The paper evaluates the elements of internal control systems for accounts payable at Abu Dhabi Marine Operating Company (ADMA). The role of accounts payable’s internal control is important in promoting compliance with organizational policies that are related to payables, offering accurate financial information, as well as the accomplishment of organizational mission and use of resources (Klamm, Kobelsky, & Watson, 2012). The main objectives of the research question include exploring the account payable management system, the identification of the internal control procedures employed at ADMA, and comparing the internal control procedures designed with the best practices within the organization. The importance of the research study is to improve the management of payable balances, as well as the best practices used to reduce fraud in organizations.
Exploratory research design and approaches are important in research methodology. The exploratory research design is useful in trying to obtain the questions about potential research questions on internal controls on the accounts payable department. The study used qualitative and quantitative research designs to address existing research problems. The research method relies on the qualitative approach, including informative explanations with the employees, focus group discussions, and in-depth interviews. The research methods are important in developing strong insights in explaining aspects of Abu Dhabi. The primary data collection was done with the help of questionnaires with the staff within the internal audit department of ADMA. The research will administer questionnaires to the staff involved in accounts payables and in the payment of suppliers. All responses to the questionnaires will be discussed and analyzed towards enhancing the management of internal controls. Questionnaires were useful in giving firsthand feedback and information about the ability of the internal audit department to handle the major research problems.
The research about internal controls on the accounts payables also relied on the secondary data to recommend the best internal control practices for the organizations. Some of the secondary data were obtained from audit reports and documentation from the external auditors of the companies (Klamm et al., 2012). It shows that both primary and secondary data were critical in assessing the research objectives that are necessary for improving internal control best practices. The qualitative data analysis is critical in promoting the best practices in addressing the research question on internal control and effective management of account payables. The population of the officer working in the internal audit department was critical in ensuring that the employees were involved in the accounts payable management department.
A representative population from the payables department will be critical research questions, relating to proper internal control management in the organization. Six people from the department would be used as a sampling frame and questionnaires would be administered to assess the existing controls in the internal audit process. The research study relied on qualitative data analysis in order to interpret and make sense of the findings from the inquiries. The qualitative data analysis sought to incorporate both the primary and secondary data to address the research questions from the data obtained. The research findings were helpful in determining the composition of the account payable departments, the segregation of roles and duties, authorization, and the approval procedures of transactions involved at ADMA.
The research study reveals that ADMA has internal control systems and they are placed on the management of the organization. A large percentage of the respondents explained that the control systems are used as a preventive measure to reduce potential fraud in the organization. Relating to the internal control procedures used with the best practices, the researchers found out that monthly reconciliations are important in order to ensure there are both a proper recording and accuracy of transactions. The accuracy of such reconciliations is critical in understanding the amount of the account balances and registration of the account balances. There is a need to promote the development of advanced control procedures within the organization for recording, authorization, and review purposes.
Based on the overall accounts payable management systems, the researcher discovered the ability of the department to maintain registers of the different balances, as well as allocating the responsibility for approving the accounts payable to different persons. The authorization of the transactions is important, as it can strengthen the overall account payable management approach and the system in general. The employees of ADMA are keen to respect the internal control approach in place at the organization and understand its significant contribution to the success of the organization (McNally, 2013). Based on the measures that were put up to enhance compliance, many respondents agreed that the management oversight role and responsibility in promoting internal control are critical in promoting the effective management of the account payables.
Based on the questionnaire responses, the respondents agreed that the management had a responsibility to oversee the application of control policies and procedures in the organization. The results also found out that a large number of respondents agree that third parties in the organization would be better placed to authenticate the incurrence of expenses. However, other individuals argued that individuals with documents, showing the incurrence of expenses, should authenticate the expenses. Most of the internal audit staff agreed that the verification of receiving reports should be done through matching the vendor invoices and the purchase orders. The approach is critical in preventing the occurrence of errors and fraud in the organization.
Regarding the questionnaire responses, the internal audit department did not have a single way of handling invoices for extra services offered by the suppliers and the trade creditors. It is because the staffs had different opinions on the procedure of handling the invoices with extra services. The lack of proper documentation and matching invoices leads to the loss of financial resources and potential forfeiture of payables in the organization. Most importantly, the respondents agreed that the department has detailed procedures for handling disbursements, as 50% of the employees recorded. The procedures are important in ensuring that the organization protects the disbursement of assets and funds in the organization. The respondents have also recorded that the department has different controls against the drawn checks, as shown in various segments of staff (Moeller, 2014). The issue of authorizations was important in the results of the research study. It defined the responsibility, allowing for the adjustments of accounts payable. As noted in the results, the responsibility of the accounts payable is on multiple individuals when the account balances are high. Thus, the amount of the accounts payable was critical in determining the individuals as responsible.
