Saturday, September 3, 2011

Internal Control Report Model for the Board

Company directive
Internal Control Report Model
For the company's Board of Directors
UP-TO-DATE SOFTWARE

Prepared by the Audit

March 20, 2011

Author's note
This model will serve accountants, auditors, and tax reviewers as a basic guide on what a type of report can be.
Internal Control; its use does not hold us responsible for what is written based on it.

Scope.

Considerations will be made based on the work carried out between January 1st and 31st.
December of the year 2010

Justification

End-of-period reports serve senior management not only to evaluate the

work performed but to determine if what was executed corresponds to the requirements
of the company.

The framework for the internationalization of companies requires that the future vision is focused
towards the evaluation of the requirements of this internationalization in all areas
from the company.

For this reason, in addition to the reports required by law, such as the Certification of the
Financial Statements, the Opinion on them, the Management Report and the Report of
Internal Control; it was requested once again that for the Management Report it be prepared
reports by areas, such as Human Resources, Production, Marketing, Finance and
Quality Control.

Conceptual Framework

The Internal Control is a process carried out by the Board of Directors and Senior Management of
the Company for the administration of an entity, designed specifically for
provide reasonable assurance of achieving effectiveness and efficiency in the
operations; sufficiency of financial information and compliance with laws and
applicable regulations.

Legal framework

The report on Internal Control constitutes a basic element that allows

determine if the legal and regulatory frameworks are being complied with; if the regulations
Corporates are taken into account; if the applied procedures correspond to the
proposed by senior management and if the established guidelines for internal control
correspond to the dynamics and development of the company.

The Audit was conducted in compliance with Generally Accepted Auditing Standards.
(NAGAS).

Internal Control Approach

The Internal Control evaluated by the Audit is based on Audit Standards.
of general acceptance and Pronouncements of the Technical Council of Accounting, the
which, although they do not have the quality of being mandatory, do correspond to a process
investigative that can very well be taken as a basic premise for the development of this
Control approach in the process of universalization.

Theoretical framework of the components of Internal Control of the company

The components of Internal Control are interrelated; they derive from the vision of the
company, and they integrate into the administrative processes.

These components are:

Control environment.

Which is associated with elements such as integrity, ethical values, and competence or
knowledge as well as the skills that people have to fulfill
adequately its functions.

Risk Assessment.

It is the identification and analysis of relevant risks for achieving the objectives,
which represent the basic orientation of resources and efforts, and constitute the
Path to identify critical success factors. Risks include external factors.
and internal.

Control Activities

They are the ones carried out by management and other people in the company to comply.
directly with the assigned activities, which are represented in policies,
systems and procedures, which include among these controls, those related to the
Information Systems.

Information and Communication

To achieve the objectives, it is necessary to have adequate and timely information.

It is concluded that information serves different purposes and is

uses at different levels.

Monitoring and Supervision

These can be executed by the personnel responsible for the controls themselves.
(self-assessment) and is applied through questionnaires or interviews communicating the
weaknesses or opportunities for improvement.

Objectives of the Internal Control Report

To disclose the internal control situation of the company.

2. To fulfill the obligation to provide timely written notice of irregularities

or deviations that occur in the fulfillment of the social objective

3. Inform the upper management that the operations being conducted comply with
the statutes and the decisions of the partners.

4. Inform the senior management of compliance with responsibilities

assigned as they are:
 <!--[endif]-->Ensure that the accounting is regularly maintained.
complying with accounting and tax regulations.
<!--[if !supportLists]--> <!--[endif]-->Regularly inspect the company's assets and
to seek that conservation and security measures are taken in a timely manner.
<!--[endif]-->Give instructions, practice inspections, and request
reports that are necessary to establish permanent and necessary controls.
<!--[endif]-->Authorize the States with the signature
Financial statements duly accompanied by the Opinion and the Notes that form with them
an indivisible whole.

Topics to be addressed in this report

The topics that are considered important and require selection have been chosen.
taken into account at the time of decisions

Considerations related to general aspects of operations in the

exterior

a. The hiring processes abroad have been implemented within

the ISO 9000 standard in a broad and detailed way.

b. Management of software and contracts with clients.

The contracts signed by the company should be considered as one single

product Licenses

It is required to better sectorize cost controls and management indicators by

each project.

