FINANCIAL MANAGEMENT SYSTEM
Risk Disclosures
Stock
Management decisions and
policy choices
Claims/Warranty
Sales
Payroll
Purchases
Balance sheet
Profit and loss
Assets
Cash
Borrowings
Taxation
Sales
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Controls over
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Orders in: separated from stores staff and debt collection staff or else documented in a log, sequence checks,
agreed to stock
movement records and debtor info )
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Sales prices: quoted from authorised list, any variance in accordance with authorised limits, weighted average price reviewed at
regular intervals
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Delivery: sequential delivery notes raised with receiving signatures required and agreed to stock movement records
Invoicing: sequence checks, restricted use of Cash Sales accounts, raised promptly from delivery notes, un-invoiced delivery notes
reviewed
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Credit notes: within authorisation limits, only raised in relation to specific invoice number
Debtors ledger: segregated from sales staff, no general journals to control account, reconciled to GL
Credit control: authorised credit limits, regular review of balances to ensure within limits
Debt collection: regular reporting of age of balances, prompt follow up
Stock
• Controls over
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Perpetual stock ledger: on-going reconciliation of balance on hand, movements matched to purchases and sales
Standard costing: updated costing to ensure value of stock, and therefore cost of goods sold, correct, variances reviewed regularly
Pick lists: record of what is to be dispatched, when and to whom, created from order logs
Goods Received Notes: record of purchases in to be matched to supplier invoices, un-matched notes investigated
Stock levels: authorised levels of stock to be held and to prompt re-ordering
Stock counts: regular counts to confirm amounts held and value which will affect profit
Stock variances: need explanation and analysis
Stock obsolescence: must be identified to recognise true cost of sales
Purchases
• Controls over
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Purchase orders: only raised by authorised staff, sequence checks, matched to supplier invoices
Pricing: invoices checked and approved for contract rates, significant variances investigated
Classification: classified as stock, consumables by knowledgeable staff
Creditor ledger: : segregated from purchasing staff, no general journals to control account, reconciled to GL
Reconciliations: creditor balances to monthly statements
Cash
• Controls over
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Cash flow: develop projections as a control to match actual to expected and to prepare for any tightening
No. of accounts: minimise to reduce volume over which controls required
Signatories: multiple signatories to reduce risk of fraud
Authorisation process: all payment requisitions supported by invoices or suitable documentation
Cancellation of documents: documents initialled once payment authorised to ensure not paid twice
Opening of mail: segregated from staff responsible for bank, debtor and creditor reconciliation
Receipt allocation: at time of banking unless unidentifiable
Banking: segregated from staff responsible for bank, debtor and creditor reconciliation
Reconciliation process: segregated from staff opening mail and banking, or detail reviewed and approved
Assets: Property, Plant & Equipment
• Controls over
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Asset register: lists all assets for control, security and insurance
Purchase authorisation: authorised limits
Asset identification: for control and security
Depreciation: consider residual value and period of useful life to correctly estimate annual cost
Impairment: review assets annually for changes to depreciation assumptions as this will affect P&L
Insurance: ensure assets insured to minimise risk of loss
Security: review security of assets to minimise risk of loss
Payroll
• Controls over
– Hiring: by authorised staff only and after clear due diligence process
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Employee files: include all records for compliance with employment legislation
Timesheets: authorised to ensure payment for work performed
Pay rates: authorised and reviewed regularly
Deduction authorities: authorised and retained to minimise risk of disputes
Salary/wage payments: segregated from staff preparing pay
Payroll authorisation: evidence of review for reasonableness, segregated from staff preparing pay
Payroll reconciliations: control over expense, payments and other payroll obligations
Superannuation: reconciled and controlled to reduce risk of non-compliance
Workcover: reconciled and controlled to reduce risk of non-compliance
Leave records: reconciled to ensure correct record of entitlement and reduce risk of dispute
Taxation
• Controls over
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Goods and Services Tax: accounts correctly set up to account for GST, BAS reconciled to GST accounts
Fringe Benefit Tax: ensure adequate information collected to allow compliance
Payroll Tax: payments reconciled to payroll monthly, expense reconciled to payments
Income Tax: : ensure adequate information collected to allow compliance, reconcile amount owing to GL
Borrowings
• Controls over
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Applications: retain for control over maturity dates and costs charged
Borrowing covenants: measure limits against actual results regularly
Interest cost: measure accurately to control and review cost of funding
Repayment schedules: calculate to ensure correct liability reflected in balance sheet
Security: document security given to ensure no legal issues from future sale of assets etc
Guarantees: document to ensure acknowledged