Listers Group is the largest privately owned motor group in England, operating over 40 dealerships representing the world’s major quality motor brands. Acting as franchise partners for Audi, BMW, Honda, Mercedes-Benz, Mini, Smart, Toyota, Volkswagen cars and commercials, Lexus and Land Rover, Listers group offers excellence In the sale of new and approved used cars and vans, servicing and parts, and have won a number of national awards in these areas.
Principles of Internal Control 1 Demonstrate an understanding of the role of accounting within the organisation 1.
aThere are various accounting functions within the Listers Group that deal directly with the department on site. These include Sales, Parts, Site Accounts, Administration and Workshop. The purpose of the onsite Accounts team is to process direct invoices, customer payments and deal with customer finance in relation to purchasing a car. The accounts team are relying on sales to make the initial sale, admin to process all documentation and accounts to finalise the financial side of the deal.
Head office accounts team gather all the relevant information from ‘their site’ to process month end accounts with the aid of an accounting system called Elite. Appendix 3 – Dealership numbersIt is important for there to be a strong internal relationships between all teams, resulting in good communication and dependency on either side in order to gather and accumulate accurate information to keep the business growing. Every year in March and September a new registration plate is released – resulting in an influx of orders within the months before and a peak in sales within the months of March and September.
It is crucial that the relationship between the Sales department and the Accounts department is very strong. Information and forecast need to be accurate and timely so that budgets can be created and flexed to meet changes. This is very important to the business so that a good cash flow system is kept. 1. 2aLister’s create financial information and statements to keep a formal record of the financial activities of the business. These are produced with the aid of a system Elite to enable the accountants to make key decisions.
The Income Statement reports on the company’s income, expenses and profit over a period of time. The accountants prepare the profit and loss account monthly and this enables them to see plan and forecast into the future, It’s also used to compare budgets to actual costs and see where there have been shortfalls or gains and can be used as a comparison between sites to set targets. The Statement of Financial Position reports on the company’s assets, liabilities and ownership equity at a given point in time.
It is mostly used to reconcile stock from the manufacturers to ourselves and to ensure that debts are collected as per the terms. The Cash flow statement reports on the company’s cash flow activities, particularly its operating, investing and financing activities. It is important to ensure that there is enough money in the bank, as we pay for the vehicle on the day of Sale. However sometimes we need to wait for the finance to clear before we receive money therefore generating interest. 1. aListers is a large privately owned motor group acting as a franchise partners for Audi, BMW, Honda, Mercedes-Benz, Mini, Smart, Toyota, Volkswagen cars and commercials, Lexus and Land Rover, specialising in the sale of new and used vehicles.
Therefore there are many stakeholders that the business has critical external relationships with. The main stakeholders of the business are as follows:·Government·Motor trade·Customers·SuppliersPlease see the relevant appendix for a detailed overview of the mentioned stakeholdersAppendix 7 – stake holders interest Grid 1. aThe organisation consists of dealerships with members of staff in different departments. Each have onsite accounts teams and information is fed to the head office accounts department for the accountants to produce month end accounts. Each Head office accounts team is formed into particular structure, and the system is manipulated to fit the job of each person at each level In order to control access and usability of each section of the accountancy package and restrictions are put in place to ensure control of the system.
The purpose of a Head office employee is to also monitor the practices of the dealerships alongside the manufacturers standards and Listers group procedures. Appendix 1 – Head office accounts structure 1. 5aAmendments need to be made to an accounting system its operation due to changes in external regulations and/or to accommodate changes with internal organisational polices and procedures.
Two external regulations that effect the accounting practice within the business and its users are:·Government Schemes – (like Scrappage allowance)·VAT LawsWhen the government Scrappage scheme was in use, this affected the users within our accounting business as a huge amount of time was put into the appropriate checks, and the additional paper work produced to ensure that all new car deals, that had a scrap page allowance allocated was accurately and effectively dealt with and put together along with the government guidelines.
Procedures and organisational policies had to be amended to coincide with these new regulations also. The VAT changes also affected the business. Computer systems and calculations needed to be amended to ensure that the correct VAT amounts were being calculated. This affected the users, as there was a lot of downtime around these points when the systems could not be used to allow for the changes to be made. Procedures and spreadsheets were also amended. 2Understanding the importance and use of internal control systems 2. aExternal Regulations that effect the accounting practice are as follows:·Government Legislation – Laws and guidelines, which must be followed.
