Auditing

Justification for an Internal Control System

Internal Controls

Justification for an Internal Control System

The Cameron Corporation, Inc has been asked to provide justification for Dilly Dally, Inc having an internal control system in place other than the insurance and portfolio controls that are currently in place. Cameron Corporation will provide this information along with a specific example to provide Dilly Dally with a clear view of the benefits of having the internal control system. Cameron Corporation will focus on the recording and handling of cash within the business.

Dilly Dally currently has an insurance policy that is in place in order to reduce the impact of losses in the event that there is a substantial loss. The insurance is beneficial to Dilly Dally because a third party assumes a portion of the risk involved in operating the business (McCarthy, Flynn, & Brownstein, 2004). The company also has a portfolio controls that are in place to deal more with risks involved externally. The internal control system will show Dilly Dally that there are internal risks which can be minimized which will keep the company from having to utilize its insurance controls.

Dilly Dally currently has a faulty system in terms of cash handling and recordation. Cameron Corporation proposes the following changes to reduce the risk of misstatements or omission of cash transactions. For cash disbursements and cash receipts, segregation of duties is mandatory. Custody of assets or cash, authorization, record keeping, and reconciliation should be segregated. Different people and departments should handle cash disbursement authorization, have custody of blank documents (checks), discharge the record keeping for payments, and perform the bank reconciliation. Blank documents, such as blank checks, should be kept secure at all times. Someone without access to the check-writing function should perform the recording function.

For cash...