Question

Companies lose millions of dollars each year through employee theft and fraud. To prevent this, internal controls are implemented. We will examine the types of controls companies use, and discuss what happens when these controls are missing.

Consider this scenario: You own a small business with 25 employees. In your initial post, explain which internal controls you would use to protect your assets and ensure that your financial statements are accurate.

In your responses to your peers, critique their internal control proposals and provide constructive suggestions for improving them. What aspects or risks might they have overlooked? What would you suggest to make their proposals more effective and feasible?

how can respond to this person

Ensuring your company is safe is the main thing we as business owners worry about. From our idea to the company's funds being a business owner is like parenting in my opinion. As a CEO of 25 employees I would definitely have a few security controls in place to protect the company, the employees and myself.

First I would ensure each employee were trained in all areas needed in their specific departments to allow all personnel to feel included in the business dealings. With this in place delegating and rotating duties is very possible. All employees will have mandatory PTO and this time would need to be used before the end of the year so that all end of year documents can be examined by different members of my staff as well as myself.

My main goal for returning to school was to make sure I knew the basics of accounting and how to sufficiently run my own company so that I never have to soley rely on others to maintain or correct my business activities and expenses. However as the business owner there is no way to do everything yourself but you can have a say in everything. Separating the operations when it comes to orders and logistics will stop any wrong doings and under handed transactions from happening or being discovered before much damage can take place.

Lastly keeping all financial books, stamps, checkbooks, routing and accounting information as secure as possible. Not everyone should have access and I would make time to look over all checks and stamp/sign them before they are sent out. I believe there are some things that shouldn't be delegated to other people.

Answer 1

Evaluation of current Internal control System :-

The organisation have planned below internal controls :

1. The idea of each employee is trained in all area of their department so that it helps in delegating and rotating duties.

2. Further the idea of separating orders & logistic will help in wrong doing of the things &

3. Last internal control kept is on custody and physical access to financial books, stamps, checkbooks, routing and accounting information as secure as possible.

Comments on existing internal control system :

1st Internal control :- Though each employee will have training in all area, however it's not necessary that each employee would be able to fulfill those responsibility equally. It is recommended that based on risk approach there should be more than one person should be involved in the task. Higher the risk more skilled person should be deployed.

Further it is mentioned that all staff member have to utilise Paid time off before year end so that in year end all verification can be completed.

Sound Internal control process identifies the issue when it occurs. Further providing importance to year end task should not be burdensome for employees so that they are not able to take any paid leaves. Instead of that the checking / verification can be planned in advance. Employees are backbone of business and without them growth of business would not be possible hence the policy of the company should be atleast comparable to industry standard

3rd Internal Control :- Limiting control on access of financial books, checks, stamp etc this is helpful. However there is no strict need that it is absolutely kept with one team, involvement of other team in the process will be helpful. e.g. Security staff may be responsible for drawing out and putting up check, stamps into treasury. If only finance team involved in them it might be more risky process.

Recommendations :

- Segregation of duties on the base of risk approach, higher the risk resource involved should be experienced and involvement of more than one department might be advisable e.g. Person accounting vendor invoice not in charge of making payment to vendor.

- Continue the practise of rotation of duties judicially

- Define appropriate authority levels with clear defined responsibilities also bear in mind segregation of duties while working out this

- Define clear responsibilties : clear lines of responsibility of each & every employees in detailed manner and also check what they understood

- Exception check / spot checking : This procedure may be performed at appropriate interval and would keep alert employees of the company to complete the tasks in timely & appropriate manner

- Review of reconciliation / cross checks : Conduct monthly review of various items which will ensure that things are in control and also provide time to take corrective actions before year end

- Employee Knowledge and skills upgradation : Staff should be provided appropriate training especially against new type of cyber fraud, operating on IT equipments etc.

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