My Financial Accounting

Topic: An investigation into the impact of internal controls systems in safeguarding assets at

the Trelawny Cooperative Credit Union (TCCU).

Table of Contents
Acknowledgements ……………………………………………………...3
Aims and Objectives …………………………………………...………..4
Data Collection………………………………………………...………...5
Literature Review…………………………………………………...…...7
Data Presentation and Analysis.………………………………………...10
Evaluation……………………………………………………...………..19
Recommendations ………………………………………………………22
Conclusion…………………………………………………………….... 23
APPENDIX…………………………………………………………… 24
Questionnaire……………………………………………………..
Interview Questions……………………………………………....
Bibliography…………………………………………………………….29
Acknowledgements

First of all, I would like to thank the almighty God for giving the knowledge and the strength needed to carry

out this investigation.

Secondly, I am very thankful for the manager and staff members of Trelawny Cooperative Credit Union

(TCCU) who assisted me by answering the questionnaires and giving information during the interview .

Finally, I would like to thank my parents, who stood by my side through the ‘ups’ and ‘downs’ during the

research. They also assisted by providing the financial support needed to acquire the necessary resources.
 Aims and Objectives

Topic: An investigation into the impact of internal controls systems in safeguarding assets at

the Trelawny Cooperative Credit Union (TCCU) Limited .

Aim: To develop a better understanding of the impact internal controls systems have on

safeguarding assets at the Trelawny Cooperative Credit Union (TCCU).

Objectives:
• What are the various internal controls systems used by the TCCU?

• How does the use of the various internal controls benefit the Credit Union?

• Are there any limitations in using the various internal controls?

• What are the ethical, legal and social issues relating to the use of internal controls at the

TCCU?

Data Collection

The collection of Data for this research was gathered from primary and secondary sources. Both questionnaire

and interviews were used in the collection of data required for the completion of this assessment. Some

secondary sources were books, magazines and online articles.

According to Saul McLeod (2018), a questionnaire is a research instrument consisting of a series of questions

for the purpose of gathering information. Fifteen (15) questionnaires were distributed among the staff members
of the organization on January 30, 2020 and collected the same day. The questionnaire comprised of both

opened and closed ended questions. These questions structure allows both qualitative and quantitative data to

be acquired. Open ended questions enables the respondents to express their thoughts and opinions and also to

give more in-depth answers. The closed-ended questions restrict them to just one (1) or as much as two (2)

options from a list of alternatives. The responses can be translated into quantitative data.

Questionnaire was used because it is a relatively quick and efficient way of acquiring information from a large

sample of people. The data gathered is also easy to analyze and present. Some challenges experienced were

differences in interpretation and understanding of the questions being asked and some of the respondents were

very quick to answer the questions without giving much thought to each.

An interview was used as a primary source also to collect valuable data for the research. According to Merriam

Webster (1828) an interview is a formal meeting at which information is obtained from a person. Five (5)

employees from the Accounting department were interviewed on February 3, 2020. The interviews were useful

because they obtained detailed information about personal feelings, perceptions and opinions and had a high

response rate. However is was very costly to travel to the organization to do the interviews. It also took a lot of

time to schedule and execute the interviews consuming. Five (5) employees were interviewed on February 3,

2020 and were given 5 minutes each to answer the questions.

 Literature Review

The global cooperative society have adopted to the internal control systems and are aware of the impact the

effective use of internal control systems have on securing assets. The safeguarding of assets is very essential to

any financial institution whether they are profit or non-profit organizations. At the TCCU they employ the use

of internal control systems in to ensure the safety of the assets.

