Final Project AAT Essay

1.TERMS OF REFERENCE1.1The report has been prep ard to coer the guidements of the AAT Unit Internal Control and Accounting Systems.1.2The objectives of the report ar to analyse the chronicleing do at inkwell Ltd and to identify both weaknesses, so that recommendations for the implementation of a new and improved organization screw be spew in practice, in mark to minimise errors and to pr vitrine fraud.2. EXECUTIVE SUMMARY2.1The aim of the report is to analyse and evaluate the current internal consider remains and accounts receivable book of account of inkwell Ltd.2.2The findings of the investigation highlighted the flowing weaknesses The Retail shops use stand-al unrivalled ready reckoners which argon non colligateed to the network. Lack of warrantor measure measures put in place to bulwark the sensitive personal selective information held on individuals, and non-compliance with the entropy Protection of 1998. Non-compliance with dress indemnity, as updates except carried egress one time per daylighttime. entropy lost collectible to scarce back-ups ar salutely in both time and money. The retail shops view as a sloppy approach to cash management.Cash only banked twice per week. The friendship does non produce or provide any instruction and help guides, which employees offer refer to in sight to find help and advice. The club do non shoot contingencies in place for ply absence seizures collect to illness or annual leave There is no encouragement for employees to attend instruct courses. Passwords use are non able to maintain an adequate level of security. The attach to uses a just in time placement of production, and any unexpected upholds in speech communication female genitalia cause delays and may perk up an totallyude on the alliances reputation. There are insufficient control and supervise procedures carried out by senior personnel. The attach to all in allows nodes to pay by suss out.The lod ge does not conduct per mental strainance appraisals.The family does not conduct unwavering cater meetings.Management not upholding morals and law, and not practicing their own policies thus creating an ideal environment for fraud and un respectable practices to be committed. Staff shortages contributing to processing delays of gross sales invoices.2.3Suggestions and recommendations develop been do to help make improvements which provide increase the callers performance and efficiency and to help seduce anti-fraud environment.3. METHODOLOGY3.1The research conducted to create this report was primarily obtained from data provided from the AAT website, the Internet, and reference textbooks.3.2A period of four months was taken to monitor the Internal Controls system and Accounts due volume to gather sufficient data in pitch to compile the report.3.3A meeting was arranged with Inkwells finance music director and Company Accountant to discuss the areas of personal credit l ine sector and the procedures that lacked to be implemented to make suitable improvements.4. INTRODUCTION4.1Inkwell Ltd is a large private limited accompany within the private sector, preparation a complete range of re-manufactured inkjet and laser toner cartridges to its customers. Products can be barter ford from either the companys lux nationwide chain of high alley shops, which are situated in most of the UK cities and large towns, or from their on-line shop facility which is inletible twenty-four hours every day of the week.4.2The company is run by trio directors who are the main ending makers. Inkwell Ltd was created s stock-still days ago by two of the directors, Mr Paul Farnon (Managing Director) and Ms Victoria Dawson (Sales Director). Mr Anil Gupta ( pay Director) joined Inkwell afterward investing in the company two years ago. The company mete outs are owned by internal stakeholders only. 100% of the shares are break between the directors, with the Managing Director be the major(ip)ity shareholder with holdings of 40% and the new(prenominal) directors each holding 30% of the shares.4.3Their head means is situated in an industrial estate, based in Birmingham, where the management team, accounts department, on-line shop and large central warehouse are all located. The company has progressively grown since it was initially array up and pre directly employs one hundred and eighty full-time employees, and has reported revenue of over sixteen million pounds. .4.4Inkwell has a mission to rifle environmentally friendly and promotes this by ensuring that they continue to strive towards achieving a greener environmental future, without jeopardising or comprising the quality of their products and reputation. The company ensures that products meet with 100% quality satisfaction countenance, and has made a promise that should certain conditions not be fulfilled that the companys policy of replacing the products without rejection, give be adh ered to without affecting the customers statutory rights. The company assures their customers that the recycled cartridges, which are cheaper than the genuine, original products by up to 20%, will meet or exceed the quality of the original cartridges.4.580% of Inkwells sales are purchased by non- trade customers. Trade customers represent the remaining 20%, and these customers are supplied wide-cuts on credit terms of between thirty to sixty days.4.6The Finance Director, who owns 30% of the companys shares and reports directly to the Managing Director, is qualified to BSc and FCMA standards, and has worked for the Inkwell Ltd for fivesome years on a full-time prat. This Director is entrusted to ensure that all the pecuniary strategies, support the aims of the business and to identify opportunities in order to achieve greater efficiency and cost savings, as well as driving sustainable and profitable growth and optimising profitability and shareholder value4.7The Company Accountan t, who reports directly to the Financial Director, is AAT and ACCA qualified and has worked for Inkwell Ltd for seven years on a full-time basis. The Accountant complies, analyses and produces the companys quarterly and annual financial statements4.8The Accounting Technician, who reports directly to the Company Accountant, has worked for Inkwell Ltd for six months on a full-time basis. This employee possesses applicable recognize but does not currently have any accountancy qualifications. However, the Technician is currently studying for the AAT qualification, with the aim of get throughing the exams within the following year.4.9The General Ledger salesclerk, who reports directly to the Company Accountant, has worked for Inkwell Ltd for four years on a full-time basis. This employees principal responsibilities are to input financial data into the electronic computer system, in order to produce monthly trial balances. This clerk does not possess any accountancy qualifications.4. 