Kudler_Fine_Foods,_Internal_Control_and_Risk_Evaluation

Kudler Fine Foods, Internal Control and Risk Evaluation Letticia A. Craps ACC542 May 7, 2010 Richard Westbay Kudler Fine Foods, Internal Control and Risk Evaluation Kudler Fine Foods has decided to go forward with the recommended course of action from Learning Team B, which was to buy an out of the box Accounting Information System (AIS). As with any implementation, consideration is given to existing internal and external controls. At the same time, external and internal risks should be evaluated and measures taken to reduce these risks. Internal controls can be created using the data diagrams provided by Learning Team B based on the new system. The review of the application of the internal controls is an integral part of this process. Lastly, other control issues, both inside and outside of the new system should be addressed. Controls-Internal and External “An organization’s financial resources must be protected from such activities as loss, waste, or theft. Protecting such assets requires an organization to develop and implement an internal control system with its AIS, as well as within other parts of the organizational system” ((Bagranoff, Simkin, & Strand, 2008 pg. 240). This is a key concept for a company going through a new software implementation. At Kudler Fine Foods, creating policy and procedure for the new system will be vital to its success. Currently, there are no written policies for the accounting department or the embedded security system. Without the documentation of policies, there is a lack of control of the business. How can one know if the proper procedure for entering accounts payable is being done, when there is no reference' How can an audit of the accounting department be done with no documentation of the policies and procedures' There is no way to provide control of accounting information, both internal and external, without proper records. Risks-Internal and External The biggest risk to Kudler Fine Foods is that there is no documentation for its policies and procedures. There are several different risks because of the lack of these records. For example, since there is no record of how to pay a vendor, how can an audit be done of the payment' This poses an internal risk of fraud and theft. An employee could set himself or herself up as a vendor and then process a payment. The lack of documentation provides an opportunity for an external risk as well. An outside source can enter into the system and upload credit card information on file for the customers. Since there is no documentation of the current security system, tracking outside threats to the system would be difficult. New Controls Internal Kudler Fine Foods has the opportunity to put into place new internal and external controls during the implementation period. Kudler Fine Foods has already been provided with a tool to aid them through this process, the data flow diagrams done by Learning Team B. A review of each diagram can be done to determine internal and external risks and then identifying what controls need to be implemented. First, internally, a policy and procedure manual should be written, detailing all processes throughout the accounting system, from accounts payable to point of sale. Next, a system of checks and balances needs to be created. For example, the person who enters in the accounts payable should not be the person who approves the payment. A thorough review of each accounting process will enable Kudler Fine Foods to document internal controls throughout its system. An additional internal control would be to set up authorizations level within the new system for each end-user. New Controls External External controls are always challenging, as technology changes constantly. One external control that should be put into place would be firewall, protecting all AIS information from outside theft. The use of encrypted files for the transmitting of financial information over the intra net is another external control that would prevent an outside source from reviewing or receiving this information. It is also important to prevent any outside source from installing software, such as keystroke recognition, onto the intra net. Once again, having firewall software installed on the server will prevent this from occurring Implementing New Controls Once the new controls are documented and the new software system is implemented, the policies and procedures will be distributed to the staff at Kudler Fine Foods. Management will do a final review of the policies and procedures, prior to release. It is important to the success of the new AIS to have the policies and procedures issued to coincide with the start of the new system. This timing will provide both the staff and management time to adjust to the new software program that has been installed and the new procedures. As time goes by and the software program and policies are tested, adjustments will be made as management sees fit to make them. The timeliness of corrections to policies is key, as it would do no good to make a change in the processing of credit cards on a Tuesday and then issue the change to the procedure one month later. Conclusion The implementation of a new accounting system is always challenging. Keeping in mind the internal and external risks is a timely task, but one that is vital to any successful new software program. Though Kudler Fine Foods is opting to purchase an out of the box software program, the documentation of internal and external controls is another key element to this process. The use of existing data flow diagrams will be an invaluable tool for the documentation of these controls. Another key to this success of this process will be the updating and issuing of policies and procedures. At this point in time, Kudler Fine Foods is well equipped to implement a new software program and a new policy and procedure manual. References Bagranoff, N. A., Simkin, M. G., & Strand, N. C. (2008). Core Concepts of Accounting Informaton Systems (10th ed.). New York, NY: Wiley & Sons.