Checklist for Evaluating Internal Controls

...

- Are checks being segregated by different employees?

- Are employees that take in the checks different that those

who apply those funds?

- Are bank deposits for AR being randomly verified against

customer AR accounts?

- Are procedures being followed for AR accounts that are

classified as bad debts?

- Are collection accounts being adjusted? Are payments that

come in for collections being allocated correctly?

- Does the company have a limit on bad debt? How many accounts

are in negative status?

- How are NSFs being conducted? Is the company following state

laws for fees allowed?

- Is the past due amount being followed for those states allowed?

Transactions:

- Are material purchases being properly documented in more than

one place?

- Are customer sales on AR being handled the same way by all

personnel?

- Are customer returns being documented in a master return log?

- Are obsolete inventory quantities being properly accounted for

and tracked?

- Are all transactions processed recorded and compiled into reports

- that management can view and ensure employees are doing their job?

Segregation of duties is one of the most important aspects of internal controls. Having one person in charge of so many procedures and transactions can cost the company money and time. Not one person should be accepting checks, taking in checks, and applying to accounts. There should be one person who takes in checks, forwards those to the person who applies those funds to the accounts, and a third person who accounts for recording the transactions that took place. Period audits should be performed when it comes to any funds being received or going out, an internal audit and internal control should be places for certain amounts. Exceeding a certain amount should need management approval to apply those funds or disburse that amount to a customer. “Four types of functional responsibilities should be performed by different departments or at least by different persons: authorization to execute transactions, recording transactions, custody of assets involved in the transactions and periodic reconciliation of existing assets to recorded amounts” (Louwers, Ramsay, Sinason & Strawser, 2007).

References

Louwers, Timothy, Ramsey, Robert, Sinason, David & Strawers, Jerry. (2007). Internal Control Evaluation. Auditing and Assurance. Retrieved April 5, 2015 from University of Phoenix Online materials.

...