10The Accounts Payable Clerk, who reports directly to the Company Accountant, has worked for Inkwell Ltd for common chord years on a part-time basis, and already holds a level two AAT qualification, but has expressed an interest in progressing on to the next level.4.11The Accounts Receivable Clerk, who reports directly to the Company Accountant, has worked for Inkwell Ltd for three years on a part-time basis. This clerk has worked previously within the accountancy industry, but does not currently possess any relevant qualifications.4.12The Costing Technician, who reports directly to the Company Accountant, ishighly experienced and competent within this role and has worked for Inkwell Ltd for seven years on a full-time basis. This employee does not currently possess any relevant qualifications and has expressed their reluctance and unwillingness to participate on any bringing up activities4.13The paysheet Clerk, who reports to the Company Accountant, possesses a level two AAT Acco unting qualification, and is enthusiastic about progressing further. This employee has worked for Inkwell Ltd for four months on a full-time basis, and has very limited experience of working within a payroll department.5.REVIEW OF THE ACCOUNTS SYSTEM5.1Inkwells policy for their large business customers is generally to trade on a cash-with-order basis for the initial three months of custom, and uses the services of a credit reference agency which conducts the necessary credit checks. The Accounts Receivable Clerk is responsible for exserting out the credit checking procedures, and after liaising with the Sales Director regarding accounts which require a credit limit of more(prenominal) than 1,000 per month, recommends suitable credit terms.This is a strength of the accounting system in that by exploitation the credit reference agency it will determine the ability of new customers to pay their debts. This will prevent fraud in that customers would not be able to purchase goods know ingly that they could not afford to pay for them, so increasing cash flow. This will excessively have an impact on the integrity of the customer. However the weakness should be that a full limit should be set, in that the customer is not allowed to go over a total limit, other the customer could do four or five months trading up to 5,000 and this would escalate further if they were non payers, meaning the debts are more likely to go bad. This would have an impact on the cash flow of the business.5.2All new credit limits and changes to existing limits of more 5,000 per month, have to be approved by the Financial Director. danger management isessential for a companys survival and success. This is a strength in the company as any increase in limits have to be authorised by a senior member of the finance team. This will reduce the risk of fraud, in that no individual has control over the customer accounts, and can extend limits for customers for their own personal gain.5.3A potential customer may want to know the charge of the goods in advance deciding whether to expire with a proposed transaction, and will request a bring up either by environ, email or in writing. As a means of preventing fraud, due to either party contesting the quotes given, the companys preferred mode of issuing these quotes is by email. Written quotes are supplied on a customers request, however, Inkwell likes stay on this method of issuance to a minimum, as cover work has an impact on the environment and goes against the beliefs of the company.Inkwell, also prefer not to give a quote over the phone, as a record cannot be kept regarding the quote given, and there would be no written evidence to support against any disputes that may arise in the future. Before proceeding with the order a customer can make comparisons between the prices given by different suppliers. If the customer accepts the price given by Inkwell, and proceeds with the order, the price quoted is fixed and canno t be changed, which is contrary to that of an estimate being given. This has an effect on the ethical principle of objectivity, in other words the customer would be free from biased.5.4Once an order is placed it needs to be checked by the appropriate sales representative. This is important, as the save data may tone down errors which require correction and checks essentialiness be made to conform to if any data that has been omitted, needs to be added. The order form is past passed onto the Sales coach-and-four for additional checking, approval and authorisation. This is good practice and accepting out this procedure, helps to minimise the chances of fraud being committed and over charging being preserve on the order form. However, there is compose the opportunity of fraud and misuse of funds and assets taking place as other unauthorised members of lag still have regular and easy access to the system, so is a weakness in the accountingsystem.5.5It is important that the c ustomer produce an order telephone return as this will hep track the order, but the most important thing is that the purchase order must be authorised. Without this signature the order will not be processed. This is a great strength in that it will prevent fraud, in that goods could not be obtained for employees personal gain, so creating fraud. This helps enhance the ethical principle of integrity.5.6Once an order has been processed, it is sent to dispatches, ready for transportation. Once the goods have reached their destination, both the customer and the oral communication driver are required to sign the delivery note. This confirms that the goods are been delivered and received. This will prevent fraud, in that the customer could not deny that they have not received the goods..However, if the delivery personnel collects the signatures from the recipient in paper form rather than store these signatures directly on a smartphone or digital tablet, in order to confirm certaint y of delivery and put across, there is a danger that the paper form confirmation may be lost in transit or may become misplaced, therefore providing no demonstration that delivery ever took place. The outcome to this is that the customer can abuse this situation by contesting that any goods were received. Also the use of paper has a disallow impact and significantly endangers the environment. Having the delivery note in paper format is not sustainable to the environment. .5.7Sales invoices are created and botherd via the use of a goods dispatched listing, which are then sent out to the customers on a weekly basis. The person responsible for the issuing of these invoices is the Accounts Receivable Clerk. The clerk also has the responsibility for inputting the sales invoices into the accounts receivable ledger system, which also incorporates the general and accounts payable ledgers, which all run on the Windows persuasion software program package. There is a repellent weakness in thisprocedure as the purchase orders, dispatch notes and sales invoices are not reconciled against each other. This is a weakness in the accounting system in that invoices could be sent out for the incorrect amounts, or incorrect customers are invoiced for goods that may have not been received. The impact on the company would be the delay of payment which would have an uncomely effect on the companys cash flow. This would also have an impact of the companys reputation of professional competence.5.8Inkwell chooses to start invoices by email, unless a customer requests a posted version. The email method is easy to use and quick to deliver. As emails do not use paper