Introduction

Topic:
An investigation of the internal controls system for cash and accounts receivables at Titan
Support Solutions Ltd.
Background of the Firm:
The business under investigation is Titan Support Solutions Ltd. It is a private limited company
established in 2010. Its principal activities include company valuations, business planning and
accounting outsourcing. The company consists of the founder and four consultants who
specialize in various activities.
Importance:
It is important for a small firm such as Titan to maintain a functioning internal controls system as
size constraints prevent extensive separation of duties and small firms cannot withstand or afford
major setbacks.
Aims:
1. To determine the system of internal controls relating to cash and accounts receivables at
Titan Support Solutions Ltd.
2. To provide recommendations to improve their internal controls system.
Objectives:
1. To identify good practices relating to cash and accounts receivables.
2. To identify areas of weakness relating to cash and accounts receivables.
3. To provide viable solutions given the size constraints of the business
Literature Review
Internal controls consists of all the related methods and measures adopted within an organization
to safeguard its assets, enhance the reliability of its accounting records, increase efficiency, and
ensure compliance with laws and regulations. (Weygandt, Kimmel, & Kieso, 2009)
For internal controls to be effective, it is necessary to create an organizational culture of integrity
where unethical activities are not tolerated, to assess risk factors, design policies to address any
risks or opportunities for fraud, communicate information to stakeholders and monitor the
system periodically. (Loan, 2015)
There are six principles of internal control activities and it is necessary for firms to employ each
of techniques in order to maintain a comprehensive system.
Responsibility must be assigned to specific employees. Control is most effective when only one
person is responsible for a give task and access is limited to authorized personnel. When
responsibility is not clearly assigned, it is difficult to pinpoint who is responsible when
irregularities occur.
Segregation of duties states that different employees should be responsible for related activities
in the same process and record-keeping of an asset should be separate from the physical custody
of the asset. Making one person responsible for related activities increases the potential for errors
and irregularities.
Documentation provides evidence for transactions. Pre numbered documents ensures that all is
accounted for, therefore preventing any omissions, tampering and duplicating of transactions.
Physical controls involves safeguarding company’s assets to avoid theft. These include locks,
cameras, security and alarms.
Independent internal verification involves the review of data prepared by employees. Companies
should verify records periodically or on a surprise basis using an independent employee.
Human resource controls includes rotate employees and implement mandatory vacations where
employees’ work can be reviewed, conduct background checks and insure cash against theft by
employees (bonding). (Weygandt, Kimmel, & Kieso, 2009)
However, many small businesses find it difficult to segregate job duties, recruit an auditing
professional, utilize extensive documentation, and use appropriate information technology to
make assumptions about the quality of internal controls. Small business owners must continue to
be vigilant in their use of internal controls in an effort to reduce their level of employee fraud
risk. They can invest in software which will streamline accounting functions and provide
additional security. (Lachney, 2018)
Cash and accounts receivable are extremely susceptible to fraudulent activities and errors in
recording transactions. Therefore, effective internal control is critical. For example there should
be segregation of record-keeping from physical custody, pre-numbered invoices, receipts,
cheques, bank reconciliations, bonding and background checks. (Loan, 2015)
Data Collection

Research Methods
Primary research is original research, specific to the study, conducted by the researcher
themselves. Secondary research is predated research done in a similar study used as a reference
and guide for the current study.
Secondary sources for the project include financial statements of the firm as well as desk
research from interviews with two employees. Secondary research while easier to gather, does
not provide all the information necessary in order to complete an analysis (for example financial
statements only report items which can be quantified in money).

Data Collection Methods

For this study, a structured interview was used as it gathers relevant, specific and accurate data in
an organized manner. Recalling and recording of the information provides the greatest challenge.
The interview consisted of 20 open ended questions.

Form of Results
The primary data will be presented using graphs, diagrams, tables, text and pictures.
Interview Questions:
General:
1. How many employees are a part of the company and what are their positions?
2. 2. In the history of the company, has there been any serious breaches of internal controls
or engagement in fraudulent activity by any current or past employees?
3. If yes, what was the risk identified that allowed that breach and what policy was
implemented to prevent such an occurrence in the future.
Cash:
4. What physical controls are in place to secure cash? For example: locks, cameras, security.
5. Are all documents such as cheques and invoices pre-numbered? **
6. Who is the signatory on cheques?
7. Who has access to bank accounts and cash?
8. How do you control who access the cash? Related to physical controls plus ID badges,
passwords etc.
9. Are surprise cash counts or periodic cash counts conducted?
10. Is a bank reconciliation done by an independent employee and how often?
11. Does the employee who records cash transactions also have access to the physical cash?
12. How soon are transactions entered into the books?
13. Are background checks done on all employees? **
14. Is there forcing of vacation and rotation of employees to allow for independent review of
each employee’s desk and work? **
15. Is cash insured against theft by employees? (Bonding)
Accounts Receivable:
** Applicable to Accounts Receivable
16. Is there a control account maintained by an independent employee?
17. Do you request statements from customers from their ledger to compare to yours?
18. Does the person who collects cash have access to the books to record cash or write off a
bad debt?
19. Who has access to customers’ accounts? Is it just the AR person and a backup?
20. How do you prevent others from accessing these accounts? Example: unique ID and
passwords, cameras etc.
21.
References

Lachney, K. (2018). An Exploration of Internal Controls and their Effect on Employee Fraud in
Small Businesses. Liberty University.
Loan, T. (2015). Internal Control System for Small Businesses to Reduce Risk and Fraud.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2009). Accounting Principles 9th Edition . John
Wiley and Sons Inc.