According to Chris Bradford, internal controls encompass all the methods and procedures that an organization

adopts to protect its facilities, assets and property. This means that internal controls make it possible for an

organization to lawfully conduct business operations without interference, loss or interruption. He also states

that internal controls act as a deterrent to fraud or abuse. The effectiveness of internal control systems rely on

the competency and dependability of the people in an organization. Nevertheless, error and fraud can and do

occur, therefore, it is important to establish safeguards to secure assets and to ensure that your fiduciary

responsibilities are adequately met. When internal controls are effective it reduces the risk of losing assets, it

helps to ensure information is complete and accurate, it ensures reliability of financial statement and that the
business is conducted in accordance with applicable laws and regulations. These are accomplished by

companies minimizing the opportunities for accidental errors or internal fraud that can cause severe harm and

damage to their assets.

Internal controls, while effective, cannot always guarantee the safety of assets. Therefore there are still issues

arising by using internal controls such as human error and misjudgment, managerial override, collusion and lack

of understanding of controls. However, these can be prevented by companies exercising these internal control

methods which include:

• Segregation of duties

• Establishing responsibilities for certain tasks

• Documentation procedures

• Independent internal verification (internal check)

• Other controls

• Physical, mechanical and electronic controls.

Segregation of duties is where the task is being divided up so that no individual has any control over every

aspect of the task, for example a person who keeps the record about an asset should be separate from the person

who has physical custody of the asset. The establishment of responsibilities is assigning persons to specific

tasks. Therefore, assigning tellers to different computer sections. Documentation of procedures indicates that all

documents should be pre-numbered and accounted for. Internal check involves auditors who reviews and check

the company's financial statement against accounting principles and standards. Physical controls include

fireproof vaults safes, padlocks and security guards. Mechanical controls involve time clocks, cash registers and

other controls involve for example obtaining fidelity insurance for employees handling cash receipts.

According to Michelle Furlong (2019), internal controls are classified into three main types such as

preventative, detective and corrective controls. Preventative internal controls involve controls that are designed

to prevent errors, inaccuracy or fraud before it occurs. These controls include backing up computer data and

also having physical control over assets such as locking money in a safe. Detective controls are intended to
come across the existence of errors, inaccuracies or fraud after they have occurred. These controls ensure the

efficiency of the policies. Internal audits, monthly reconciliation of accounts and conducting physical inventory

are examples of detective internal controls. However, preventative and detective controls work hand in hand to

supply sufficient protection. In order to correct errors discovered by detective controls, corrective internal

controls are installed. Therefore, if an error is made, the employees of the organization must accompany

procedures that were put in place to amend the error for example reporting the issue to a supervisor. Other

examples include training programs and progressive discipline for errors.

 Presentation and analysis of data

Types of internal control systems used by the TCCU

6
5
5
Number of respondents

4
3
3
2
2
1 1
1

0
Segregration of Pyhsical control Document Independent All of the above
duties procedures verification
Types of controls

Figure 1

Figure 1 is showing the types of control systems used by the cooperative. One (1) said segregation of duties,

two (2) said physical control, one (1) said document procedures, three (3) said independent verification and five

said all of the above.

The modal response is all of the above indicated by eight respondents. This means that most of the respondents

said that the organization uses all of the control systems listed on the graph above.

Table showing major benefits of using internal controls

Benefits # of Respondents

Prevent loss and fraud 6

 Contribute to accounting accuracy 3

Restrict access to accounting records 2

Reduces irregularities 1

Table 1

Table 1 showing the benefits internal controls at the Credit Union. Six or 50 % of the

respondents said prevent loss and fraud, three of 25 % said contribute to accounting accuracy,

two or 17 % said restrict access to accounting records and one or 8 % said reduces

irregularities.

Most of the respondents indicated that the major benefit of internal control is the prevention of

loss or fraud. The next most frequent response is contribute to accounting accuracy. The

minimum response is reduces irregularities. This means only one respondents believes that this a

a major benefit.
 Limitations of internal control systems

5
# of Respondents

3
6

2
4

1
2

0
Human error and Managerial override Lack of training and
misjudgment understanding of controls
Disadvantages

Figure 2

Figure 2 is showing the limitations internal control systems. Four (4) persons stated that human error and

misjudgment, two (2) stated that managerial override and six (6) selected lack of training and misunderstanding

of controls. The findings revealed that all mentioned above are problems faced when using such internal

controls. However, the modal response was that employees lack of training and understanding of controls

chosen by six (6) or 50%of the respondents.

