Control Environment
To develop an audit program for RNS's internal controls for cash, it is important first to understand the organization's control environment. This includes understanding the financial resources available to the company, the types of transactions, and the risks associated with each transaction (Chang et al., 2019). RNS, a player in networking and computer products, is highly susceptible to economic conditions. In addition, the company gives credit allowances to their customers to purchase their products and pay at a later date. Owing to the ongoing economic downturns, RNS has capitalized on credit strategies to increase its sales (Driscoll, 2021). As a result, an auditor needs to assess the various strategies RNS uses to collect and document payments. This is because there are various incidences where payments are misstated, leading to overstatements of the financial statements.
Risk Assessment
When planning an audit program for internal controls for cash, it is important to understand the risks associated with the system. This can be done through risk assessment. Risk assessment helps management determine the most important risks and which risk reduction strategies should be implemented (Driscoll, 2021). In the case of RNS, there are several risks that the organization faces. Examples include increased marketing expenditures, which threaten the RNS marketing objectives. As a result, RNS has resolved to hire external marketing consultant companies to help audit their marketing strategies and issue recommendations to improve the situation (RMS Manual of Examination Policies, 2022). Another risk includes the uncertainty surrounding the US economy, which is susceptible to external factors which may contribute to its downturns (Driscoll, 2021). In addition, it is very significant for an auditor to consider other types of risk, such as financial, operational, environmental, and physical, as well as those which may arise from material misstatements. Also, it is important to consider all aspects of an organization's operations when assessing risks. This includes corporate culture, management practices, and systems (RMS Manual of Examination Policies, 2022). Once the different levels of risk have been determined, the auditor should develop action plans to address each risk category. These plans should include measures to prevent future occurrences of identified risks and corrective actions if they occur (Frazer, 2020). The auditor should periodically review the effectiveness of the Risk Management Program and make any necessary adjustments or updates to it as needed.
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Control activities
Control activities ensure that financial reporting is accurate and current, helping the management mitigate risks that can prevent the company from attaining its objectives or specific targets. Control objectives may be related to overall financial performance, compliance with laws or regulations, safeguarding assets, or protecting individuals' rights, safety, or welfare (Driscoll, 2021). RNS depends on the services of its expertise to serve its customers. As a result, this organization needs to conduct a performance review of its workforce team. This would help ensure that each staff member is working towards realizing the organization's objectives. While extending credit to their clients, it becomes very important for RNS to ensure that customer privacy details are safe and that every transaction is properly recorded (Frazer, 2020). This would help to prevent incidences of fraud.
Information and communication
Internally, RNA is responsible for ensuring that all financial transactions are conducted in accordance with company policy and applicable laws. To accomplish this goal, the organization should identify who will be responsible for gathering and disseminating information and establish procedures for monitoring and evaluating communication (RMS Manual of Examination Policies, 2022). The program should also include procedures for recording and documenting conversations, decisions made, and actions taken. Additionally, the program should identify communication channels between departments responsible for handling cash. This information can help ensure that all relevant parties know company policies and procedures related to cash management. Several measures should be used to measure the company's information and communication performance. These include sales & gross margins, aging of receivable accounts, receivables turnover, total inventory balance, and net income (Frazer, 2020). Finally, the program should also identify who needs to know what about RNS ' financial system and processes, how they need to know it, and when they need to know it. It would also be important to determine whether formal reporting requirements must be followed due to an evaluation of an RNS's internal control environment.
Monitoring
Monitoring can be defined as any activity undertaken to determine the effectiveness of an organization's controls or management processes (Chang et al., 2019). To effectively monitor RNS' internal controls for cash, a plan should be developed that addresses every activity the company engages in and any necessary changes made to improve the effectiveness of RNS' internal controls for cash. The first step in developing a monitoring plan is determining what information needs to be monitored. Monitoring should focus on identifying risks and vulnerabilities associated with RNS' cash management processes and financial reports (Frazer, 2020). This is because RNS has various evaluations to undertake, such as monitoring the economy of the US to prevent potential downfall and its competitors' strategies so that it can beat the market competition. In addition, RNS has to monitor accounts' aging continuously and daily. As a result, effectively monitoring these sectors will help RNS collect timely information, facilitating the effective running of the internal controls. Overall, the monitoring plan should be regularly reviewed and amended to reflect changes in RNS' environment or operations. Changes to the monitoring plan should be documented so they can be tracked and evaluated.
References
Chang, Y. T., Chen, H., Cheng, R. K., & Chi, W. (2019). The impact of internal audit attributes on the effectiveness of internal control over operations and compliance. Journal of Contemporary Accounting & Economics, 15(1), 1-19.
Driscoll, S., 2021. Internal Controls for Cash Receipts. [online] Osc.state.ny.us. Available at: <https://www.osc.state.ny.us/files/local-government/academy/pdf/internal-controls-for-cash-receipts-06-16-20.pdf> [Accessed 7 October 2022].
Frazer, L. (2020). Does internal control improve the attestation function and, by extension, assurance services? A Practical Approach. Journal of Accounting and Finance, 20(1), 28-38.
RMS Manual of Examination Policies, 2022. Internal Routine And Controls. [online] Fdic.gov. Available at: <https://www.fdic.gov/regulations/safety/manual/section4-2.pdf> [Accessed 7 October 2022].