they are environmentally friendly. However, a problem with using emails is that viruses can be transmitted, but with due care and precaution, and a strong security software in place this can be minimised. This is a strength of the companys system.5.9The software for issuing invoices is Sage Line 50 and the invoices are sent out to the trade customers on a weekly basis as instructed by the Finance Manager. As the invoices are processed electronically this helps to minimise the chances of errors and discrepancies. Many handwritten invoices contain errors in the calculations. Another strength of processing invoices using the electronic method is that transactions can be traced. One positive part of the system is that all sales invoices are checked for errors by the Company Accountant, by the use of the double entry checking system. This means that there are no time delays encountered by having to make amendments to invoices returned due to containing discrepancies in the recorded data so increasing cash flow. This also upholds the company reputation of professionalism.5.10Inkwell issues credit notes, in order to credit all or part of a sales invoice, for goods which have been returned by the customers. The credit notes have to be counter checked, approved and authorised ahead they can be issued. However, the Retail Shop Managers actions are not controlled normonitored. The company has placed trust in these Managers, so they have been given the authority to issue refunds on any returns they consider necessary. This gives a Branch Manager the opportunity to commit two-faced activities and to manipulate figures, by abusing their position of power in order for personal and financial gain.5.11To improve the profitability of collection by stimulating payments and minimising the occurrence of bad debts, customer statements translateing the payments made, sales, sales returns and calculations, are dispatched every month, by the Accounts Receivable Clerk. This method can be used as a reminder to customers that payment is expected and therefore prompt them into making a payment on their accounts. The statements inform the customers of the status of their accounts, and enables them to make comparisons between the records they hold and that of the supplier.If a customer discovers a discrepancy regarding any of the transactions recorded, they can contact the supplier to question this. These statements can be used as an potent method to highlight any overdue payments, which need to be chased. The statements prevent fraud by the company in the customer is able to check all the invoices and credit notes issued. This would prevent the company form over stating their account or adding fraudulent invoices to their account.5.12 whacking trade customers have credit terms accounts held with the company. Each customer is given between thirty and sixty days depending on their account status. Trade customers can also benefit from a cumulative discount, each quarter, based on the value of their orders. This incentive is to try and keep a steady flow of business and increase sales, whilst at the same time increasing Inkwells cash flow due to the prompt payments that would be generated. This is a strength of the company in that increasing sales will eventually increase the p rofits of the company, creating sustainability of the company.5.13All cash and cheques received are compiled and recorded in the cash receipt book. These amounts are then entered into the system using the Sage Line 50 package, in order to update the applicable customer accounts. The Accounts Receivable Clerk, who receives the payments, has the responsibility of banking them on a twice weekly basis. The cash and cheques are held in the companys safe for security whilst waiting to be banked. This is a strength as it prevents the opportunity for the funds to be stolen, creating fraud.However, there is an increased risk that the cash or cheques may be lost or misplaced, particularly in the event of the office being in disarray, during times of low moduleing levels, disruption and having to meet tight deadlines. If there is a lapse in internal controls regarding the checking and monitoring of the accounts receivable ledger, this creates the opportunity for employees to commit fraud usin g recognised fraud schemes such as lapping, skimming/hiking, the kiting of cash and cheques, the improper posting of cheques and also cash/cheque substitution. This would not protect the companys reputation of professionalism and integrity.5.14Customers can attach a remittance advice slip with their cheque payment to inform the company that they have made a payment on their account using the BACS method. This slip detail the amounts that have been paid, the amounts that are left over(p) owing and what is being paid for. By summarising the transaction details, the slip ensures that the correct amount has been paid. either discrepancies can be questioned with the customer. The remittance advice slip will be kept with the customers records, as proof that payment has been received, and can be referred and used as evidence in the future.This is a strength as time is not unnecessarily consumed by having to figure out what part of the invoice the payment relates to, as this has already been clarified by the customer. The improvement to receiving payment in the form of a BACS permute is good, because this is instant cash and helps to increase the cash flow. However, the receipt by cheque delays the access to cash. This method of payment is slow as the cheque needs to go done the unclutter system, and there is a danger that it may be returned by the bank, if the customer has insufficient funds.5.15The company has implemented a policy that should be followed when dealing with overdue accounts. If an account is seven days overdue, the customer is telephoned to request immediate payment. If after fourteen days of the telephone call, the payment is still outstanding, the customer will be sent a letter requesting the immediate payment, in order to bring their account up to date. This is a strength of the company as credit control is an important part of the business, and collecting monies would increase the cash flow and sustainability of the company.5.16The company is being proactive in trying to collect payments before they turn into bad debts and escalate out of control. An strong approach to the collection of debt helps to boost the companys cash flow and avoids the assistance of debt collection agencies, which cost the business money. Accounts more than one month overdue are inspected by the Company Accountant. Accounts which are overdue by more than two months are reviewed by both the Finance Director and the Sales Director. However, this procedure is not executed, which is a major problem.Both Directors avoid any interlocking as the Finance Director has the opinion that the task is of a tedious nature and the Sales Director is anxious that her involvement will damage her relations with the customers. The liquidity of a company is very important. Without funds, bills cannot be paid and the company may encounter financial difficulty. There is danger that Inkwells future may be put at jeopardy if debts are not