 Chart showing the most likely outcomes
when segregation of duties is not utilized
60%
Percentage of respondents

50%

40%

30%
50% Misappropriation of assets
20%
33% Fraud detection difficulties
10% 17% Difficulties identifying culprits
0%
Misappropriation Fraud detection Difficulties
of assets difficulties identifying
culprits
Options

Figure 3

Figure 3 showing most likely outcomes when segregation of duties is not practiced. Fifty percent (50% ) or six

(6) respondents stated that assets are misappropriated, 17% or two (2) respondents said that difficulties in

detecting fraud may and 33% or four (4) of respondents said difficulties identifying culprits.

The modal response was the misappropriation of assets which was chosen by six (6) or 50% of the respondents.

This means that most of the respondents believe that when segregation of duties is not done then assets are most

likely to be misappropriated. The next most frequent response was difficulties identifying culprits. The

minimum response is fraud detection difficulties at 17%. These are all critical issues and identify the need for

effective internal control systems.

 Internal controls ensure reliability and accuracy
of financial information in accounting

Strongly Disagree 0

Disagree 2
Options

Strongly Agree
4

Agree
6
0
1
2
3
4
5
6
# of Respondents

Agree Strongly Agree Disagree Strongly Disagree

Figure 5

Figure 5 showing responses to whether or not internal controls ensure reliability and accuracy. Six (6) of the

respondents said they agree that internal controls ensure the reliability and accuracy of financial information in

accounting, four (4) respondents said strongly agree and two (2) of the respondents said disagree. None of the

respondents chose strongly disagree.

The majority of the respondents strongly agree that internal controls ensure the reliability and accuracy of

financial information in accounting which accounted for six (6) or 50% of the respondents. This is saying that

internal controls are effective and ensure the reliability and accuracy of financial information.
 Chart showing actions taken by management
if cash is misappropriated

Pay cut 17%

Oral Warning 8% Suspension

Actions

Dismissal
Dismissal 42%
Oral Warning
Pay cut
Suspension 33%

0% 10% 20% 30% 40% 50%

Percentage

Figure 6

Figure 6 above is showing the actions taken by management of the TCCU if an employee misappropriates cash.

Five (5) or 42% of respondents said that employees would be dimsissed, while four (4) or 33% suspended, two

(2) or 17% said pay cut and one (1) or 8% of respondents said oral warning.

The modal response shows that 42% of the respondents chose that employees would be dismissed. This means

that most of the respondents believe that employees would be dismissed if they misappropriate cash. The next

most frequent response is suspension at 33%. This means that four of the respondents believe that management

would suspend employees for misappropriating cash. The least response is oral warning at 8%.
 Chart showing the ethical issues relating to internal controls
Decision-making dilemmas Compliance issues Lack of integrity and trust

17%
25%

58%

Chart 1

Chart 1 showing ethical issues relating to internal controls. Twenty five percent (25%) of respondents said that

decision-making dilemmas, 58% chose compliance issues and 17% stated lack of integrity and trust.

The modal response is compliance issues at 58%. This means that most persons in the survey believe that this

is the major ethical issue. The next most frequent response is decision making dilemmas at 25%. The minimum

response is lack of integrity and trust.

 Chart showing the social issues relating to internal
controls at TCCU

33%
50%

17%

Information and communication Opportunities in training programs

Consumer and individual rights

Chart 2

Chart 2 above is showing social issues relating to internal controls. The most frequent response is consumer

and individual rights at 50%. This shows that half of the persons in the survey chose this as an ethical issue.

