Internal controls are essential in any business organisations handling of funds especially where money in the form of cash, cheque or credit cards is used for the exchange of goods as well as services. The main objective of internal controls in business organisations is to make sure that the business entities receive all of their income without part of it being siphoned off either by means of fraud, waste, untrustworthy employees or even through mere carelessness. According to Kieso and Warfield ( 2005, 259), even business organisations that are healthy in all other aspects can also be very vulnerable to internal failures as a result of lack of internal controls. The set up of appropriate internal controls for any particular business is therefore of great importance (Kieso & Warfield, 2005 -270)
Denver entertainment P/C therefore needs proper internal controls over the sales of tickets to customers who are interested of their entertainment services. This will ensure reliable financial reporting, efficient as well as effective business operations and compliance with the existing businesses laws as well as regulations. The organisations’ assets will also be safeguarded against fraud as well as unauthorised acquisitions or disposals. In respect to the internal control required in sales of entertainment tickets made for cash of even card payment by customers, several documents and processes as well as records needs to be available for use in the ticketing system. The cash sales as well as card payment ticketing system should be properly accounted for in the books of accounting right from the initial purchase by the customers up to the final recording of the made transactions in the accounting records of Denvers Entertainment Company
Internal Control Auditing: Documents
The accounting documents that needs to be put in place in the cash ticketing system of Denver’s Entertainment company includes the Ledger books and the receipts books which categorizes the initial purchase of the entertainment tickets by the customers. When the customers initially purchase the entertainment tickets from the cashier by means of either cash or card payments, the cashier will issue them with the entertainment tickets as well as a receipt to show that they have made cash transaction. The cashier will then effect these transactions accordingly in the sales ledger and the cash ledger accordingly. The bank ledger book will also be affected for the customers purchasing tickets through credit cards payments. The cash journal is also another accounting document where the cash received from the customers will be recorded. The entries which have been recorded on the cash journal will then be posted to the appropriate accounts in the ledger book. The cash receipt from the customers will be recorded on the cash column under assets classification of the ledger book. These transactions will appear on the debit side of the account. Any payments made by cash from the Denver’s entertainment company will be posted on the credit side of the ledger book (Amster, 2007, 220).
Another document which should be in place in the ticketing system is the daily cash register which should be used by the ticketing cashiers to report on a daily basis, the total cash collected from the sales of entertainment tickets. According to Peter (2003, 406), the cash book should also be available in the ticketing system which will be used to record al the ticketing transactions involving cash.
According to James (2008, 400 – 837), the balance sheet forms another accounting document which should be available in Denver’s Entertainment ticketing system. This document will assist the internal control system to asses the cash flow system within the box office cash sales system. It will show how cash has been generated through the sale of entertainment tickets and if there has been any expenditure on it. The information from the balance sheet will then be transferred into the Denver’s profit and loss accounting records so as to indicate how the entertainment business has traded for a certain period of time.
Internal Control Auditing: Box Office Risks
The box office ticketing system in the Denver’s entertainment issues tickets for entrance at the business company’s entertainment theatres. Though the ticketing system is fast and accurate as well as convenient, it also has associated principal risks. One of the risks associated with the box office ticketing system is that it requires high capital expenditure in its investment. The box office system requires large amount of money to design and fabricate as well as to install the system. Higher levels of maintenance costs are also required in this system than with the manual operated ticketing machines. According to Peter (2003, 237-410), there also exists generally a lower flexibility degree with the box office system especially in terms of the possible end products of the system.
Another risks associated with the box office system is the displacement of employees. Since this box office system is the mainly automated, it leads to unemployment to many workers who would be otherwise be manually attending to the customers. The box office system also results to increased credit cards change backs especially where the customers fail to recognise the identities that appear on the statements of their credit cards. According to Peter (2003, 306), it is also difficult to trace transactions with the box office system, since it is not centralised in the entertainment business organisation.
The box office system in the Denver Entertainment organisation for instance, operates from different locations where the entertainment tickets are sold from. Due to having different locations where sells are carried out it becomes difficult for the business organisation to make efficient follow ups of the daily transactions. The funds accrued from the sales of tickets are also not immediately available to the entertainment company and this may result into fraud or even theft from the various collection points.
Due to lack of strict supervision, the box office system operators also may impose some premium per ticket fees to the price of the ticket and hence deterring potential advanced sales which may in turn lead to low productivity levels of the entertainment company. Other principal risks associated with the box office system are errors where tickets may be sold more than once to different customers, theft where the tickets may be stolen and resold or even the revenue collected from the sale of the entertainment tickets being siphoned off to fraudsters.
