This report aims to provide deep insights regarding the internal control of Jonathan LLC. The report has identified the reasons for the weak internal control of the organization and how the organization can improve its internal control system. The consequences of weak internal control systems are also discussed in the report in detail. Along with internal control, the best financing method for the project is recommended.

Reasons for internal control weakness in the organization

There are many reasons for weak internal control in Jonathan LLC however some of the key reasons for weak internal control in the organization are mentioned as follows:

Financial statements are not reviewed appropriately

The financial statements which were prepared in the organization were not reviewed regularly. Because the financial statements were reviewed regularly than the management would have known about the increasing amount of outstanding for the suppliers. The financial statements also provide detail about the account receivables as well. the customers were given extended time to pay for the goods which need proper monitoring and review regularly but the management has not focused on the account receivable which results in financial loss. Therefore an ineffective review of financial statements is one of the signs of weak internal control (Chandra, 2011).

Poor management decisions of Internal Control and Remedial Actions for Improvements

Poor management decisions are one of the main reasons for weak internal control. The management of the organization is the one who manages the internal control and responsible for its improvement. Here it can be seen that the management has taken such decisions which leads to weakness of the internal control instead of improving it. The management has taken the wrong decision regarding extending the credit period to customers. Due to this not only the liquidity position of the company get disturbed but also the performance of the organization declines up to a lot of extents (Arwinge, 2012).

Duties are not segregated of Internal Control and Remedial Actions for Improvements

In Jonathan LLC there are only 5 employees in the accounting department. Few employees in the department mean that the employees will be performing various duties instead of a single duty. When an employee is performing different duties than the chances of errors increases which might cause financial loss to the corporation. Here it can be seen that Mr. Paul’s account assistant has been given the duties of a senior accountant. The assistant account should only perform the duties which are related to the assistant accountant. He must not perform the duties of senior accountant and here it is clear that the duties need to be segregated for improvement in internal control.

Lack of Internal audit department of Internal Control and Remedial Actions for Improvements

In Jonathan LLC there is no internal audit department. If the organization had an internal audit department than the financial statements must be reviewed regularly and the increasing account receivable amount might be identified by the internal control department. Currently, the organization is facing financial difficulties which might be managed quite efficiently if the organization has its internal audit department. Due to the lack of an internal audit department, the organization’s internal control has globe weak up to a lot of extents and unable to manage its financials appropriately (KUMAR & SHARMA, 2015).

Improvement in existing internal control system

There are many ways through which the internal control of the organization can be improved. The following are some of the key ways through which Jonathan LLC can improve its current internal control system.

Segregation of duties of Internal Control and Remedial Actions for Improvements

The segregation of duties is a good way for improving the internal control in the organization. For example when there is only one or few employees working in the department than the chances of financial fraud and errors remain high. When there are many employees in the department than an individual cannot perform fraud alone easily. The individual first have to engage with another employee or will have to involve other employees for performing fraud. That is why many experts believe that segregation of duty is the right way for increasing internal control and mitigating fraud in the corporation (Campbel, Edgar, & Stonehouse, 2011).

Restrict access to financial statement

The access to the financial statement of the organization should be restricted so that only those people can access them who are authorized to review and prepare the financial statements. Through this initiative, the frauds and manipulation of financial information can be controlled up to a lot of extents. Sometimes the financial statement access is not restricted and different individuals in the organization can review them. Due to this, the financial information that is present in the statement can be manipulated which might result in the financial loss of the organization (Fridson & Alvarez, 2011).

Create an internal audit department of Internal Control and Remedial Actions for Improvements

If Jonathan LLC wants to improve its financials and ant to increase its performance and efficiency than it is important to create an internal audit department in the organization. The internal auditors evaluate the financial statements of the corporation from time to time and identify the errors which occur in the financial statements. When the financial statements are going to be reviewed and analyzed regularly than the organization will know about various activities that are going in the organization. Through this, the organization can manage its customers and suppliers more efficiently. With the internal control department, chances of financial frauds also decline up to a lot of extents (KUMAR & SHARMA, 2015).

Financial statements should be reviewed by third parties

Another option for Jonathan LLC is in contact with the third party for reviewing the financial statements of the organization. An audit firm can be hired for analyzing the financial statements of the corporation. For instance, if the financial statements of the organization are going to be checked by the external audit firm than its opinion will be unbiased and will provide accurate information about the financial statements. Through the guidance of the external audit firm the organization can prepare accurate financial statements and can improve its financial activities up to a lot of extents. This is another way for enhancing the internal control of the organization (Fridson & Alvarez, 2011).

Consequences of having weak internal control in the organization

If the internal control of the organization is weak then it can face many problems which can lead to a decline in the performance, efficiency, and profitability of the organization. The following are some of the main consequences of the weak internal control system.

