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Basics if Review of Internal Control Mechanisms
Typology: Study Guides, Projects, Research
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S.No. Topic Page No. Written By
1 Introduction- Internal Control
2 Review of Purchasing Operations VAIBHAV
3 Review of Efficacy of Management Information System
4 Review of Selling and Distribution Policies
5 Review of Manufacturing Operations PUJA
6 Review of Personnel Policies DIVESH
7 Appraisal of Management Decisions SOHAIB
8 Case Study
“Review of Internal Control plays a very important role in ensuring that the system remain progressive, effective & efficient.”
REVIEW OF PURCHASING OPERATIONS -MADE BY VAIBHAV NASIR
Every firm operates with keeping a prime objective of profit maximization. It can only be achieved by certain tasks such as purchasing and selling control and
maximizing the efficiency of operations while minimizing the cost. It’s necessary for every organization in service industry to purchase goods and services to carry
out its missions and goals.
There are many reasons why your business should undertake a review of
purchasing practices. These include ethical reasons (example: relating to the impact purchasing practices have on workers) and business reasons (relating to the impact on the buying business). However, work of the Purchasing Practices group shows
that these are closely linked, with negative impacts on workers nearly always filtering down to impact on the buying business – even if those impacts are not immediately obvious.
Purchasing operations are the most important functions in any organization, especially in manufacturing and trading organizations. All the purchases made during the business if done with minimized cost they can cut the cost and expenses to a certain level. Purchasing of assets constitutes about 50-70% of the total cost. Hence it is very important to have an effective and efficient internal control and purchasing operations of the company.
Objectives of purchasing operations:
developed based on the following perspectives. In the research by Stanley and Wisner (2001), purchasing management is upgraded into the higher level of part of
important business strategies that provide added value for its immediately or ended customers.
Duties in the purchasing operations:
To ensure the proper segregation of all the duties, that are related with the buying functions is done properly and no one has a complete control over the buying operations.
The segregation can be done in stages as follows:
i. Approval Of Purchases: It is done after checking the need of asset or material is real and justified and after determining to which this purchase will affect the efficiency of operations of the company. ii. Receiving of The Ordered Material: Once the order is placed, the order that is to be received are checked at the time of arrival to ensure they are properly functional and are up to the requirement standards. iii. Approval of Bills of Payment: When the receiving and checking of the ordered goods is done, the bills of payment is approved according to the contract with the vendor under the supervision of the management. iv. Reconciling of Financial Records: All the financial entries related to this transaction is recorded in the books of accounts and rechecked. v. Performing Inventory Count: To ensure that all the purchased goods are physically verified. A proper physical stock count is taken before and after placing the stock in the inventory, to prevent any pilferage.
If the segregation of all these duties is not done, then it may result in excessive costing, improper or biased buying decisions, unfair charges on budget or goods can be used for employee’s personal purpose.
Impact of Buying On Business:
There are clear business reasons for identifying any negative impacts that your purchasing practices are having on retailers’ costs, staff and trading relationships. As well as helping bring about improvements for your business, suppliers and workers, these can also be useful in helping build a ‘case’ for changing current practices and getting buy-in to those changes.
In this step, you should consider the impact of current buying practices in terms of the following areas.
a. Comparison of all the available suppliers and if the goods can be received from another vendor at lower cost but meets the same standards. It helps in reducing the cost. b. Physical verification of all the goods received to check the quantity and quality of material. c. To check the need is justified before the order is placed and will increase the efficiency of working if bought.
Importance of Pre-Purchase Planning:
Marketers have come a long way in partnering with enterprise technology organizations to collect, analyse, and use information across many important applications. Much of this is driven by optimization aspirations, and, indeed, there's been much improvement. We know what customers are buying, and what they're not buying. But we don't know much about their pre-purchase browsing, product comparison, and ultimate selection process.
If it were possible to learn about what products customers looked at, what features interested them, and what parameters were important in their decision-making process, we would know a great deal more about which products to offer, how to market and merchandise them to improve conversion, and how to build customer experiences that resonate with the buyers' wants and needs.
Offline pre-purchase behaviour data is essential in understanding what buyers are looking for, and what in-person experiential marketing and merchandising tactics will best inform and satisfy these decision-makers. Whether at a tradeshow, in a store, or at other offline venues, more focus and attention must be paid to capturing data that exposes customer behaviour -which products they looked at, which features they spent time examining, what problems they are trying to solve.
Example : suppose a firm is thinking of buying a machine the following are the purchasing decisions it must make:
i. First, the need is checked if there is really a need of buying the machinery and to which extent it will affect the efficiency of the operations. The project must give inflows of more than the outflows required as investment on the machine. These are calculated with various methods such as NPV, IRR or payback period. When the need is justified the project is further moved to considerations. ii. In the consideration phase the budget is allotted to the machinery.
- MADE BY ROHILLA RAINA
Management information system (MIS) provides information that is needed by an organization to manage them efficiently and effectively. It is an integrated information system which collects, process, stores and communicates information in a scientific way. It is an important controlling tool of the management. It basically transforms data into useful information which is further used by several departments of an organization while decision making.
“A system to convert data from internal and sources into information and to communicate that information, in an appropriate form, to managers at all levels in
all functions to enable them to make timely and effective decisions for planning, directing and controlling the activities for which they are responsible.”
The scope is to fulfill all the information needs of management. Many decisions are made with the help of financial models (e.g. spreadsheets) so that the effect of
new situations can be estimated easily.
The evaluation of MIS should take into account the following points:
a. Examining the flexibility to cope with future requirements. b. Ascertaining the view of the users and designers about the capabilities and deficiencies of the system. c. Guiding the appropriate authority about the steps to be taken to maintain effectiveness of MIS.
Figure 1: Pre-requisites for MIS
a. Verbal (or Oral): Group meetings, seminars, conferences, or interviews may be organized where employees at various levels meet to discuss and exchange their ideas. b. Written: this is the most usual form of reporting and the information takes the form of written reports.
Strategic Plans, competitor information, overall market information
Summarize, Investigate, Compare, Forecast
Key ratios, Ad hoc market analysis, strategic plans
Management/Tactical Historical and budget data
Compare, classify, Summarize
Variance analysis, Exception reports
Operational Customer orders, Programmed stock control
Update files, output reports
Update files, Listings, Invoices
levels, Cash receipts/ payments
Table 1: Typical inputs, processes and outputs at each level of a MIS
Information required at different levels of management is as follows: Operational Level MIS Operational decisions are essentially small-scale and programmed, and the operational information is often highly formal and quantitative. Standard costing is of immense value at this level. In this level we see that profits are not lost through inefficient handling of men and machines, it is necessary to closely watch costs and the volume of work. The following routine and repetitive information falls under operational level MIS.
At this level the information system is likely to be informal, in the sense that it is not always possible to quantify or program strategic information and much of the information might come from environmental sources. More often human judgment is considered in this level.
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