Internal Control Auditing: Features
The feature of an effective internal control system which if put in place can address the various risks associated with the box office system includes responsibility where all the employees of the Denver entertainment company should be made responsible for the management of the entertainment company’s internal controls. Each department under the box office system should be made4 responsible for the entire organization’s internal controls.
According to Understanding internal controls (2010, 2-19), another feature of an effective internal control system is balancing of risks and control. The risks which might be associated with the box office system include errors, omissions and delay as well as fraud. In order for the entertainment organization to attain an effective and efficient internal control system, the management should effectively and efficiently balance the risks as well as controls. The internal control system should therefore develop control procedures for the purpose of reducing the risks associated with the box office system to a given level where the entertainment financial management can at least accept the exposure to the particular risks. Adam (2010, 1) argues that the control environment should also form another important feature of an effective internal control system in the box office ticketing system of Denvers entertainment company. This involves the atmosphere in which the entertainment company operates the box office system as well as carrying out their control responsibilities. The control environment in this respect is indeed the control consciousness of Denvers entertainment box office system. Therefore an effective control environment in the box office system will ensure that competent employees of the company’s box office system understand their duties as well as the set limits to their authority and are also mindful, knowledgeable and fully committed to performing what is right for the box office system as well as performing it in the right manner (Understanding internal controls, 2010, 2-19).
According to Understanding internal controls (2010, 2-19), another feature of an effective control system that can be applied in the box office system is risk management and analysis. The internal control system should clearly identify the possible risks top the attainment of the entertainment organization’s goals as well as objectives and come up with the necessary strategies to manage such risks. The internal control system should thus set their goals and objectives in regard to the eventualities of the risks associated to the entertainment company’s internal controls. The objectives should range from operation objectives, financial reporting objectives as well as compliance objectives.
Other essential features of an effective internal control system include asset securities where the system should be able to provide security of both the box office system physical as well as intellectual assets of Denvers entertainment organization, segregation of duties where no employee of the Denver’s entertainment box office system should be allowed to initiate financial transactions, approve any financial transaction, record transactions, attempt to reconcile balances and handle the box office system’s assets as well as reviewing the financial reports of the box office system.
According to Adams (2010, 1), another important feature of effective control system is proper dissemination of information as well as communication. The box office system’s internal control system should be in a ,position to communicate well information about the entertainment organization’s plans, the box office system control environment, any risks as well as necessary control activities and the overall performance of the box office system other features may include monitoring, financial reviews of the box office system, reconciliations of the systems accounting records as well as programmed procedures for the box office system’s financial data entries, processing as well as output.
Internal Auditors and Internal Controls
Internal auditing assists business organizations to accomplish their goals and objectives by providing an organized as well as a disciplined approach for evaluation and improvement of the organizations’ effectiveness in regard to risk management control as well as the process of governance. The internal auditors in Denvers entertainment organization’s box office system will be charged with the responsibility of overseeing all the available financial documents for the box office sales system. The internal auditors will also unveil the effectiveness as well as efficiency of the box office sales system and also maintain the integrity of the box office systems accounting records. As far as the internal control of the box office sales system is concerned, the internal auditors will investigate whether the internal controls of the box office sales system are compliant within the laws of the state as well as the federal laws (James, 2008, 624). The internal auditors will also assess whether the internal control system of the box office sales system is effective as well as efficient in its internal control activities. The internal auditors will perform checks on the internal controls and establish if there exists any form of internal control accounting irregularities (Understanding internal controls, 2010, 2).
According to Adam (12010, 2), the internal auditors will undertake operational audits on the internal control system to establish whether the internal control system is functioning effectively as well as efficiently. The internal auditors will as well undertake control self-assessment audit to enlist the internal control system to adopt a common sharing of audit responsibilities (Adam, 2010, 2).
In respect to the substantive testing of the box office sales, the internal auditors will review all the accounting activities within the box office sales department. Thbe auditors will review accounting information such as the box office sales department assets and liabilities, revenues, expenses, the cash flow statements as well as their unsold stock. According to Adams (2010, 2), the internal auditors will also undertake a program audit of the box office sales system to evaluate whether the stipulated goals as well as objectives for the Denvers entertainment organization have been achieved. This will comprise of the box office sales performance as well as management.
According Adam (2010,2), the internal auditors will also undertake fraud audits to investigate whether the box office sales department has suffered through the mismanagement of assets, sales data manipulation, omission of some sales information as well as any other illegal sales acts. Compliance audits will also be carried out by the internal auditors to establish whether the sales transactions are following the box office sales system rules and regulations.