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The issue of monitoring the accrued accounts was also asked in the research study, whereby it was noted that the department should maintain a record of all of the accrued balances. However, one respondent has indicated the importance of confirming the balances from vendors. Besides, the respondents agreed that one officer should be entrusted within the control of the unpaid vouchers (Hazarika, Karpoff, & Nahata, 2012). The case could open a way for fraud in the organization. The officer involved in the control of the unpaid vouchers should be under the strict supervision and monitoring to ensure compliance and accountability for all of the unpaid vouchers. It is because the individual can collude with the suppliers to defraud the organization numerous unpaid dues.
Based on figure two, the majority of respondents agree that the cheques should be prepared by different individuals. However, in some instances, one individual could prepare the cheques. The outcome shows that the importance of the department to evaluate the cheques to be prepared by either one or two individuals in the organization. Two different persons reviewing the cheques will be critical in reducing the potential conflicts of interests and fraud in the organization (Kurz & Rhodes, 2003). Regarding the findings, it is important to ensure that one person is responsible for controlling the key transactions and events in the organization. It calls for the organization to eliminate the potential privileges for individuals to expand on the segregation of duties to avoid the conflict of interests.
Largely, the results obtained from the study are usually very similar to previous research studies. Firstly, the research outcomes align with the arguments of Simkin, Norman, and Rose (2014) in promoting the development of improved control procedures within the organization for recording, authorization, and review purposes. The past study has called for the need to allow the senior officials in the payables department to be responsible for the authorization of transactions in the procurements. Similarly, the research findings agreed that senior officials in the organization should be given the responsibility to authorize transactions in the account payables department.
Doyle, Ge, and Mcvay (2007) have also noted those weak internal controls exposures the organization losses, and it is important for the organization to restructure its operations. Similarly, the research findings have emphasized the significance of the organization to restructure their organization, so that it could address the problems associated with the complex organizational structure at the ADMA payables department (McNally, 2013). It would assist in improving the structure of the internal controls to improve the protection of the assets within the organization. Pickett (2013) emphasized the importance of dealing with the potential conflict of interests in the organization. The past research has noted that conflicts of interests lead to increased bad debts, as there are no adequate controls over contingencies. Such past findings agree with the current research findings on the importance of the organization to assign different persons to the control of the unpaid cheques in the organization. It indicated the efforts that need to be put to address the concerns on conflicts of interest.
Lakis and Giriūnas (2012) examined the aspect of internal control based on current business practices. The authors recorded the need for improved values in the internal control systems, including trust, openness, and courage among others. The research findings have a similar view on improving internal control practices. It is because having good values was useful in developing effective internal control systems within the organization. However, it is clear that the research findings did not address the actual need to evaluate the effectiveness of the internal control over the specific assets in the accounts payable. Dimitrijevic, Milovanovic, and Stancic (2015) emphasized on the specific evaluation of the effectiveness of internal controls directed to the actual results and performance within the organization. Such aspects are critical in promoting the adoption of a strong control mechanism in organizations.
Based on the outcomes of the project, the research findings have significantly contributed to the development of internal controls over the accounts payables in the organization. It provided the specific measures to be taken in dealing with transactions in the accounts payables department to promote internal control measures and efficiency of the systems (Pickett, 2013). Going forward, learners and business leaders will be able to rely on the findings to address concerns within the accounts payables department about promoting the internal control measures.
The research work sought to address the issues emerging from the SWOT analysis of ADMA that led to the emergence of the research questions to determine the internal procedures related to the account payable management at the organization. It is because ADMA has a high level of account payable balances that require proper internal control processes and procedures. The major objective of the research was to evaluate the account payable management process at the organization. It includes assessing the procedures of payment and the people involved in the process. The identification of internal control procedures is critical to determine their ability and strength in handling the vast amounts of the account payable balances. It also seeks to compare the nature of the internal control procedures adopted with other best methods and practices in the organization.
