Selected internal controls in a local automotive company : a case study

Abstract

Purpose: The purpose of this case study is to evaluate the purchasing, sales and cash cycles within the Parts, Service and Sale of Vehicles Departments of the company under review, and to obtain an understanding of the selected internal controls within such departments. Weaknesses in the company’s system of internal control are also identified, and recommendations are suggested. Design: A qualitative methodology involving the use of semi- structured interviews was followed. Interviews were carried out with the company’s Finance Manager, Departmental Managers, and other staff members from across the firm’s departments. To substantiate the data collected from the interviews, onsite observations were also carried out. Findings: This study indicates that healthy internal controls are existent within the selected processes. Even though the company has limited resources and segregation of duties is not always present, other verifications and checks substitute this limitation and act as controls which can detect irregularities that may occur. The company also has procedures in place that ensure that invoices are verified before being inputted in the system, that cash collected is properly deposited and reconciled, and that cash disbursements are duly verified, authorised and approved by the appropriate signatories. Automated system controls assisting the company in its internal controls are also present. Conclusions: The company has a strong internal control system which is highly attributable to the fact that the company’s processes are well communicated and are subject to annual reviews. Value: The majority of recommendations suggested in the study are related to physical controls that can further safeguard the company’s physical assets by for instance, having storage areas controlled by cameras, gates and alarms. In addition, having an official Code of Conduct can also help the company communicate more clearly what the company’s expected behaviours are. Adopting the suggested recommendations could enhance the company’s present internal control system.