·HMRC – Must adhere to VAT laws·FSA – Financial Services Authority – ·The FSA regulates all financial services within the UK. As we sell various Insurances to our customers and also sell products through a finance service we must follow and be regulated by the FSA. This means we must be on the register and comply with the regulatory requirements. Appendix 2 – Lepest analysis 2. aThe main types of fraud which may exist in the accounting practice are as follows·Theft·Unauthorised buying·Unauthorised Overtime·Expenses·Money LaunderingThe cause of these types of fraud arises from poor management and set up and can have a huge impact on the accounting system and businessTheft can occur by an employee stealing directly from the business either petty cash or stock, causing a direct loss to the businessUnauthorised buying which can lead to a lower profit margins –
If suppliers are used that shouldn’t be. Employees might try to work more hours hen required in order to push their working hours into Overtime to receive a higher rate of pay – which could be avoided if they worked at a consistent pace of which overtime would not be necessary. Expenses may be claimed for items or services that under company policy shouldn’t be claimed for or not needed, making a loss for the company. Money Laundering can be a fraudulent activity that may happen within organisations if policies are not drawn up and followed correctly. Appendix 4 – Money Laundering Policy 2. 3aMethods can be used to detect and minimise fraudulent activity.
Two people should be involved in the petty cash process to eliminate any Theft or the hiding of inappropriate claims. It should be checked regularly and reconciled to ensure that there are no differences or suspicious handling of cash. Stock takes and asset registration/audits should be completed regularly and maintained to ensure the records owned by the company are correct to minimise theft. Purchase orders and signing of cheques must be completed and authorised at a higher level to ensure the same person placing the orders are not authorising payments.
This will make sure that no Unauthorised buying goes ahead. Within the organisation Overtime is not paid. However other organisations could have procedures in place to monitor the overtime that is required by the employees when it is required to ensure that employees do not exploit this. Employees must check with their line manager before purchasing with the intention to claim from the expenses. Expenses forms must be filled out with correct up to date receipts attached.
They will follow an approval route, before any money is paid to the employee requesting, to ensure that they are legitimate claims. The company deals with high price sales so action is taken to reduce any money laundering which could potentially flow through the business. Restrictions apply to the amount of money that can be handed over in a transaction. Appendix 4 – Money Laundering PolicyAppendix 12 – Fraud analysis 2. 4aStatutory and organisational requirements need to be carried and the business has controls, which can be put, in place to ensure this is complied with.
All paperwork is kept for 1 year within the department, and then they are transported to other offices for archiving, then they are kept for 6 years. In total all of the paperwork is kept for 7 years, for our audit purposes. We also have an internal auditor to ensure all audit requirements are carried out on a day-to-day basis. We then have1 external yearly audit carried out after our year end, which is March 31st. A direct control that is in place is management direction and motivation. Targets and procedures are drawn up which must be followed in order to meet the business requirements.
Weekly team meetings are carried out to discuss progress and to address any difficulties that we are up against, The company also has many aids to help employees stay focused on the requirements of the businessAppendix 5 – Month End Accounts Procedures 3Be able to identify and use the appropriate accounting system to meet the specific organisational requirements 3. 1aWeaknesses can be found in most accounting packages. A weakness that we find within our system is that it runs really slow at crucial times with in the month. Particularly when month end reports are being produced.
This can be highly frustrating when postings need to be made and reports need to be produced within tight deadlines. As a large accounting department the same area of the accounting system are being used at the same time and reports being met within the same time scale. This can result in the system freezing due to the large amount of people trying to process information from the same screens. There are also potential for errors within an accounting system such as an invoice pricing and keying, petty cash distribution and Fraud (see 2. a and 2. 3a) which can arise from control negligence and not having more than one person operating these activities. Other types of fraud that could occur within an accounting business are as follows, dummy suppliers and employees, theft, unauthorised spending and expenses. 3. 2aAccounting systems help support internal control – Most systems will have structures and restrictions put in place to ensure that the appropriate users have access to relevant areas – Any information that is not required by certain users is not exposed.