The SWOT analysis of ADMA reveals that the company has a complex organizational structure that limits the overall performance of the company. The complex organizational structure also reduces the flow of information from one department to another. The company has struggling working capital due to the integrated and complex nature of their operations. Six people from the department would be used as a sampling frame and questionnaires administered to assess the existing controls in the internal audit process. The research study relied on qualitative data analysis to interpret and make sense of the findings from the inquiries. The recommendations from the SWOT analysis explained the importance of ADMA developing strict internal controls to protect the assets of the company from being misused and from the occurrence of fraud. The background of this significant weakness has helped in developing the research questions and objectives for the research about developing strong internal controls in the account payables department.
The research limitations and constraints included that the findings from the qualitative research could not be generalized to the overall population. It demands the researchers to come up with specific findings and actions to address the specific issues in the population. Another limitation of the research study was that the data collection process was time-consuming and difficult. It required for the strong intervention to enhance the qualitative research process. However, most of the primary data collected were subjective and, thus, the research faced the problem of having biased results in the findings. Regarding budgetary concerns, the methods of data collection turned out to be expensive (Collier, 2015). It is because the researchers were required to travel and administer the questionnaires to the respondents within the internal audit departments of ADMA.
To a large extent, the data collected was reliable due to the use of first-hand information obtained from the questionnaires administered to the respondents. The legal and regulatory constraints called for obtaining the informed consent from the organization regarding the disclosure of some sensitive information on the internal control systems of the organization. Also, the researcher had to comply with the laws that require disclosure of all information to the respondents involved in the research. Therefore, the research study on the internal controls of the accounts payables at ADMA faced various limitations and constraints.
Following the research findings, it is recommendable for the organization to implement the following suggestions;
1. It is necessary to develop proper measures of segregation of duties and roles. Dividing the responsibilities of accounts payable will help in reducing the risk exposures of fraud and errors that could lead to the loss of funds. For example, ADMA should consider separating the responsibilities for reviewing the unpaid cheques, processing, and reviewing the cheques in the department. Based on the findings, it is important to ensure that one person is responsible for controlling key transactions and events in the organization (Macintosh & Quattrone, 2010). Therefore, the organization should eliminate the potential privileges for individuals to expand on the segregation of duties to avoid the conflict of interests and collusion in the organization.
2. It is also essential to have adequate supporting documentation provided alongside the invoices. The research findings insist on the need to obtain invoices and purchase orders from the suppliers to confirm the approved checks. The documentation will be critical in preventing the invoices before any payments are made, or before the check requests are approved. On most occasions, the lack of proper documentation and matching invoices leads to the loss of funds and potential forfeiture of payables in the organization. For example, when payment is made for products not yet delivered, the proper receipts and documents should be provided. Such records and documentation are critical in improving the internal controls in the account payables at ADMA.
3. Proper authorization of payments in the organization is also critical in improving the internal control systems at ADMA. It involves ensuring that controls are adequate to assist in the design and authorizing of the persons involved in payments (Maijoor, 2000). In terms of the outcomes of the research, it is important to create a list of designed persons who will be responsible for authorizing payments and reviewing the unpaid cheques. It is also critical to create more reasonable cash thresholds for the approval of payments to align with the procurement process in the organization. Such efforts are useful in promoting accountability and strengthening the internal controls in the organization.
4. Other important actions that should be taken to improve the internal control systems include the improvement of the policies and procedures for accounts payable. The management should come up with the relevant policies and procedures helpful in achieving its organizational objectives, including planning and promoting quality (Hribar, Kravet, & Wilson, 2014). The management of ADMA relies on the policies and procedures to progress quality standards, guide the management actions, as well as offer control to deliver reasonable assurance. The review and update of the policies and procedures will be critical for the account payable transactions.
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An effective internal control system is critical in promoting the appropriate management of the account payables in the organization. A majority of the respondents explained that the control systems are used as a preventive measure to reduce the potential frauds in the organization. Both primary and secondary data were critical in assessing the research objectives that are necessary for improving the best practices in internal control. To a large extent, the results obtained from the study agree with the previous research studies. The research outcomes align with the arguments of different scholars on the need to promote the development of advanced control procedures within the organization for recording, authorization, and review purposes. ADMA should develop the proper measures of segregation of duties and roles. It includes dividing the responsibilities of accounts payable, which will be helpful in reducing the risk exposures of fraud and errors. Proper authorization of payments in the organization is also critical in improving the internal control systems at ADMA. The documentation will be critical in preventing the invoices before any payments are made, or the check requests are approved. The improvement of the policies and procedures for accounts payable is imperative. The management should come up with the relevant policies and procedures to achieve its organizational objectives. Therefore, it is critical to improving the management of payable balances, as well as the best practices in reducing fraud at ADMA.