It is important to keep in mind that the company is more about the creation of future value than the operation.
and management that reflects the documents as real operations.

The direction's trend should be to maximize this future value, based on

excellent management in all areas of the company through the aggregation of
valor.

It is essential to consider the operations with foreign clients.

current regulations.

It is necessary to adapt in practice to the related variables when applying the rules.
with the legal frameworks of the recipient countries of the product or license.

It is required to develop an analysis process related to the new licenses of

software that allows them to be exempt from income tax when sold.
This implies the above as previously stated that it is necessary to establish some
cost centers, to control licenses that are placed or treated as inventories
they sell.

In addition to the previous aspect, it is important to achieve the legalization of the new licenses.
based on the new current control regulations.

It is essential to focus on international business for the sale of licenses and services towards
companies established in countries of the Andean Community, Argentina, and Chile given the
possibility that these sales of goods and services are not affected by
the sales tax may be considered as exempt sales in relation to
the income tax.

The benefits obtained from businesses with Ecuador due to non-sales

Recorded have been important in previous years.
In addition to the above aspects, it is necessary to establish a plan in relation to the
accumulated profits from previous years; establishing that given the conditions of the
Foreign investors, the best thing is to transfer untaxed profits, otherwise...
it can become highly burdensome once declared as profits
distribute.

Another vital aspect is the one particularly based on the Product (Software) with its
sales process based on a properly evaluated international Contract
but being invoiced while seeking the greatest advantages for the company.

c. Financial Statements (consolidated)

Financial statements must be prepared that accumulate the information (consolidate it) of
the different billing or management companies that include the operations and
in addition, the evaluation of the Assets or Intellectual capital incorporated taking into account
Operational compass in Cost Systems.

2. Review by areas of operation

a. Revenue Area including investments and client management

1. The corresponding reviews were carried out in the area determining that there are
records handled by the sales area and records made by the accounting area that
many times they are not compatible. Many times invoices are canceled due to lack of
planning of the same or agreements with companies to avoid tax effects.

2. The value of the balances of advances received from contracts as of December 31 of

the year is $XXXXXXXX and the balance on the same date of the previous year was
$XXXXXXXX.
In smaller contracts, the advance payment procedure provided as a means was not applied.
of financing.

In the previous year, losses were reported due to the revaluation of the peso against
to the dollar. These values are affecting the company's results.

E
 valuation of Internal Control

1. The income received as a result of investments is recorded and

controlled with a monthly audit of both the physical documents negotiated, for
determine the correctness of the record and its correspondence by causation.

3. The income from customer deposits as well as advances is

prepared by the Portfolio Department and controlled by the financial area
accountant.

4. The committees created by the Finance and Sales departments allow for monitoring.
the achievement of the goals. However, when the budget is analyzed, it is concluded that
Nevertheless, the results are not always as expected.

5. In the ISO 9000 quality assurance process, standards have been established
procedures for the preparation and documentation of national contracts and
international.

R
 ecommendations to improve internal control:

1. That the portfolio and accounting registry be unified, and that once it is established
better procedure to keep the record solely in the hands of the accounting department.

2. Regarding Investments, we have requested the preparation of a manual of

risk control procedure for investments just as they do
 Companies with which investments are negotiated. Moreover, a control must be foreseen.
that prevents only one person from having access to such management.

3. As a lawyer has already been appointed for the collection of invoices.

It is necessary to maintain permanent follow-up on their work.

4. The control of difficult-to-collect debts must continue until achieving the

cancellation.

5. It has been determined that to facilitate bank reconciliations, the differences of

they will register in the following month, but it is required that in no case there is a
delay in the application of this procedure.

6. Since it was deemed inappropriate to register the company as self-withholders,

Due to the financial effects, all administrative controls must be adjusted.
facilitate the process of obtaining the withholding certificates
corresponding.

b. Expenditure area and behavior with liabilities

Evaluations are conducted permanently in conjunction with the document review.

advanced withholding at the source, from Reteiva, from Sales Tax based on
in the guidelines established in tax regulations and the purchasing process of
in accordance with the provisions of ISO 9000 and when it has been pertinent, measures have been taken
made observations related to possible deviations.