Also nominal ledgers and accounts may have restrictions so that unauthorised users can make no postings incorrectly. This helps minimise and control the potential for errors. 3. 3aThere needs to be support for the users of the package to ensure that it is used effectively and efficiently and adds benefit to the company. Direct support can come from the users superiors and management, in the form of discussions, meetings and direct training sessions. Within our company there are written information manuals and step-by-step procedures. Which are a good way of directing a user and keeping organisational control within the system.
Appendix 5 – Month end accounts proceduresMost accounting systems will have help menus within the toolbar to assist with any direct problems you are having with the package. One of the systems used in our business requires us to sit online training courses, which we must pass a test in to ensure competence in this area. We must then do this for each section of the system before being granted full access. Acting as a good way of supporting a user as it makes sure the user had a good degree on knowledge of the system before allowing them to use it. . 4aHaving an accounting package will benefit most organisations, as it is a fast an accurate way of recording and holding information, easily accessible to the relevant users. Having all or most of the required information in one place is a benefit as having to collect information, manual and paper based from different areas can be highly time consuming and result in errors and the mislaying of important information. However some smaller organisations may still prefer to use a manual way of recording accounts.
The accounting system we use Elite adds huge value and benefits to the organisation. It allows us to input relevant information into one place. Granting access to this information to the relevant users. This information can be used and manipulated into reports for the purposes of the business, Saving time and ensures accuracy across the board – ensuring that an in house style is used when extracting information and when printing reports for the ease of its users. It is set up to flag errors, such as journal misposts and wrong keying of information.
It will also make the user aware if duplicate reference numbers are being used and will not allow you post to incorrect nominal ledgers. All of which could cause problems when using a manual system. Evaluating Accounting Systems 1Evaluate the accounting system and identify areas for improvement 1. 1bListers use the accounting package Elite in order to complete their accounting processes. The department relies heavily on this, as the accounting processes that are considered to be manual are the petty cash process and the completion of the expense forms.
The system is required to be used on a day to day basis, easy to use, fast, accurate and cost effective, to allow for many users to be able to access the relevant sections at the same time and also be able to have restrictions in place to stop unwanted users accessing confidential information. It is also required to be able to produce reports and generate information that can be filtered set and differentiated into time periods. It is used to create financial reports and is also used as an audit trial, which allocates usernames for each posting and movement, made by each user.
Appendix 6 – Screen print users name trail 1. 2bAll month end reports are printed and reconciled and must be kept. These are kept for 1 year on site before being moved to a separate location for archiving purposes. Currently individual deals need to be run on large A3 sheets. We must then individually go into each deal and attach to the main deal analysis. Each site can do approximately up to 300 deals a month which then results in a large mass of printed invoices and month end accounts to produce financial information.
This meets the requirements of the business but the outcome of this, is a loss of resources and wastage of storage space and capacity. 1. 3bAlthough the system has been serving it’s purpose there are weaknesses and potential for improvements, however this may be that a new package may need to be used. In the long run this will be beneficial but in the short term will result in big changes in the company. The accounting department is large in size and the activity in use of the accounting package is very similar and constant between each team.
At month end the system is increasing slow due to the large reports that each team within the department need to run. This is becoming an increasing problem as the business expends due to the increase of users and the reports becoming larger. This results in the system becoming slower and occasionally crashing, as it is unable to cope at crucial moments of the accounting calendar. A potential way of improving this weakness is to implement a more suitable package in line with the companies growing needs. The benefit of this would be that deadlines and targets would be met without the system freezing.
Reports could also be printed quicker. The process over all would be quickened and would result in less idle time. Therefore the company would receive a financial benefit in the change, as they would not be paying employees during this idle time, as it would no longer exist. Although in making this change there could be a big impact on the company as it may cost more to run a better accounting package. There would be training costs suffered along with a complete change an amendment of operating procedures. 1. 4bThere is the potential for fraud arising from lack of control within an accounting system.
If the controls, which have been mentioned in 2. 2a and 2. 3a, are not in place then the risks could be quite high. The potential risks there could be are as follows:·Petty Cash Theft·Unauthorised buying·Dummy Suppliers·Overtime·Theft of stock·Dummy EmployeesPlease see appendix 12 for risk analysis and grading of the above. Appendix 12 – Fraud analysis 1. 5bThe current accounting system is used as it serves its purpose. Costs analysis was created when deciding to use this package – it therefore was the most cost effective package to use to run the business smoothly.