Inefficient use of resources of Internal Control and Remedial Actions for Improvements

When the corporations’ internal control is weak its employees or management might unable to utilize the resources of the organization efficiently. The inefficient utilization of resources causes a decline in the sales of the organization and the cost of the organization increases up to a lot of extents. The internal control of the organization allows its management to perform its operation efficiently and utilize the resources of the organization according to set guidelines and policies. However, when there are no such guidelines and policies than the employees use the resources according to their needs and results of such actions cause a serious decline in profitability and high costs. Therefore the companies need to enhance their internal control and create such policies that allow employees to work effectively (Arwinge, 2012).

Poor decision making of Internal Control and Remedial Actions for Improvements

When there is a lack of effective internal control systems in the organization than the management of the organization might not take effective or appropriate decisions. The poor decision making in the organization might decrease the sales and profit of the organization. Effective internal control in the organization allows its employees to make such a decision which is beneficial for the organization and helps in its sustainability and growth. In short, it can be said that effective internal control is necessary for effective decision making and improving the operational efficiency of the organization (Fridson & Alvarez, 2011).

Increase in errors and omissions

It is obvious that when there is weak internal control in the organization and the mechanism of monitoring and control in the corporation is not effective than the chances of errors and omissions will increase up to a lot of extents. The increase in the errors will cause quality issues which may decline customer loyalty. The internal control in the organization allows the organization to manage the errors and mitigate them effectively. The internal audit department in the organization also plays a major rule in increasing the identification of errors and mitigating them up to a lot of extents. The internal audit department is important for high internal control in the organization.

The decline in performance and efficiency

As discussed earlier the internal control and the performance of the organization are linked with each other. When the internal control of the organization is effective and strong the operations of the organization will run smoothly and the management will utilize its resources efficiently however When the internal control of the organization is not effective and strong the operations of the organization will not run smoothly and the management utilization of its resources will increase the cost of its operations. So it can be said that efficiency and performance depend on effective internal control (Campbel, Edgar, & Stonehouse, 2011).

Financing project of Internal Control and Remedial Actions for Improvements

There are many ways through which Jonathan LLC can fund the project. Financing the project is one of the most important tasks in project management because all the major activities of the project depend on project financing. The following are some of the major ways through which projects can be financed.

Taking a loan from the bank

Taking a loan from a bank is one of the most common and most effective ways of financing the project. The loan application has to be given to the bank for acceptance of the loan. The bank first analyzes the financial position of the organization by analyzing the financial statements of the organization. Here if Jonathan LLC applies for the loan the bank will analyze the financial statements and then decided whether to accept the loan request or not. Currently, the organization is facing financial problems and due to this problem the bank might not approve a loan of the corporation (Chandra, 2011).

Sponsors of Internal Control and Remedial Actions for Improvements

Sponsorship of the project by another business or investor is another way through which the organization can finance the project. The main concern of any investor is to get a significant amount of return on its investment. This option will be the best for Jonathan LLC not only the organization will be able to finance its project efficiently but also if the organization meets the requirement of the investors effectively than the investor might work the Corporation again in the future. Also through sponsorship, the business will not have to get worried about the restrictions which many banks impose after granting the loan (Chandra, 2011).

Grant of Internal Control and Remedial Actions for Improvements

Grant is also another way of financing the project. To get the grant, the application has to be given to the authorities which provide a grant for the projects. Usually, governments provide grants for the project but there are private trusts as well which provide a grant for different projects as well.

Conclusion of Internal Control and Remedial Actions for Improvements

It is concluded that when the corporations’ internal control is weak its employees or management might unable to utilize the resources of the organization efficiently. The inefficient utilization of resources causes a decline in the sales of the organization and the cost of the organization increases up to a lot of extents. The internal control of the organization allows its management to perform its operation efficiently and utilize the resources of the organization according to set guidelines and policies. As discussed earlier the internal control and the performance of the organization are linked with each other. When the internal control of the organization is effective and strong the operations of the organization will run smoothly and the management will utilize its resources efficiently however When the internal control of the organization is not effective and strong the operations of the organization will not run smoothly and the management utilization of its resources will increase the cost of its operations.

References of Internal Control and Remedial Actions for Improvements

Arwinge, O. (2012). Internal Control: A Study of Concept and Themes. Springer Science & Business Media.

Campbel, D., Edgar, D., & Stonehouse, G. (2011). Business Strategy: An Introduction. Macmillan International Higher Education.

Chandra, P. (2011). Financial Management. Tata McGraw-Hill Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

KUMAR, R., & SHARMA, V. (2015). AUDITING: PRINCIPLES AND PRACTICE. PHI Learning Pvt. Ltd.