Question

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.

Answer 1

Solution)

Here are some internal controls that I would use to protect the assets of my business and ensure that the financial statements are accurate.

1. Segregation of Duties: No single employee should perform all parts of a particular work alone. If related duties are segregated among various employees, it will seem to be more difficult for some particular employee in committing a fraud all by him/herself.

2. Completing Bank Reconciliations within a reasonable time: Completing bank reconciliations in a timely manner would help me discover fraud before the same is concealed by the employee who has committed it.

3. Locking and securing the Business Assets: I would look to lock up the valuable business assets so as to prevent the employees from stealing them.

4. Reviewing disbursements of cash: I would like to introduce a system of reviewing the cash payments to check whether all the cash disbursements made are correct in nature.

5. Requiring my employees to take compulsory holidays: Allowing compulsory vacation to some employee and letting someone else do the job in his/her place, will provide me with a chance to detect any fraud if it has taken place.

6. Rotating my employees on various job roles: Rotating employees on various job profiles periodically would prevent them to plan and commit frauds.

7. Installing video cameras: Installing video cameras at strategic places would increase the chances of catching acts of fraud.

8. Reviewing my vendor list: My employees might insert fake vendors' names in the books of accounts in order to commit fraud. Reviewing the list of vendors might help me to assess whether there is any fake vendor name entered in the accounting information system.

9. Limiting the computer usage rights of the employees: An employee should only be allowed to perform those functions on the information system of the business which would be within his/her authorities. Too much access to the computing system can provide opportunities to commit frauds.

10. Conducting surprise audits in the business: Carrying out surprise audits would help in detecting frauds that may have been committed in the business.