2. We have considered the documentary control to be adequate. Except in the case of the
loss already explained in the Revelations.

3. Purchases have been supported with the three quotes. However, when they
Regarding travel expenses, there have been cases in which the documents do not
are reported in a timely manner.

4. The documents corresponding to costs and expenses generated abroad

it has been a subject of monitoring to be deductible, having as
characteristics of its proportionality, causal relationship, and necessity. In addition,
evaluate from a tax perspective whether the payment is deductible.

5. In the year, equipment purchases were significantly reduced.

processing, given that there are Leasing contracts with Computers up to date whose
installments have been paid on time.

6. A License Inventory was established that, by the end of the year, could not be verified.
totally, as it is being finalized with the accounting; also they have
established policies and procedures for its control. In the year, it was possible to identify
fully the legality of the licenses and also those that are installed on each
computer.

7. Regarding the payment of payroll, it is being managed by a contract of

Outsourcing that we have evaluated and considered appropriate.

8. Colombian standards apply regarding aspects of responsibility,

deadlines and payments corresponding to the following taxes.
<!--[endif]-->Rent
<!--[endif]-->Heritage
translatedText <!--[endif]-->Withholding Tax
translatedText <!--[endif]-->Sales Tax
<!--[endif]-->Withholding of Sales Tax
<!--[endif]-->Withholding of the industry and commerce tax
<!--[if !supportLists]--> <!--[endif]-->Industry and Commerce
 <!--[endif]-->Stamp Tax

The company complies with payments to social security entities and the contributions.
parafiscal contributions according to the established percentages and taking into account the deadlines
assigned.

10. The lease contracts are properly signed and valid.

11. The company contracts the insurance for a reasonable value, for the goods that
owns and for the contracts with third parties that it signs, in accordance with the clauses
established in them.

12. Expenses are subdivided into Cost of Sales, Administrative Expenses, Expenses of
Sales and Other Expenses.

13. Regarding the payment of fees for the Board of Directors, we consider it to be high if
we compare them with the payments made in the market.

14. Food vouchers are used in accordance with the flexibility agreements.
deals with employees and if it exceeds the legal framework.

15. The expenses in general meet the requirements to be deductible, that is, they are
provided, reasonable, adequately supported and have a causal relationship
with the income except for those previously mentioned paid by the Board
Directive.

16. The difference in Change due to Customer Advances Received was an amount
important in the year.

17. Withholdings were assumed at source due to accounting errors.

justified.

18. The tax on financial transactions that constitutes an expense not

Partially deductible, it significantly decreased compared to the previous year.

19. The applied cost of sales corresponds to those values that can be capitalized.
as Inventories and will be applied as sales occur. However
In the company, the cost system works by applying all elements as expenses.
(cost) due to the absence of a properly established Inventory system.

20. As of December 31, the final adjustments were made to the update process.
the records in the Fixed Assets software. A partial physical test was also conducted.
this inventory allowed us to determine a reality of the fixed assets that
they continue to control according to instructions from General Management and based on
policies and procedures that are being implemented.

21. Depreciation is applied in a straight line but using properly designated software.
validated.

22. The technical appraisals were adjusted to December 31, leaving the difference as well.
in valuations as in provisions according to the circumstances.

23. Errors that were causing discrepancies in the information were corrected.
fixed assets.

Recommendations

1. Regarding expenses, we consider rationalization necessary, since the

the monthly accounting average of the year was higher than that of the previous year which represents
an increase of XX%. The most significant increase is observed in the category of
Sales Expense. Current operational risks must be taken into account.

2. A proper balance must continue to be maintained between the resources allocated to

dollars that generate income from exchange rate differences and those external resources that
They generate expenses for the same concept.

It is necessary to find the best solution to ensure that the officials who travel on official business...
report promptly the use of the funds that have been given to them.

4. When the transfer of rights over the equipment is documented

leased computing; it is necessary to establish the procedure that allows
maintain a constant control over them.

5. Regarding the use of licensed software in the company, it is necessary to establish the
greater control over the use that employees make of pirated software to prevent it from happening
What responsibilities does General Management assume that are punishable under the law.

6. Payroll control must guarantee the company that the decisions of

flexibilization should be framed within the legal guidelines of the labor code.

The accounting software must have proper maintenance at all times.

