HFT 3431

1
HFT 3431

• Chapter 12
• Internal Control

2
Internal Control

• What Is Internal Control?
• What Are the Major Objectives of Internal
  Control?
• What Are the Differences Between Accounting and
  Administrative Controls?

3
Internal Control

• What Are the Characteristics or Principles of
  Internal Control?
• How Are Internal Controls Documented?

4
Internal Control

• How Is Flowcharting Useful in Documenting and
  Monitoring Internal Control?
• How Does the Segregation of Duties Enhance
  Internal Control?
• What Methods of Internal Control Are Necessary to
  Safeguard Cash?

5
Conditions For Fraud and Embezzlement

• Need
• Opportunity
• Failure of Conscience

6
The Industrys Vulnerability

• Cash Business
• Many Transactions
• Low Skill Employees
• Perception of Industry As Low Social Status

7
The Industrys Vulnerability

• Items Used Have Street Value
• Items Used Are Used by General Population

8
AICPA Objectives of Internal Control

• Safeguard Assets
• Check Accuracy and Reliability of Accounting Data
• Promote Operational Efficiency
• Encourage Adherence to Prescribed Managerial
  Policies

9
Types of Internal Control

• Administrative - How the Company Operates
• Accounting - Impact on Financial Statements

10
Internal Control Basics

• System Requires - Methods and Procedures and
  Reliable Forms/reports
• Larger the Company - More Internal Control
  Required

11
Internal Accounting Control

• Develop Long-Term Audit Program
• Set Audit Policies
• Conduct Financial Audits
• Recommend Improvements
• Check Management for Compliance
• Review Operational Controls

12
Internal Accounting Control

• Monitor Corrective Actions Taken
• Conduct Special Examinations of Sensitive Areas
• Investigate Fraud
• Assist the Audit Committee
• Coordinate With Independent CPA Firm

13
Classification of Controls

• Preventive Controls
• Controls That Are Implemented Before a Problem
  Occurs Such As Use of Locks or Segregation of
  Duties

14
Classification of Controls

• Detective Controls
• Controls Designed to Discover Problems and to
  Monitor Preventive Controls Such As External
  Audits or Surprise Cash Audits

15
Characteristics of Internal Control

• Management Leadership
• Organizational Structure
• Sound Practices
• Fixed Responsibility

16
Characteristics of Internal Control

• Limited Access
• Competent and Trustworthy Personnel
• Segregation of Duties
• Authorization Procedures

17
Characteristics of Internal Control

• Adequate Records
• Procedure Manuals
• Physical Controls
• Budgets and Internal Reports
• Independent Performance Checks

18
Documenting Internal Control

• Flowcharting
• Internal Control Questionnaire
• Narrative

19
Code of Ethics

• Many Hospitality Companies Have Adopted Code of
  Ethics
• General Managers and Department Heads are
  Responsible for Advising Employees Under Their
  Supervision of the Parts of the Code That Apply
  to Them and Their Duties

20
Most Frequent Elements in Codes of Ethics

• Privacy of Communication
• Conflict of Interest
• Political Contributions in the U.S.
• Company Records
• Gifts, Favors, Entertainment, Trips and Outings

21
Most Frequent Elements in Codes of Ethics

• Use of Company Assets
• Anti-Trust Laws
• Relations With Competitors
• Relations With Suppliers
• Relationships With Customers

22
Examples of Internal Control

• Cash
• Bank accounts reconciled monthly
• Reconciliation done by independent party
• General Cashier needs to take a vacation 1 - 2
  times a year
• Surprise cash counts
• Checks received should be endorsed

23
Examples of Internal Controls

• Accounts Receivable
• Same person collects money does not record
  payment
• Mgmt authorizes and write-offs or adjustments
• Accounts Payable
• Need invoice to pay
• Invoices need to match to PO
• Vendor must in system

24
Examples of Internal Controls

• Purchasing
• PO system needs to be used
• Separate duties for Ordering and Receiving
• Payroll
• Spvr or Mgr need to approve time sheets
• Payroll separate from HR
• Undelivered checks returned to CFO

25
Examples of Internal Controls

• Inventories
• Keep valuables locked away
• Keep minimal level on hand
• Take a physical inventory periodically
• Use 2 or more staff to do inventory
• Fixed Assets
• Annual inventory
• Proper approvals prior to purchase or disposal

26
(No Transcript)