The business is expanding and the amounts of users, which are using the system, are also growing – Revealing many weaknesses and potential for improvements. The current weaknesses with the system could prove very costly to the business long term. The system becomes slow at crucial times, resulting to idle time and frequently freezes becoming ineffective to the users. The reliability of the system at vital points in the accounting calendar is very low, although we can predict times when the system will be over worked and slow, we cannot predict when the system will crash.
Errors can be made when vehicles are being invoiced. As the system does not detect if incorrect stocking categories are being selected. This will result in deals needing to be reversed and amended. This error is not is not picked up quickly and is usually found when making month end reconciliations. This will then lead to the accountant having to find the error, address the user, for then the user to reverse and re-invoice this particular invoice. Once this has been achieved the reconciliation must then be redone.
This method is not effective for the business, as the accounting system does not pick this error up resulting in wastage in time and resources. A conclusion to this is that although the package is relevantly cheap to run, it could be costly to the company as the methods used are not effective or reliable as they could be. A new package and its benefits could be analysed. 2Make recommendations to improve the accounting system 2. 1bThe recommendation of the new computer accounting package could benefit the company and prove to be cost effective long term. Costs analysis work ould need to be provided to ensure that the new system would be beneficial to the company, with this information it may be put forward for proposal to be considered. Appendix 8 – Cost AnalysisThe new system would be newer, faster, and be able to cope with changing technology. It would have the capability of allowing many users, and would not become slow at crucial times. Therefore assuming that less time would be spent waiting for the system to speed up and more time to be utilised more productively. The system would have a facility, which would allow invoices to be coded correctly.
If the car that is sold is a non-franchise vehicle and sales admin accidentally selected a franchise code – the system would flag this up as a warning making it impossible for them to make this error. This would minimise time addressing and miss posts. An automatic credit facility that could put customers on stop and not allow for customers to have any more credit until they have paid there overdue amounts. By doing this will save the company the expense of bad debts and the cost of credit controllers. Consolidate a lot of information into smaller amounts of space, which would lead it to being more resourceful.
Be detailed and split into separate pages like a web page with different tabs. It would also allow access into different sites at the same time, which would be beneficial when transferring stock/inventory between sites. Appendix 9 – User Questionnaire 2. 2bThe recommended changes would benefit the individual users of the business. When a system is slow or unreliable it makes it difficult to concentrate and to motivate on the tasks involved. Therefore a slow and unpredictable system can lead to de-motivation of the users and drop moral especially when trying to work to strict deadlines.
A higher capability system will allow the users to create reports and month end prints much faster, utilising time more effectively. With this additional time users could spend it on analysis work and K. P. Is, which could then be simplified for non-financial employees of the business for better understanding of the business. Due to a new system having training facilities, more training can be supplied at no extra cost to the business. When implementing such a big change within a business there will be a huge impact on its users.
In the short term replacing the current accounting package may be seen as disruptive and in-convenience to its users. As they will not be familiar with new layouts and will not understand how it operates. Before implementing a new system, a good way of distinguishing the needs and effects that this change could bring to its users is in a form of a questionnaire. Appendix 9 – User QuestionnaireAppendix 11 – User Questionnaire Complete. 2. 3bIt would not be beneficial to the company to allow their staff to operate a new system, with the intention of it being useful to the company, if users were not using it to their full advantage.
Employees and it’s users will need to be fully trained in the operating of the system and could do online or in house assessments on the system to ensure competency within the system before being granted the full access to the package. New procedures would also help with the training for the start of the new system. It would be a good idea for regular meetings to be held, by the implementers of the system inviting the key users to have input which will ensure all requirements are met.
This will also allow for suggestions to be made in the formatting of the package or within the manipulation of the reports, which could be produced. By doing this it will help the users to use the system more efficiently. The new system may also make for a change in different aspects of the users jobs roles, freeing them up to make additional tasks or allowing them to extend their responsibilities. Meeting for progress tracking for the users and their roles would be important to make sure the system is being used to the best of their responsibilities. 2. bThe benefits of implementing a new system would maximise the company, there will be implications involved. These would affect the company in many ways. The recommendation would require a great deal of time and dedication, to fulfil its purposes. There would indefinitely be financial costs involved. New procedures would need to be drawn up and these would all be implications in relation to the business. There would be downtime or more expense with Overtime for the system to be switched. There is more detail on appendices below. Appendix 8 – Cost analysisAppendix 10 – Implications of implementing a new system
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