being actively chased. No m oney coming in whilst money is going out has a severe impact on the companys cash flow. If it is known to the customers that the company would not go to a debt collecting agency, then they may take advantage of this and receive goods knowingly that they could not pay so creating fraud5.17The computers which are located in the retail outlets are stand-alone computers. These computers are operated by Windows Vista software and all have Microsoft Office 2007 installed. However, there is a weakness in this system. Although, shop employees using these computers are not allowed toupload, download or connect any external devices, which have not been purchased or approved by the company, as per company policy instructions, issued by the Finance Director on twenty-third May 2010, there is no panache of monitoring this.All the computers have full internet access including email using the Firefox Internet web browser. Although it is opportune to have all the computers running on the same sof tware and web browser systems, there is a downside, in that each computer must be updated and configured individually, which is costly to the company. Had the systems been networked, this could have been done all at the same time, remotely, thus saving the company time and money. This would have an adverse effect on the companys data and therefore would not be secure and compliant with the Data Protection movement (1998). This would also have a negative impact on the ethical principle of confidentiality and integrity.5.18The companys entire computer systems are password protect which is a strength. However, the problem is that when the computers were installed seven years ago, they were all given the same password, which is Go Green, and no action has been taken to make any changes to this. This has created a massive weakness regarding all aspects of security within the accounting system. Trade customers account and bank details are open to exposure and this increases the risk of being abused. This randomness can be accessed and stolen by dishonest and untrustworthy persons who use this information with the intention of obtaining financial and personal gain, so creating fraud.The companys policy handbook clearly states that each computer must be individually password protected and only authorised users are permitted access. Staff are required to maintain the confidentiality of such passwords used in order to protect security. However, the policy is being ignored and abused by staff, who continue to disregard and follow the rules and regulations, which is evident, when shop employees are allowing unauthorised persons to use the computers for fond media etc., without seeking the authority from senior management first. This is a serious breach of the computer policy and security, as this leaves records, bank details and other valuable information of other staff members, customers and suppliers, open to exposure, which in turn could lead to identity theft,frau d and therefore the Data Protection encounter of (1998) is being breached.5.19The computers are protected by Windows Firewall that helps to protect the network, against hackers or viruses. When the controller leaves the workstation unattended, they are required to log off, however, if they forget to do this, each computer has an automatic timeout installed that has been set at five minutes. If no activity has taken place within this duration, the computer will revert to secondary mode (hibernation). This saves on energy which is good for the environment. Whilst in the standby mode, any sensitive and confidential information is hidden from prying eyes, preventing fraud such as identity theft, and without the correct password, prevents any access to gain such information.At the end of the working day, all computers are required to be shutdown. Protecting sensitive and confidential information is honouring with The Data Protection Act of (1998). To modify the standby mode, the cont roller has to enter the correct password, which is Go Green. As this password is known and used throughout Inkwell, any employee is able to gain access to this data, and therefore the confidential information is not being protected or secured. It is the companys moral duty to protect confidential information, and they are breaching the Data Protection Act (1998), which carries with it hefty fines and can result in prosecution. This does not uphold the companys reputation for confidentiality and integrity.5.20The Finance Director issued instructions concerning the update and backup procedures of all the IT systems as per the extract of the company policy handbook, dated May 2010. These instructions required that all of the IT systems are to be backed up twice per day, once at lunch time and again at the close of business. The Company Accountant instructed the accounts department to back up data once only, and only at the end of the working day. This requirement has been in force sinc e the Accountant joined the company, therefore totally disregarding the Finance Directors updated policy. This breach of company policy has already resulted in unnecessary losses in time and money. A power cut that took place in October of 2010 atthe head office premises, late in the afternoon, resulted in the loss of most of the days work. The majority of this information has been re-entered into the system but came at a cost, due to the number of hours that had to be paid in overtime. This is a weakness and was not cost effective for the company, as these extra labour hours could have been used doing other duties.5.21 criminal maintenance of the recorded stock levels in reference to the companys printer cartridges which are held as inventory in both the warehouse and shops are not controlled by a password protected, Microsoft Excel spread sheet. Due to the omission of password protection being implemented in this area means that there is an increased chance of the data being alter ed, whether by accident or by intention. The opportunity for fraud to take place is heightened and there is no way of preventing this occurrence happening again, unless the system is password protected. This means that the company is not abiding by the guidelines laid down by the Data Protection Act (1998). It means also that the company is not treating its data with the ethical principle of integrity and confidentiality.5.22The Finance Director noticed that the company did not have a proper system in place to record any of the companys business dealings relating to any of the previous years transactions, so the decision was made to purchase an archiving package. However, the Financial Director has lost interest since and no unyieldinger considers this task a point of priority anymore. thereof the implementation of this package has wasted valuable time, effort and money. This is a weakness of the accounting system, in that all records must be kept for six years. By purchasing an a rchiving system that is computerised would mean that the company would be proactively following the guidelines of the Data Protection Act (1998), but it would greatly help the sustainability of the environment, and would reduce the use of paper.5.23The