8. It is necessary to consider the need to establish a process in control of

production that allows managing the licenses sold within the sector of
Work in progress and finished goods.

It is necessary to establish control over the services provided in the production area.
by third parties, to avoid billing out of time, as well as charges that are not
fully justified

10. The way to achieve the nationalization of the equipment that is now must be determined.
they are registered in transit.

11. Define what will be done with the computer equipment located in sites
different from the company.

12. The fixed assets control program must be used appropriately by assigning it if
It is necessary for a person to be responsible for the various information that
generated especially from fixed assets.

c. Human Resources Area

This area is also developing, in addition to its function, the corresponding management.
of quality assurance; being the company also receptive to the results
of Quality Audits.

2. It is observed through the rotation of personnel that the selection, training and process
induction is suitable.

This department is also involved in the organization processes of

events, staff visits, public attention.

4. It is also organizing training activities.

5. Keeps the company prepared to ensure quality at the national level and
international through the ongoing process of updating the processes of
documentation.

d. Cost Area
1. While there are certain distributions of monthly expenses, and a segmentation of them,
we find it necessary to establish a system that introduces fundamental changes in its management.

A costing system is a basic element for assigning the selling price; without
the current basis of the embargo is to use it for budgetary analysis for which
They can provide support. However, we believe that it does not contribute to achieving in form
needs a profit margin, or the establishment of break-even points; prior to the
subdivision of costs and expenses into variable and fixed to know the margin of
contribution.

3. There are currently other modern techniques for assigning costs in an environment
cutting-edge technology, when intellectual capital should start to be evaluated, part
which must also be assigned to determine prices.

4. A properly implemented costing system will be a basic element for

determine a segregation of the necessary inventories according to the law for
assign them to Sales.

5. I believe that the costs assigned to the contracts are the result of a technique of
distribution, but these technical fundamentals are not being reflected in the Accounting.

e. Production Area.

When talking about the production area in this type of company, an interest is required.
in the company for segmenting its products; for which the fundamentals are required
formal within an accounting control process. We continue to recommend control.
by processes or activities.

f. Tax Area.

1. When evaluating this area, it is important to take into account that the internationalization of the
businesses involve the need for their strengthening; in addition, the rationalization of the
the same and the hiring of a good Consultant, if possible international.

2. Nevertheless, despite the previous situation and the limitations already mentioned, progress has been made.
seeking the closest approach to a fair Income Tax payment, but whose
result requires the review of experts who find greater possibilities
for this year as well as for the following ones.

3. The issue is even more complex if we take into account that taxes are not
only the Rental one, but there are also the Sales Tax one,
Heritage, the Stamp Tax, the Withholdings at the source of Income and Sales as well
such as the Industry and Commerce Tax, and other local taxes.

It is necessary to establish that with the Management of Pension Funds, as well as in the
Investment management in Technology can achieve tax reductions.

The work done in this area additionally allowed us to understand its complexity,
even more so when the development of international business provides an opportunity to seek the
greater possibilities of exemptions, or tax benefits that may be
unknown.

6. The previous report highlighted the actions taken by the Administration of

To reach a fair tax payment; we recommend reading and analyzing it.

g. Accounting Information Area

1. In the area of accounting information, the following situations arise:

a. <!--[endif]-->It has been acquired new software with whom
parameterization will become a tool that will provide greater solidity to the
information.
b.<!--[endif]-->The Accountant controls the key with which the ...
modifications to the closed information both monthly and at the end of the period

2. One of the responsibilities assigned to this area is the review of payroll, which in
The year had some difficulties while outsourcing was functioning.

3. A schedule was prepared for the presentation of the monthly financial statements, the
which was fulfilled until the month of November since for the month of December it
they had difficulties closing due to investments in bonds operations that
they presented some difficulty for their interpretation, execution, and recording.

4. The management of the principle of causation and realization has led to the preparation of
a special schedule for the timely receipt of documentation.

5. Throughout the year, several meetings were held between Accounting and Auditing.
and Finance, to define procedural aspects and the final figures at the end of
period.

6. Doubts arise about the application of the rules related to exports and the
Foreign investments in both Withholding Taxes and Reteiva, Tax
Stamp Duty and Sales Tax.

