The best Example of MEMORANDUM

To: Manager

From: XYZ

Date: April 20, 2019

Subject: Internal Control Lapses and Recommendations

            Implementation of effective internal control system helps the management to reduce the risk associated with Asset Management and help the management to make sure that the information provided in the financial statements is reliable and accurate for the shareholders and stakeholders of the company. It is important for the management to make sure that the operations of the company are according to the provisions of provided laws and regulations. Internal control system helps in management to achieve these basic objectives.

One of the most significant deficiencies related to internal control system is inadequate documentation or inadequate Record Keeping. Documentation is responsible for providing evidence for any kind of transaction and inadequate documentation will enhance the risk of fraud chances in the organization. In order to reduce the risk associated with inadequate documentation, it is important for the management to make sure that it is financial documents should be standardized by the management and it will help to improve the strength of internal control system prevailing in the organization.

Another significant deficiency related to weak internal control system is lack of control associated with authorization of transactions. It is important to provide the Employees with authorities relevant to their job responsibilities and job description in order to make sure that there is proper authorization of transactions. For instance, management can assign a specific manager to provide approval for invoices above $1000. This will help to improve the internal control system in the organization. It can be achieved by officially defining the duties of the employees working in the organization and properly separating their duties. Specifically for small organization, it is important to assign two or three Employees with authorities related to critical task and operations in order to serve the purpose and achieved the formulated objectives. It will help the organization to improve the control related to authorization of transaction.

Another significant deficiency related to week internal control system is lack of reviewing the financial as well as non financial operational activities and transactions. It is important for the management to frequently review the reports in order to detect frauds and to prevent potential frauds. In order to resolve this deficiency of internal control system, it is important for the management to formulate daily or weekly basis financial statements and trial balance. It important for the management to make sure that the accounting system is periodically reconciled in order to make sure that they chances of error and frauds could be reduced and the prevailing internal control system could be improved. It is important for the management specifically to analyze the budgeted amount with the actual amounts in order to calculate the variances and analyze them accordingly on frequent basis.

Another significant deficiency related to internal control system is lack of physical as well as logical security. Due to lack of logical and physical security, business assets and resources can be negatively influenced. It is important that access to essential equipments, petty cash and other important physical Assets of the company should be restricted to defined and appropriate individuals only. It is important to make sure that management should conduct physical audit of Assets on frequent basis in order to make sure that the physical assets balances are reflecting the balances of financial statements. Frequent physical audit of assets must be accordingly updated in the accounting system in order to make sure that the accounting system balances are matching with the actual physical balances. This will help in management to reduce the risk associated with security breaches and will help the organization to improve their overall internal control system.

Yours Truly,

ABC.