Payroll and Personnel Clerk completes the annual VAT returns using HerMajestys Revenue and Customs (HMRC) guidelines. This highlights the difference between the input tax charged on the companys purchases and expenses and the output tax which is charged on the supplies and goods sold to the customers. The net difference indicates whether payment is due to or from HMRC. It is of the upmost importance that the VAT 100 forms are completed promptly and accurately and that payment is made before the deadline is reached.Penalties for submitting a return form late are severe. The Company Accountant is responsible for checking that the details recorded are correct and then passes this form to the Finance Director for re-checking. This is a st rength as it minimised the chances of discrepancies occurring or any fraudulent activities being committed. It is against the rectitude to falsify or omit any information that should be recorded on the VAT 100 form. The company are complying with the VAT Act 1994, s72 (1), (2) and (3) and The malingerer Act 2006.5.24The Income Statement and Other Comprehensive Income shows the performance of the company over a given period. This statement shows the companys income, expenses and the resultant profit or loss figure. The profit or loss can be calculated by deducting all of the expenses incurred including finance expenses and tax costs from the revenue earned to show the profit/loss made. This statement shows entries made using the accruals method.This means that revenue and expenses are matched with each other and recorded when they are recognised (earned/incurred) and not when they are realised (cash received/payment made). Users can analyse the statements and make comparisons with previous years or with other competitors. Both Private Ltd companies and Public Ltd Companies are required by law to submit this statement with the other accompanying statements to Companies House. Various accounting ratios to measure the profitability of the company can be calculated using the financial information as shown on the statement, such as the Gross Profit %, Operating Profit %, and Expense and Revenue %.5.25The Statement of Financial positioning also referred to as the Balance Sheet shows the companys assets, liabilities and equity at a given date, and isuseful for interested parties to ascertain the financial health of the business. A formula which is associated with this statement is Assets Liabilities = lawfulness. Assets are what the company owns, liabilities are what the company owes and the equity is the residual interest after the liabilities have been deducted from the assets. This statement used in conjunction with the other financial statements can help to assist users when making economic decisions, such as investing, lending, or acquisition etc.This statement can be compared with those of the previous financial years or with the statements of other competitors. The principal users are mainly, investors, lenders and creditors, and like the Income Statement, the Statement of Financial Position also needs to be submitted to Companies House, if the reporting entity is a Private Ltd Company or a Public Ltd Company. Financial information recorded in this statement can be used to calculate various accounting ratios used to measure the Companys liquidity, effective use of the companys resources, their financial position and their gearing (the meter of how much the company is financed by debt).5.26The Statement of Changes in Equity is part of the set of the financial statements that accompany each other and shows how the equity has changed over the specific year. The statement links information contained in the Statement of Profit and Loss and Comprehensive Income with that contain in the Statement of Financial Position. The Statement of Changes in Equity shows the entries for ordinary capital shares, share premium, retained earnings, dividends, and unrealised gains on assets etc.5.27The Statement of Cash Flow shows the changes in inflows (money coming in) and outflows (money going out) over the financial accounting period in reference to Operating activities, Investing activities and Financing activities. The financial information recorded on the statement gives a user the opportunity to see how feasible it is for the companys to generate future cash flows, and to assess the companys ability to meet its obligations and to pay its shareholders their dividends.5.28The company does not hold any regular staff meetings and is a weakness in the accounting system. Staff meetings are an effective way to get employees to engage and perish with each other sharing and exchanging information and new ideas. Such a meeting would also give staff the opportunity to flag up any problems or issues which need to be addressed. When important decisions regarding the company have been made without the involvement of employees, they can be left aromaing frustrated that they have not been given a voice.When the staff members olfactory property infravalued and de-motivated, performance and productivity are affected. Employees may commit fraud as they feel justified by their actions. The number of employee absences may increase and the company will find it difficult to supply their customers as staff shortages may cause delays, due to increased workloads having to be performed by fewer staff members, costing the company money and may damage their reputation.5.29The only form of discussion between the departments is via email. Although there is an advantage to using this method of communication, such as convenience, quick delivery, lack of paper (sustainable for the environment), and cost effective, there are also several disadvantages to using this method, as it creates less social contact, messages can be misinterpreted, viruses can be downloaded, unwanted spam, and security issues. Another problem that could have a negative effect on the company is the tension that exists between the Finance Director and the Company Accountant, which has been on-going ever since the Finance Director joined the company two years ago. The Company Accountant was resentful that he was unnoted for this position and feels like he had been demoted.5.30The staff members do not get any form of appraisal which would highlight any performance issues relating to each employee. Therefore there is no way of filtering the staff that is underperforming to those that are exceeding requirements and should be considered suitable for promotion. This is a weakness of the company, and not cost effective as employees feelundervalued and would not work as hard as they should. This will have an adverse effect on the ethical princ iple of professional competence.5.31The company has an issue with regards to staff teach. Rather than investing in training courses that would be advantageous to both new and existing employees, the company only provides a one day crash course for new employees. This gives cause for concern as there is no fully ingenious staff available to cover in the absence of their peers. Also the company does not actively seek to encourage staff to further their skills by encouraging them to participate on any training computer programmemes or courses.This