Question

You are reviewing the internal auditors’ report on the fundraiser and note that they expressed concern about the lack of division of responsibility (segregation of duties). Describe one example to support their assessment and how you believe the situation could be remedied in the future.

Answer 1

Cash management can be as an example for the risk involved in having improper segregation of duties:

Cash management implies not only control of the cash account, but also control of all other working capital accounts. Cash management is a process which not involve maintain of cash balance, effective management of cash, drawing up proper internal controls for maintained of cash but also involve managing of other capital accounts like it involve in reducing the time gap of accounts receivable, balancing the payroll payments, managing the accounts payable in time, making proper investments of balance working capital, managing on time cash for working capital.

So in this case each every task should be segregated with proper delegation of authorities in place. In case of improper segregation of duties it will lead to fraud which will not result in true and fair view of financial statements.

This can be remediated in future by taking below measures:

The fraud will be committed by the employee only when there is opportunity to do. This happens because of improper controls system. So, only many standers have risen to guide the companies in how to maintain adequate internal control system. Also Sarbanes-Oxley Act of 2002 (SOX) requires all publicly held companies to establish and maintain the internal controls the are adequate to their business standards and procedures for financial reporting to reduce the risk of corporate frauds.

There should be proper segregation of duties. Every employee must be known of what are their duties and responsibilities and limits in case they cross the limits what will be penal provisions applicable. Also segregation of duties the work done by one employee will be verified by the other employee which helps to reduce the risk to some extent. There should be surprise audit checks so that any such alteration in the financial statements can be known immediately.

There should be proper and adequate controls in place so as to mitigate the fraud that is access should be given to the authorized employee and in case if there is any unauthorized access it should be identified and mitigated immediately. Controls should be proactive they should detect and eliminate the fraud before it occurs.

Most essential ­element of an adequate employee fraud reporting program will be employee education about the frauds, developing the proactive fraud policies so as to eliminate the risk before it occurs, increasing the analytical review usages, surprise audits so as to find the risky factors as the employees committing the fraud can be easily identified with surprise audits, developing the hotlines where the point to point communication can be made easier with this that it reaches the predetermined destination easily without any interference so that the risk can be mitigated as we can, not only identify the fraud but we can also mitigate it by following all this we can also balance the SOX act in the organization as there will be adequate internal controls system. Internal controls in a business becomes very critical when the things are out of control in detail if the manger is unable to manage the things on his own with his supervision then the internal controls necessity arises.