The firm of Bracken Ridge Accounting Services is a prominent accounting firm based in Bracken Ridge, Brisbane. The firm provides financial accounting, business planning and auditing services. You are a member of the management team and specialised in establishing internal control systems.

The Client

Mr Smart who is the Managing Director of North Point Ltd asked you to establish an internal control system for the business. The business, North Point Ltd, manufactures and sells Sim Cards.

The Brief

Your first task is to evaluate the internal control system and prepare a report to be presented to the Board of Directors.

In your report:

• Evaluate the existing internal control system of the client's work, environment and prepare a flowchart,
• Determine the weaknesses and strengths of the internal control system,
• Explain the consequences of the weaknesses of internal control system,
• Make recommendations how the weaknesses of internal control can be rectified,
• Create an amended flow chart of the basis of recommendations,
• Clarify and review the current IT Procedures and develop a Cyber Security Policy & Procedure to protect threats to the company information assets and software
• Draft a letter of management to be forwarded to the management of North Point Ltd by the end of week 9 of your studies listing the weaknesses, consequences and state the changes that you would recommend for the system to improve internal control.
• Include a schedule that sets timelines for implementation of your recommendations.

The business structure and operations

North Point Ltd manufactures and sells compact discs. The raw material used for the discs is purchased from Compact Disk Pty Ltd. The company has a computerised system but it is not net-worked and each department has its own stand-alone computer system. The Company currently does not have Cyber Security policy and procedures in place. The Company's IT Policy and Procedures outlines the processes that protect technology and information within the Company such as; Information security objectives, Authorization and access control policy, Responsibilities, rights and duties of personnel and Data support and operations. There have been staff behavioural issues in the use of Internet and the confidentiality of Passwords. HR Department has only given warnings to staff.

The Board of Directors of Northpoint have decided to request the Auditors review the existing IT procedures in place and recommend a detail policy & procedures to maintain Cyber Security to safe guard the financial information data and online and cloud software transactions.

North point Ltd currently operate the following transaction cycles;

Orders for material purchases is raised by the stores department by completing two copies purchase requisition (PR). The top copy of PR is sent to purchasing department. When Goods Received Report (GRR) is received by the stores department, the PR is reconciled with the second copy and it is sent to the accounts department after updating the inventory records.

Purchasing Department approves the purchase requisition and prepares three copies of purchase order (PO). The top copy of PO is sent to the supplier, second copy to the Accounts Payable and third copy to Receiving Department.

Receiving Department reconciles the goods received with the PO and prepares two copies of GRR. The top copy is forwarded to stores department, second copy to the Accounts Payable.

Accounts Payable Department reconciles and checks for accuracy of the PR, PO, GRR and supplier's invoice and forwards them to the group accountant with a cheque requisition form attached for the payment to the suppliers after updating the accounts payable records to indicate that the accounts have been settled.

The Group Accountant authorises the payments. Most payments are made electronically, but some suppliers are paid by cheque. The cheques are mailed to the suppliers by the Group Accountant assistant.

As the raw material is needed, the Production Manager raises Material Requisition (MR) and forwards it to the Stores Department. MR is filed by the Store Department after updating the inventory records.

Sales Department approves and prepares four copies of Sales Order (SO) upon receiving a customer's order in writing or by phone call. The top of the SO is sent to the customer, the second copy to the store and the fourth copy to the Dispatch Department.

Credit Manager in Accounts Receivable Department checks the SO and approves for the credit and returns to the Sales Department where it is filed with Customer Order.

Stores Department issues the goods accompanied with the SO to the Dispatch upon receiving the SO and updates the inventories records.

The officer in Dispatch Department forwards the SO to the Accounts Receivable department by marking it to indicate that the goods have been dispatched.

Accounts Receivable Department prepares three copies invoice upon receiving the SO from Sales Department and Dispatch. The top copy is sent to the customer. The Accounts Receivable officer records the detail of invoice into the Sales Journal and posts the subsidiary ledger and forwards the Sales Journal with the second copy of invoice to the Group Accountant who posts the transactions into the control account. The third copy invoice is filed by the Accounts Receivable Department.

Two officers in the Mail Room are responsible to open the mail and forward the cheques received from the customers with a mail list to the Accounts Receivable Department which passes on the cheques to the Cashier for banking.

The Accounts Receivable officer prepares the Cash Receipts Journal and updates the subsidiary ledger and forwards the Cash Receipts Journal to the Accounts Department where the control accounts are updated.

Guidelines for the preparation of your assessment

1. Create flowchart

Create a flowchart using either flowcharting software or an excel spreadsheet for each subsystem.

If you chose to use excel, click on insert option on the ribbon and click on 'shapes' on the toolbar and copy and paste the shapes you want to use in the flowchart. See the figure on page 73 of your text book for a sample flowchart.

2. List primary and specific objectives of internal control

List the primary and specific objectives of internal control for each cycle.

For example:

'The primary objective of internal control within the purchases and accounts payable cycle is to ensure that the entity accepts liability only for the goods and services that it has purchased and that are necessary for its efficient operations.'

3. Evaluate the internal control system

Review the Case Study information and use reflection on the primary and specific objectives of internal control you have identified in 2to evaluate the internal control system and make recommendations in the following manner:

Weakness: The technicians can enter the computer system without supervision.

Consequences:Technicians may alter the system for misappropriation purposes.

Recommendation: Every activity must be authorised and a log book must be maintained for every activity by the technicians

Ensure that the weaknesses, consequences and recommendations are numbered

4. Create an amended flowcharts

Copy the flowchart that you have prepared after the evaluation to another sheet.

Amend the flowcharts on the basis of your recommendations.

5. Clarify and review the current IT Procedures and develop a Cyber Security Policy & Procedureto identify threats to the company information assets & software. In developing the policy document, it should cover the following sub heading;

a) How to protect the company from online attacks and breaches

b) How to inform employees or contractors about how to handle sensitive information and infrastructure

c )If the Company owns or leases any information assets & Software

d) A compliance process & timeline to maintain the Cyber security controls

6. Covering letter to management

Provide a suitable covering letter for distribution to management and relevant stakeholders covering the following issues:

a) Promote the consistent application and use of the principles of internal control and auditing.

b) Summarise the findings of the internal audit.

c) Include a recommended schedule for implementation.

d) Please also briefly explain the Cyber Security Policy,

e) And the timelines for implementation and compliance checks.

Attach the documents you prepared in steps 1 to 6 above.

7. Present a brief report to management

Based on your cover letter and findings above present your report to the Management Committee for distribution to relevant managers and other stakeholders.

You are required to present and discuss all of requirements from part 6 of this assessment. For the purposes of this question you can join with 3-4 other students to perform your stakeholder consultation. You will be required to:

a) Develop or present a timeline schedule for the implementation of these recommendations

b) Negotiate/receive confirmation from your management team for this timeline

c) Upload the negotiated schedule for implementation

Please provide a proper answer for each and every steps