7. The re-acquisition of contributions made following the guidelines was recorded in the year.
legal. Likewise, the negotiations of Partners and acquisitions of contributions by
Foreign Investor.

8. With the support of the Audit and the Financial area, Notes were prepared for the
Financial Statements.

The accounting closure was made on the day at the end of the first month of the following year.

10. The fiscal adjustment is applied to the Fiscal Cost of the Assets as an established policy.
by the Management.

11. The current regulations regarding the application of the

Generally Accepted Accounting Principles and the applicable chart of accounts and
the study of the effects that the obligation may have for the company has begun
use the International Accounting Standards which will initially affect us due to
deferred, fully depreciated assets, some active leases.

12. Verbal, written, or through instructions were given in a timely manner.

recommendation of websites when necessary; in order to
apply changes from any new regulations in accounting and tax aspects.

13. The definition of the aspects related to the registration is pending.

Industry and Commerce Tax corresponding to the contracts that are held in
other cities of the country.

 Recommendations

1. Take advantage of hiring the International Tax Consultant to establish a

manual of taxation that is known by the officials in this area.

2. Ensure that when making the monthly cuts, the balances are fully reviewed.
in a way that prevents delays in the subsequent months.
 3. If a License Inventory Control is established, it is necessary for this area
Receive all the necessary instructions to achieve the best results.

4. Prepare at least the Income Statement and the Balance Sheet monthly

5. Prepare the five Financial Statements as of June 30 of each year as

Interim Financial Statements, along with the corresponding Accounting Notes,
Certification and Opinion.

Establish keys for the use of accounting software that limit access by levels
of authorization once the monthly records are completed.

7. Prepare a manual that facilitates the conversion of Financial Statements from pesos to
dollars when these must be sent abroad.

8. The financial statements prepared by the foreign branch must be requested.

with the fulfillment of all the requirements of both the country that prepares them and their conversion
to send it to the main one.

h. Various aspects

<!--[endif]-->Operating Lease Agreements

<!--[endif]-->It should be noted that Leasing Contracts

new based on accounting and tax regulations, are being managed fiscally
as operational allowing the value of the monthly fee to be deductible. It
requires an evaluation to properly determine the effects between Operating Lease and the
Financial

2. Control of Operations between Partners

A document was prepared that made it clear:

The movements and operations carried out among partners,

The movements between partners and the company,
Payments made in shares
The effect that loans to partners by the company have in relation to
to presumed yields
No loans received from partners

3. Compliance Control.

Compliance testing relates to the monitoring and control that is maintained.

about legal and formal aspects.

<!--[endif]-->The accounting books were verified for their registration and

update.
<!--[endif]-->The minutes book was followed up to determine
the fulfillment of the corresponding obligations
translatedText <!--[endif]-->They are registered with the entity that orders the law the
latest minutes related to contribution fee negotiations.
<!--[endif]-->The Book of Minutes is kept in the hands of the assistant.
of accounting being more appropriate to keep them in the hands of the Secretary of
General Management.
<!--[endif]-->The membership register was observed.
<!--[endif]-->The latest registered deeds were observed.
 <!--[endif]-->The Certificate issued by the entity has been reviewed.
respective, noting that all the aspects mentioned there are arranged according to
with the law and also that the corresponding changes have been taken into account.
<!--[endif]-->The inscription in the registry establishing the was observed.
Law of the appointment of the new General Manager.
<!--[endif]-->The tax return for 2 previous years was left in
firm.
<!--[endif]-->The income tax return from the previous year was reviewed and
since the company took advantage of the 6-month audit benefit, it remained the same
firm as of the date.
translatedText <!--[endif]-->The Sales Tax Declarations of
They remain firm for two years from their presentation.

The Withholding Statements for the year remain for two years.
of his presentation.
The annual information is being sent to the Superintendency.
corresponding, without finding an arrangement of corrections to the information
sent.
The stationery used in the correspondence lacks the Nit as required by the
tax regulations.
There is also a lack of evidence that the correspondence received and the annotation of
your response in accordance with the applicable commercial regulations.
The issued invoicing complies with the legal requirements.
The daily billing control book was implemented.
Purchase invoices are reviewed to ensure they meet the requirements.
established by law and enable the deduction of costs and expenses and the
deductible taxes.
The tax requirements in which they request information for cross-referencing
third parties, have been responded to in a timely manner and so far have not
received placements, nor additional requirements.

