5 serious consequences of insufficient accounting and payroll controls

In this issue:

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?? The business tip that can mean the difference between an overseas holiday and a camping trip?

??? 5 serious consequences of insufficient controls

???? 2 internal accounting controls you should implement in your production process

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From Michelle Govender, Managing Editor of the Practical Accountancy Loose Leaf

Dear reader,

Fraud and financial loss is common during the production process. Use these controls to eliminate fraud in your production process.

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The business tip that can mean the difference between an overseas holiday and a camping trip?

You?ve made the giant leap of faith. You?ve ditched the company car, the six-figure salary and the fantastic fringe benefits to start up your own business.

Although there are many benefits of trading as a company, did you know that you if you trade as a sole proprietorship you can actually save money because your financial statements don?t need to be audited or verified?

With your subscription to the Practical Accountancy Loose Leaf, you?ll get access to the Accountancy Helpdesk where all your accounting questions are answered by our expert accountants with more than 30 years? experience.

Make sure that you have enough cash for that overseas holiday and visit our site to read more about the Accountancy Helpdesk.

Read more here

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5 serious consequences of insufficient controls

Insufficient controls in the production process could result in:

1.??? Excessive raw materials being purchased, when they aren?t actually needed ? this leads to ineffective cash management;

2.??? The waste of raw materials during the production process, which leads to financial loss for the entity;

3.??? Raw materials or finished goods being stolen by employees during the production process, which leads to financial loss for the entity;

4.??? Inventory (whether it represents raw materials, work in progress or finished goods) being damaged during the production process due to employee carelessness or error, which leads to financial loss for the entity.

2 internal accounting controls you should implement in your production process

1. Production forecasts

Use a production forecast to plan the activities of the production process. It?s more effective. Production forecasts usually include your expectation and estimates of the items needed for the next year.

These estimates are based on the expected demand for the product on the market:

For example the products that will be manufactured by the company for the next 12 months;

????????? The Bill of Materials (simply state the parts required to manufacture the goods which include):

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1.??? The raw materials required to manufacture the goods;

2.??? The quantities of raw materials;

3.??? The mixtures or ratios of raw materials; and

4.??? The standard cost allocated to the raw materials.

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????????? The total number of products to be manufactured during the next 12 months; and

????????? The equipment required to manufacture the inventory.

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Give your auditors accurate information ? or find yourself behind bars

Although the auditors are looking to gather evidence about your financials, they do know that the accuracy of these figures can only be determined after a substantial amount of time.

However, the auditors will be checking to see that your books are reasonable and accurate. If these aren?t, you, as the director, could end up before the Companies Tribunal ? with the next stop, jail?

Make sure that this doesn?t happen to you!

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2. Supervision

Supervision is key during the entire production process. Appoint a responsible production manager is to oversee the activities of the facility, which include daily production goals, staff management as well as inventory management.

The production manager must?watch for these 5 things:

1.??? Misuse of machinery by employees, e.g. employees leaving expensive machinery lying around;

2.??? Excessive waste of raw materials during the production process due to employees acting negligently;

3.??? Employees standing around idly instead of being involved in the manufacturing of the finished goods;

4.??? Inspect raw materials bought to ensure they comply with the standards required for production. If poor quality raw materials are bought the odds are good that the finished goods will also be of poor quality, which may affect the reputation of the company as well as future sales and profits; and

5.??? Ensure that your daily production goals are met. You can do this by comparing the actual number of finished goods manufactured to the production forecasts.

The Practical Accountancy loose leaf gives you two controls to put in place. If you?re not yet a subscriber then take up a 14 day risk free trial now.

Until next time?

Michelle Govender,
Managing Editor of the Practical Accountancy Loose Leaf

PS. Before I go, I?d like to ask you a question? And I hope that you answer ?yes!?

Are you performing solvency and liquidity tests?

With the new Companies Act, you need to perform solvency and liquidity tests as part of your business?s financial statements. This is the law. The Practical Accountancy Loose Leaf gives you practical tips and examples of how to analyse your financial statements using ratios. If you order your copy of the loose leaf today, I?ll throw in two bonus gifts.

Click here to order.
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Source: http://fsphealth.co.za/content/eliminate-fraud-implementing-these-2-internal-controls-your-production-process

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