The internal control system at Krea Ltd. : a case study

Abstract

A strong internal control system helps overcome risks in mishandling company funds and other resources, and is therefore needed in controlling the balance between natural errors and deliberate fraud. Purpose: The purpose of this study is to evaluate the sales, purchases and cash cycles, payroll activities and inventory and equipment handling procedures; and to devise possible improvements to increase the overall efficiency of the internal control system at Krea Limited. Design The objective of this dissertation was achieved through an internal control questionnaire which was issued to the operations manager and financial controller of Krea Limited. In order to substantiate the data provided from the questionnaire, a follow-up meeting was held with the financial controller along with a number of on-site observations. Findings A strong internal control system is in place although there is room for improvement. Segregation of duties is sufficient, especially due to the limitation of resources at the company, although cash handling functions should be rotated on a more timely basis. Suitable authorisation and approval procedures are also in place along with good security of assets. Krea Limited should address the number of deposits to bank per week, provide more comfort on the cashier's duties and be less reliant on the integrated system. The company should also be aware of the reliance and power the operations manager has in the purchasing process and should provide more comfort on overtime hours. Conclusions Various internal controls are in place to handle most irregularities although there are still areas which require more comfort especially since the company has clear expansion plans. Therefore, suitable recommendations were put forward in order to address such ris Value Various recommendations were provided to counteract the identified risks in the internal control system. These would provide more comfort on the handling of cash, initiating of purchase orders and the monitoring of risks. Adopting such measures should result in a stronger internal control system that is flexible to changes in the business environment in order to adapt quicker than competition.