can leave staff feeling demotivated and demoralised. Therefore the employee may become unproductive and uncooperative, which has a negative impact on the company. The company may have an excessive turnover of staff, as employees resign due to the lack of future prospects being made available this can result in a slump in the overall efficiency of the company, which can cost them dearly. This is a weakness of the system, and is not followi ng the ethical principle of professional competence5.32The company does not have any contingency plan in place when it comes to staff absences and so is a weakness of the system. Staff members who are not familiar with the duties of their peers cannot help. This is due to the fact that they cannot get access to useful material such as instruction manuals, guidance tools, help menus, instruction sheets and helplines, as the company have not produced nor made any available. Therefore work does not get done and this has a severe impact on the company as workloads increase, delays occur and errors are made. This can be costly to the company and can damage their reputation of professionalism.5.33The company does not have any staff that are adequately trained on work on other practices. This became evident in the month of September when problems linked to the initial stages of the new integrated payroll and personnel system was causing difficulty. The Payroll and Personnel Clerk,who was o nly given one days intensive training on the system, confessed that she was still struggling to operate the system, even after a month of having worked with it. As no other member of staff was trained on the system, the Payroll and Personnel Clerk had no one to approach who she could ask for help and advice. Another issue that could cause further problems is in the event of the clerk becoming absent from work due to disorder or annual leave, this would have a negative impact on the company because they would have no one who could temporarily cover their role. This is a weakness of the accounting system.5.34There is a set of help menus for staff to use on the Sage Line 50 package to help them operate the system correctly. There are step by step guides, online tutorials and PDF guidelines made available, and if any staff member still requires help, they have access to a further phone and email support service. This is a strength as it is cost effective for the company meaning that st aff are not tied up follow a new employee and are able to still carry on with their own duties.5.35Without sacrificing quality, and working towards ensuring a greener environment, Inkwell chooses to use products that are environmentally friendly. This includes the usage of recycled paper that is purchased from specialist suppliers. All employees are required to adhere to the companys policy of discarding any of unused paper in the recycling bin, which is then sold to a recycling company. Inkwell encourages customers to bring in their old unused ink cartridges in exchange for purchasing re-manufactured ones, and as an incentive Inkwell offers these customers a 10% discount. The company also recycles its own unused ink cartridges, and sends these along with the old cartridges brought in by the customers, to a small number of manufacturers for refilling. This is a strength of the companys system.5.36As an effective way of exposing their existence and improving their image within the c ommunity, Inkwell Ltd sponsors the local neighbourhood clean-upscheme. This helps install self-complacency within the community. Inkwell also receives an incentive from the Government for their involvement. The clean-up scheme brings members of community together, in their quest to clear the streets of refuge and litter. Walls and signs remain free from graffiti. Children can wreak safely in the streets, and wildlife remains out of harms reach. The clean environment is attracting new home seekers, and visitors therefore bringing more money into the community. Employment is rising due to the influx of visitors and the increasing consumer demand that comes with it, resulting in a happy and satisfied community who look favourably upon Inkwell Ltd.6. WEAKNESSES6.1The companys high street shops use standalone computers that are not connected to the network. A problem is encountered when installation of new software is required, as this cannot be installed simultaneously but must be ins talled on an individual basis this operation is time consuming. Frequent upgrading coupled with regular maintenance is common, and this comes at a price, therefore this is not cost effective for the company. It is difficult to control and monitor the activities performed on these computers so there is a risk of fraud going undetected. A lapse in the adequate security of keeping confidential information protected is violating the Data Protection Act (1998).6.2.Inkwell uses the password of Go Green throughout the whole company, which is common acquaintance. The company is not adequately protecting the privacy of the sensitive information held on individuals, and this increases the risk of fraud. Employees are not demonstrating good ethical practices as they are allowing unauthorised users access to confidential data, which increases the opportunity to commit fraud by abuse and misuse. The company is legally and morally obliged to protect confidential information under the Data Protec tion Act (1998), but this is being breached. Compliance with the companys own IT policy is not being adhered to either, as this policy specifically contains clear instructions that all company computers must beindividually password protected.6.3Inkwells policy that was updated in May 2010 by the Finance Director, gives clear instructions that all IT systems must be fully backed up twice per day. This action should be performed around midday and also at the close of business. The new company policy created by the Finance Director is not being complied with. An incident occurred when the company lost data and this came at a cost to the company in both time and money, and therefore they were negligent in their actions. This is not demonstrating good professional business practices.6.4The Microsoft Office Excel program used to store and control inventory levels is password protected but is still awaiting set up procedures necessary to restrict access to authorised users only. At present access is available to all users, which is not complying with the Data Protection Act of (1998), as confidential information is not being adequately protected. free access to confidential information increases the risk of fraud, as it creates an opportunity for identity theft and gives a perpetrator the freedom to alter or manipulate the data. The company is not demonstrating good business ethics of integrity and confidentiality, through its negligence to protect confidential information, and they are violating the Data Protection Act (1998).6.5On the delivery of goods, the driver and the customer are required to sign a delivery note that shows proof of delivery and receipt. The company uses a paper based proof of delivery. The usage of paper has a damaging effect on the environment, and goes against the companys