HR management IT system has to be enabled to monitor the policies and the way the department function and in identifying the mistakes and their initiatives taken in effective implementation of all required policies (Romney & Steinbart, 2014). It will enable in evaluating the performance and even replacing the HR manager incase of non-performance.
• Candidates must send a scanned copy of all the original certificates and experience for verification; third party verification will be suitable in this case. Appointment must be on probation basis where after all verification check they will become the permanent part of the organization.
Accounting department:
Internal control weakness:
• One employee handles both customer payments and reconciliation the bank accounts, in this case employee can easily make fraud that cannot be identified by others (Romney & Steinbart, 2014).
• Maintenance of accounts receivables and customer payment will enable in committing more fraud by adjusting the accounts.
• Making incorrect entries about sales, receivables, payables etc, for personal profits.
Control mechanisms:
• Different employees must be appointed for handling cash, reconciling bank accounts and for issuing credit memos (Romney & Steinbart, 2014).
• Entire organization must be computerized so that all transactions will be entered appropriately without any fraud (Romney & Steinbart, 2014). In this case, invoice will be generated by computer, payment made towards the supplier will be recorded in the system and every activity involved in business will be recorded. It will eliminate the fraud to a great extent, and it will enable management to identify such frauds easily.
Production department:
Internal control weakness:
• Inventory management, order placement and maintenance of record made only by the production department (Romney & Steinbart, 2014).
• Complete access to all the production materials and finished goods provides an opportunity for stealing.
• Quality control performed by the manager who manages production and thus provides an opportunity to sell in the black market.
Control mechanisms:
• Inventory control, production management and order placement must be handled by different department with different employees.
• Entire system must be computerized so that orders from the production department will be automatically raised by the system to the inventory department, and orders will be placed by the inventory department once it reaches minimum quantity. It will avoid misuse of inventory and warehouse must have computerized record system that eliminates the fraud as the employee who gets the inventory has to mention their employee ID and the purpose (Romney & Steinbart, 2014).
• Quality control must be performed by different department to avoid false production and damage record, and it must be computerized to avoid any fraud.
Sales department:
Internal control weakness:
• Inflating the amount of sales to earn higher commission by preparing fraudulent invoice.
• Providing excessive discount to the customer as they have full authority to make.
• Credit terms are decided by this department and thus, they alter them according to the customer requirement to boost sales (Romney & Steinbart, 2014).
Control mechanisms:
• All sales performed by the department is recorded in the computer that will be integrated with the accounts and production department, to indicate the amount of sales. This integrated system will eliminate the fraud of inflating sales (Romney & Steinbart, 2014).
• Sales department must not have any authority to decide about the terms of credit and the discount; all these are management decisions (Romney & Steinbart, 2014). There must be deliberate disclosure about the discount and credit terms to the existing and prospective customers so that company will not face any issue in the collection and suffer any loss due to higher discount.
Administration department:
Internal control weakness:
• There are no proper written policies to adhere.
• Mismanagement of all work that cannot be identified due to lack of documentation.
• Have close work with accounting department and handles cash which enables them to commit more fraud.
Control mechanisms:
• Establishing ERP system is the best way to resolve all these fraud, by maintaining the system with appropriate user ID and password will enable in understanding the person making entry and committing fraud easily (Romney & Steinbart, 2014). It will establish great control over the entire operations of the organization. It will control the fraud committed by administrative department.
References
Romney, M. B., & Steinbart, P. J. (2014). Accounting information systems (13th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.