Thirty percent (33%) of the respondents indicated information and communication. The minimum response is

opportunities in training programs at 17%. This means only a few persons see this as a social issue.
 Chart showing the legal issues relating to
internal controls at TCCU

8%

Auditing financial statements

Rules, regulations amd

50%
procedures
42%
Unfair customer treatment

Chart 3

Chart 3 is showing legal issues relating to internal control systems. Fifty percent (50%) of the respondents

selected that auditing financial statements, 42% chose rules, regulations and procedures and 8% selected unfair

customer treatment. These are all legal issues relating to the use of internal controls.

Evaluation

The Trelawny Cooperative Credit Union employed internal control systems in order to secure or safeguard its

assets. Figure 1 shows the various internal control systems that are used by the organization. These include

physical control, segregation of duties, internal verification and documentary procedures. The use of many
control systems will ensure that there is efficiency in operations. There will be an assurance that the processes,

tasks, behaviours and other aspect of the organization are following the required standard.

Table 1 outlines the benefits of using internal control systems. Prevention of loss and fraud, accuracy of

financial records, restrict access to accounting records and reduce irregularities are all benefits that the TCCU

enjoys when internal controls are being used. This is so because of the effective use of security cameras put in

place by management to oversee the day to day operations of the business. This also forces employees to

conform and to follow procedures because they are always being watch.

Even though internal controls has many benefits, there are problems can arise from the use of these system.

Some of these issues are human error and misjudgment, managerial override and the lack of training and

misunderstanding of controls which can then lead to the break down and ineffective use of controls. Some

control systems and be costly to implement while others may consume too much time to follow. This can

negatively impact the business organization.

Chris Bradford states that internal controls make it possible for an organization to lawfully conduct business.

Chart 3 reveals the legal issues that relate to the use of internal controls. When internal controls are effective it

allows for business to be conducted with applicable laws and regulations. Also the auditing of financial

statements and the unfair treatment of customers are legal issues that arise in the credit union.

Chart 1shows the ethical issues that are evident within the Credit Union. Decision-making dilemmas, lack of

integrity and trust and compliance issues are all ethical problems relating to internal controls. Based on the

results, employees find it difficult to make decisions due to the lack of training and misunderstanding of

controls and are also struggling to comply with management’s directives. In addition, this may lead to a point

where managers lose trust in employees.

Based the data gathered, the auditing of financial statements, unfair treatment of employees and rules,

regulations and procedures are legal issues that must be dealt with. However, auditing financial statements is

seen as the major source of legal issue. If the audit report reveals that assets are being misappropriated, then

serious legal actions may follow. It is therefore incumbent up on all employees to follow all procedures to
ensure that assets are properly accounted for. Additionally, financial statements should and must be in

accordance with the standards of accounting.

Figure 3 shows the challenges that will most likely occur if the company does not segregate duties. Majority of

the respondents believe that when management does not segregate duties assets are likely to be misappropriated,

fraud would the difficult detect and prevent and worst of all it would be difficult identify the culprits. It is

evident that there must segregation of duties in order to experience an effectively operated business

organization

Finally, figure 5 reveals that internal controls ensures the reliability and integrity of financial information. In

relation to the data collected, it is evident that most of respondents agree to the fact that effective internal

controls assure the reliability and integrity of financial information. This means that management can have

accurate, timely and more complete information in order to make valuable business decisions.
 Recommendations

• The researcher wishes to inform the TCCU that in order to ensure the reliability and accuracy of

financial information and the safeguarding of assets, they must practice segregation of duties more.

• The researcher recommends that they continue to utilize security cameras because it is a very effective

physical control methods use to safeguard assets in the company.

• Management should ensure that all employees are cognizant of the repercussion of any breech in the

control systems. This can be done through staff meeting and training seasons.

• I am recommending that legal actions should also be taken if cash is misappropriated. This can act as a

deterrent improper conduct.

