Transcript Certified Hospitality Accountant Executive (CHAE) Designation

HFT 3431
Chapter 12
Internal Control
Internal Control
• What Is Internal Control?
• What Are the Major Objectives of
Internal Control?
• What Are the Differences Between
Accounting and Administrative
Controls?
Internal Control
• What Are the Characteristics or
Principles of Internal Control?
• How Are Internal Controls
Documented?
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?
Conditions For Fraud and
Embezzlement
• Need
• Opportunity
• Failure of Conscience
The Industry’s Vulnerability
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Cash Business
Many Transactions
Low Skill Employees
Perception of Industry As Low Social
Status
The Industry’s Vulnerability
• Items Used Have “Street Value”
• Items Used Are Used by General
Population
AICPA Objectives of Internal
Control
• Safeguard Assets
• Check Accuracy and Reliability of
Accounting Data
• Promote Operational Efficiency
• Encourage Adherence to Prescribed
Managerial Policies
Types of Internal Control
• Administrative - How the Company
Operates
• Accounting - Impact on Financial
Statements
Internal Control Basics
• System Requires - Methods and
Procedures; and Reliable
Forms/reports
• Larger the Company - More Internal
Control Required
Internal Accounting Control
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Develop Long-Term Audit Program
Set Audit Policies
Conduct Financial Audits
Recommend Improvements
Check Management for Compliance
Review Operational Controls
Internal Accounting Control
• Monitor Corrective Actions Taken
• Conduct Special Examinations of
“Sensitive” Areas
• Investigate Fraud
• Assist the Audit Committee
• Coordinate With Independent CPA
Firm
Classification of Controls
Preventive Controls
• Controls That Are Implemented
Before a Problem Occurs Such As:
Use of Locks or Segregation of
Duties
Classification of Controls
Detective Controls
• Controls Designed to Discover
Problems and to Monitor Preventive
Controls Such As External Audits or
Surprise Cash Audits
Characteristics of Internal
Control
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Management Leadership
Organizational Structure
Sound Practices
Fixed Responsibility
Characteristics of Internal
Control
• Limited Access
• Competent and Trustworthy
Personnel
• Segregation of Duties
• Authorization Procedures
Characteristics of Internal
Control
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Adequate Records
Procedure Manuals
Physical Controls
Budgets and Internal Reports
Independent Performance Checks
Documenting Internal
Control
• Flowcharting
• Internal Control Questionnaire
• Narrative
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
Most Frequent Elements in
Codes of Ethics
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Privacy of Communication
Conflict of Interest
Political Contributions in the U.S.
Company Records
Gifts, Favors, Entertainment, Trips
and Outings
Most Frequent Elements in
Codes of Ethics
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Use of Company Assets
Anti-Trust Laws
Relations With Competitors
Relations With Suppliers
Relationships With Customers
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
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
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
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