beliefs, and this is not sustainable to the environment6.6Tension and conflict between the Finance Director and Company Accountant, who are not working together, is havin g an negative impact on the planning andorganising of work that needs to be carried out and completed. As a result the Accounting Technician has not been able to complete all the tasks that have been given to him, by both parties, but this has gone unnoticed. Work that demands priority and that must meet tight deadlines is left uncompleted and put to the side. Payments are not being collected in a timely manner and this is costing the company money.This is not cost effective for the company. The Finance Director no longer has interest in the projects that he gave to the Accounting Technician to complete, which had initially been considered a liaison of importance. Any work that has accumulated regarding these projects has resulted in valuable time, effort and money being wasted, which is also not cost effective for the company. Delays are increased as employees are unable to carry out work until others have finished theirs. These delays have a negative impact on the companys reputa tion because they are unable to supply a professional and reliable service.6.7Contingency plans are not put in place for the absence of employees who carry out tasks that require day to day processing. Sales invoices were not processed for the period covering the last two weeks of July as the Accounts Receivable Clerk was on annual leave. The companys negligence in adequately covering this post has resulted in the credit control activities not being carried out, so monies due during this period were left uncollected. This has an impact on the companys cash flow and is not cost effective for the company.6.8Inkwell accepts payment in the form of cheque as well as other methods. Payment by cheque delays the access to funds, as it must go through a three day clearing cycle process, which does not operate on Saturdays, Sundays or Bank Holidays. Even at the end of this process there is no guarantee that payment will be granted as the cheque may be returned to drawer has insufficient funds in their bank account. This is not cost effective for the company and can have a serious impact on the companys cash flow and profitability.6.9Any customer accounts overdue by three months should be referred to a debt collecting agency who works on the behalf of the company to recover any debts owed. This is in accordance with the companys policy. However, in reality, this policy is rarely followed. The Sales Director, concerned that the active pursuance of any of these outstanding debts may jeopardise the good relations she currently has with the customers, has decided to avoid the involvement of the debt collecting agency. Consequently, Inkwells cash flow is negatively impacted due to the lack of money coming in and this is not cost effective for the company. Trade receivables are mounting up significantly and bad debts are increasingly that will ultimately result in having to write them off. This loss in earnings will have to be borne by the company as the funds may become irrec overable.6.10The company do not have regular meetings that give the staff the opportunity to share and exchange information between each other. Regular staff meetings could ensure that better decisions are made through effective communication, and enable staff to disclose any department issues. Because regular meetings are not put in place, this has a negative impact on the company because they are unable operate in an effective and efficient manner. The company is not demonstrating good business practices as employees get demoralised when they feel unappreciated, undervalued and disrespected. This is not cost effective for the company.6.11Inkwell Ltd does not have a performance appraisal program put in place in order to monitor the professional development of their employees. public presentation appraisals can help to motivate staff and improve company morale, as staff become mindful that good performance can result in promotion and recognition. Due to the non-existence of these p rograms, management are unable to identify and address any issues or basic training needs of the staff, and therefore are not in a position to offer suitable training that would help staff become better at performing their jobs. This is not making the company cost effective or hawkish within the industry6.12Inkwell do not offer training programmes to either new or existing employees, nor do they actively encourage staff to engage and participate on any suitable courses, in order to gain new skills, knowledge and qualifications. In a rapidly changing environment, Inkwell needs to be conscious that roles and responsibilities are continually evolving, and should respond to this by ensuring that employees are provided with appropriate job-related training to ensure that they have the necessary skills and knowledge in order to carry out their jobs in an effective manner. The company is not ensuring that the staff are acting with professional competence.6.13The company have not produced, nor have they provided any on-site instruction manuals that can be used by employees as guidance tools that are a valuable source of reference. In the absence of staff at short notice, due to sickness, other employees cannot be relied upon to carry out tasks of an unfamiliar nature, as they do not have adequate documentation to hand that contains information that can help guide and instruct the employee to carry out a particular task. This will have a negative impact on labour efficiency in that staff would be tailing new employees and could be neglecting their own work.7. RECOMMENDATIONS7.1Inkwell needs to remove the standalone computers and replace them with a full networked system. The accounting team would then be able to share data, access information and automatically update all the systems at once. This would save the company money in the long run as once installed it would be far more efficient and increase productivity. A quote can be arranged once decisions have been made concerning company requirements. His is a major overhaul which would be beneficial for the company in the long run, but would require further investigation ensure that the best product was purchased for the best price.7.2To comply with The Data Protection Act (1998), Inkwell must make regular updates to password protection every quarter and passwords should be a mixture of alphanumeric characters. Each password should be checked for complexity. Only the employee and the line manager are to know the password. Once in force this will comply with the Data Protection Act (1998). This would not cost the company any money, just for the IT department to set this in place as most computer software has the facility to secure the data. This would enhance the AATs code of professional ethics of integrity and confidentiality, and also make them compliant with the law.7.3The Accounts Department and Company Accountant must comply with the company policy on backing up the IT system twice daily. T his will prevent any possible data loss by accident or otherwise. This will in turn entice other staff to