Substantive Tests
They correspond to the application of audit techniques, such as observation, analysis, and
evaluation of your environment that is conducted with the greatest breadth on various operations in
which is monitored from the point of view of its documentation, its
realization, causation and its opportunity.

translatedText <!--[endif]-->Substantive tests are carried out monthly on the

investments not finding important observations.
<!--[endif]-->Reviews have been carried out on the portfolio executing a
Circularization.
<!--[endif]-->The differences between portfolio reports of
Commercial and accounting department are analyzed.
<!--[endif]-->Differences in advances between portfolio reports
Commercial and accounting corrections are made when discrepancies arise.
<!--[endif]-->Aspects such as the following were observed:
o<!--[endif]-->Differences in order accounts.
o<!--[endif]-->Differences in changes from previous periods that affect
the following year
<!--[if !supportLists]-->o<!--[endif]-->An audit of advances to suppliers was carried out.
translatedTexto<!--[endif]-->An audit was conducted on travel expenses and to the
requests from them.
<!--[endif]-->Regarding Fixed Assets, it was achieved from the
Management of the organization of the Execution of a Fixed Assets Inventory that
it will serve to determine balances as of December 31 and will serve as a guideline for the
definition of balances and future organization of this important area.
 <!--[endif]-->The records were defined as of December 31
Valuations of furniture and processing and communication equipment.
<!--[endif]-->An accounting, physical, and
administrative management of software licenses and with these to the other areas that
they compose the account of Deferred Assets.
<!--[endif]-->An audit was conducted
o<!--[endif]-->Monthly to the Withholding Tax.
o<!--[endif]-->Bi-monthly from the sales tax
o<!--[endif]-->Bi-monthly to the withholding at the source of VAT
o <!--[endif]-->Periodically from the stamp tax for operations
that they cause it.

5. Investment in projects.

Regarding the contract signed with an international firm called

Implementation of a maturity capability model, this Audit observed
the signing of the Counterpart Certificate at the end of December of the year
previous. However, it is understood that the contract was not implemented.

6. Budget analysis.

It is the interest of this review body to know the annual budget and monitor it.
corresponding, but so far due to the process of understanding the
The company has not been able to address such an important concept.

7. The Audit and contracts with foreign companies.

This Reviewer wants to get to know the details of these contracts more thoroughly and their
impact on the company's results, the aspects we know are related
only with tangential aspects related to costs, expenses, and billing.

8. Comments and final proposals

I want to finish by commenting on my experiences.

The working conditions that the company has for its employees are especially
interesting for both new and old people, observing a high
degree of belonging.

Although intercommunication does not necessarily imply an imperative need, it

exists within the individual's needs.

The management is exercised by leaving substantial personal autonomy with control over the
results.

The expectations of national or international negotiations depend on many

opportunities in the environment, which in the country has improved markedly due to
the security strategy implemented.

The operations of the company, however, are important for development.

management of the sector can become more difficult as the dollar continues to rise
affecting service exports; and that they do not increase significantly the
foreign investments.
It is necessary to be attentive to the effects that the development of proposals will have for the country.
international peace.

The priority of internationalizing the operation is already set and then start to
review all the setup in the country, making the decision to assess the requirements
technicians and the continuous process of improvement in response to rapid changes
of communications in the world. It is advisable to assess the effects in the sector of the
possible signing of different Free Trade Agreements.

It is also necessary to evaluate the rationalization of expenses and operations.

terciary that represent economies of scale.

Finally, I consider it essential to assess the hiring characteristics, as a

salary with its benefits and parafiscal charges, although it is a guarantee for the
employee stability leads to limitations in the measurement of results
expected. The alternative of a flexibilization around results-based evaluation
it would be a possibility.

It is worth analyzing whether there is already a technically applied and tested tool that
through a daily or permanent report allows to determine whether what is produced or
Executed is representing a benefit against the applied cost.

I feel that the company is setting up infrastructure for development.

international operations, and on these especially the future will depend.

I would like to conclude by thanking for the opportunity I have had to collaborate with the company.

Sincerely

JUAN DIAZ
Tax Auditor.
Cali March 14, 2011