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Identify the special challenge that small organizations face when implementing effective internal control systems.

Identify the special challenge that small organizations face when implementing effective internal control systems.

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Expert Solution

Small businesses face particular difficulties in creating effective internal controls that will minimize the possibility of fraud – and maximize the chance of detecting fraud before serious damage is done.

Small businesses – defined as having fewer than 100 employees – were the most victimized of any size business, according the 2014 report of the Association of Certified Fraud Examiners. Nearly 29 percent of all reported fraud cases in its study were small businesses, followed by businesses with between 1,000 and 10,000 employees at 28 percent.

The average loss was also high for small businesses – a median $154,000 per case, second only to the largest businesses of more than 10,000 employees, which had a median loss of $160,000 per case.

Internal control measures taken by large organizations don’t always work for small businesses. However, small business owners who are diligent can protect themselves from becoming the victims of theft.

One of the hallmarks of an effective internal control system is the segregation of duties within a company’s accounting or bookkeeping department. But for many small businesses, the bookkeeper is the accounting department. In many cases, it is simply not possible to split the various accounting functions among different people.

Thus, the kind of internal control structures recommended to thwart fraudulent schemes are simply not feasible or cost-effective for many small businesses.

ekkarill92 answered 5 months ago
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