 Conclusion

Effective internal control system is an integral part in the successful operation of any business. There are

various control mechanisms that can be used to safeguard assets. Some of which are segregation of duties,

documentary procedures, physical control and independent verification. Internal controls allow the company's

operations become more effective and efficient because of the benefits. Prevention of fraud, restriction to

accounting records, accurate accounting records and reduced irregularities are some of the benefits of control

system.

There are a few limitations in using internal control system. Some of which are human error and misjudgment,

the cost to implement some control systems and the time it takes to follow certain procedures. However, the

benefit gained far outweigh the limitations.

APPENDIX
 Questionnaire

1. What is your Gender?

Male

Female

2. What is your age range?

20-25

26-30

31-35

36 and above

3. How long have you been working at the TCCU?

1-5 years

5-10 years

10 years and over

4. Does the TCCU utilize internal control systems?

Yes.

No

5. What are some of the internal control systems used by the organization?
Segregation of duties
Independent verification

Physical
All of the above
Documentary procedures
6. Place a tick in the space provided, to state which physical control is most effective in safeguarding assets
at the TCCU?
Physical Controls Effective Not effective Highly effective

Security cameras
Fireproof vaults & safes
Filing cabinets
 Security guards

7. What are some of the benefits of using the internal controls?

Prevent loss and fraud

Contribute to accounting accuracy

Restrict access to accounting records

Reduce irregularities

8. Do internal controls enable the business operations to become more efficient?

Yes

No

9. State one (1) way in which the business operations become more efficient?
____________________________________________________________________________________
____________________________________________________________

10. What are the disadvantages of using internal controls at the TCCU?
Misjudgment and human error

Managerial Override

Lack of training and understanding of controls

11. The implementation of internal control systems in accounting allows financial information to become
more reliable and accurate?
Agree

Strongly Agree

Disagree

Strongly Disagree

12. In accounting, there are some principles used to prevent, detect and correct errors and irregularities.
Therefore, what will most likely happen if the company does not practice segregation of duties?
Misappropriation of assets

Fraud detection difficulties

 Difficulties identifying culprits

13. What actions are taken by management when employees misappropriate or use cash improperly?
Suspension

Pay Cut

Oral Warning

Dismissal

14. What are the ethical issues relating to the use of internal controls in TCCU?
Decision-making dilemmas

Compliance issues

Lack of Integrity and trust

15. At the TCCU, is data security very important to ensure efficiency in computer-aided operations?
Yes

No

16. Which measure is put in place by management to effectively secure data?

Complex passwords

Encryption software

Install an Antivirus

Install a firewall

17. What are the social issues relating to internal controls?

Information and communication

Equal opportunities in training programs

Consumer and individual rights

18. How as the internal controls impacted the TCCU over the past five years?
____________________________________________________________________________________
____________________________________________________________

19. What are the legal issues relating to internal controls?

Auditing financial statements
 Rules, regulations and procedures

Unfair employees treatment

Questions asked of Business Personnel

1. How long have you been working at the Trelawny Cooperative Credit Union?

2. What position do you currently hold at the Credit Union?

3. Give examples of internal controls used in the business?

4. Explain how the internal controls help to safeguard assets at the company?

5. What are the benefits of using such internal controls?

6. What are the challenges you face when using various internal controls?

7. Identify the social, ethical and legal issues relating to the use of internal controls in safeguarding assets

at the Trelawny Cooperative Credit Union TCCU?

 Bibliography

• Bradford, C. (2018, November 05). Examples of internal controls.

https://www.yourarticlelibrary.com/employee-management/disciplinary-action-against-employees-

penalties-and-punishments/35410

• Zhang, E.(2016, June 01).The importance of internal controls in accounting.

http://www.carrtegra.com/2016/06/importance-internal-controls-accounting/

• Vonlehman CPA & ADBISORY FIRM.(2016, March 28).How Effective Are Your Internal Controls?

https://vlcpa.com/articles/how-effective-are-your-internal-controls/11

• Michelle, F.(2010, January 25).What Are the Types of Internal Controls?

https://bizfluent.com/info-8046701-types-internal-controls.html