follow suit which will ensure ethical behaviour within the company. This will not cost the company any money as a procedure would need to be typed up or the Finance Manager would put a rota in the daily schedule. It would cost a few labour hours, but as the staff are on salary this would be part of their daily routine. The benefit to the company would be that they would not have to pay extra wages for re-inputting the data lost and therefore make the company more cost effective and competitive within the industry.7.4An accurate and updated list with authorised signatories to make entries in the general ledger is of upmost importance to guarantee security of customers accounts and prevent fraud. All sales staff should enter transaction information on the relevant sales data spreadsheet and sign it then pass it to the manager for counter checking and password protection before it is forwarded to the Accounts Receivable Clerk. This action will prevent fraud and be insignificant in regards to the cost of implementation. This would not cost the company anything, but the IT department could establish this system, or it could be written up in the company policymaking it mandatory for the employees to do this. The benefit for the company would be that the company would be able to see who made certain transactions and would be able to detect any fraudulent activities and who done them.7.5The company should consider investing in electronic signature capture equipment which would remove the problem of paper delivery notes when goods are delivered. It will cost the company initially but will pay for itself in the long term as it would guarantee a traceable signature of the receipt of goods including the data and time and also remove the impact on environmental sustainability. An on line quote from Topaz Systems INC revealed a price of 86.00 Excluding VAT per device (s ee appendix 8.2). This would be beneficial for sustainability of the environment.7.6The attitudes of both the Finance Director and Company Accountant need to be addressed. As senior management, they should both pay more attention and interest to reviewing the tasks of staff and ensuring the tasks are being completed correctly and on time. Management should also ensure the tasks are being distributed to the correct staff which will improve efficiency and performance with no costs to the company. It is important that any differences between the senior heads of management are kept behind closed doors. This is being professional and the impact on the company would mean that it would be a happier place to work in, and would lead to better output, making the company more competitive within the industry.7.7All invoices must be raised day to day without fail as delayed invoices create delayed payments from customers which reduces the cash flow. The company need to address staff annual leav e so as to avoid a situation where there is no cover to continue the day to day invoicing. The company should also promote staff training so that employees are trained on more than one job to allow for any arrest staff absence. It could be that the company could employ agency staff for the cover, but this would come at a cost,depending on the agency. This would require further investigation to see if the benefits of employing agency staff would actually improve the cash flow of the business. The cheaper option would be for better planning within the company ensuring that all jobs are cover when employees are on holiday.7.8The company should look at phasing out the receipt of cheques and promote the use of BACs transfers as the preferred payment method. This allows the company instant control and visibility of all payments and collections, and allows review of the cash analysis. It is the most secure method of payment for the company and customer, prevents fraud and is of no further cost to the company as it is already a system in use by most companies.7.9The Sales Director and Company Accountant must review any account that is more than two months overdue and same again when three months overdue. By complying with company policy on this, the Sales Director should promptly pass the matter on to the debt collecting agency in order to recover the money and reduce the debt becoming bad. It will cost the company 100 plus 25% of any recovered funds but will increase cash flow. However, if overdue accounts are reviewed sooner there is a stronger possibility of avoiding involvement of the debt collecting agency. The fact that this would increase cash flow would able the business to be more competitive within the industry.7.10The management must commence regular staff meetings in which any needs or problems can be addressed. Regular meetings will be valuable and important as it will give the staff confidence that the company is listening and acting on any issues they have raised. These could also include the awareness of fraud and the importance of rules and guidelines relating to the Data Protection Act (1998). The costs incurred to introduce regular meetings will be minimal in respect of man hours but will benefit the company in the long term as any problems get resolved and will streamline the running of the business.7.11The company should implement staff appraisals as this will allow feedback relating to productivity and performance of each employee. Appraisals have been known to improve staff morale, efficiency, motivation and job satisfaction, and can highlight any training requirements needed. A professional company could be employed to provide this service, but is too costly. A decision was made to devise their own SWOT analysis form and a Performance and Development Plan form, which will cost the company minimal hours of labour only (see Appendix 8.3). This would improve on the AATs code of professional ethics in professional competence .7.12Regular training programs should be implemented for staff awareness of their role within the company. Regular training will help staff be more accurate and competent to do their job which helps the company and employee, and in the long term is cost effective for the company. An online quote was carried out to find out the cost of a self-study payroll package for levels 1 and 2. The price is 125.00 exempt of VAT (see Appendix 8.4). This would ensure that staff were up to date with their knowledge making them professionally competent. The company could send their staff to the local training provider and this would enhance sustainability in the community.7.13Staff should produce an instruction manual expatiate their responsibilities and tasks. This would cost the company minimal labour hours in production but would help the company by allowing staff to concentrate on the task in hand rather than being too focused on training others. This would also ensure the task would be accura tely and effectively. This would make the company more cost effective and competitive within the industry. As staff are salaried, this would just be an extra job in their daily routine and the only cost would be the printing of the manuals, however putting the manuals on the staff intranet would not cost money in stationery and printing making it sustainable for the environment.