Question

 

A company wants to implement good internal control. What are the policies and procedures you can suggest to minimize human frauds and errors? 

 

Answer 1

 

Internal controls definition :
A process effected by an entity’s governing board, management, faculty, and staff, designed to provide reasonable assurance regarding the achievement of the following objectives:

• Effectiveness and efficiency of operations
• Reliability of financial/non-financial reporting
• Compliance with applicable federal/state/local laws and regulations.

It is vital to an organization, large or small, to have a fraud prevention plan in place. There are ways you can minimize fraud occurrences by implementing different procedures and controls. They are as follows:-

1. Know Your Employees:Fraud perpetrators often display behavioral traits that can indicate the intention to commit fraud. Observing and listening to employees can help you identify potential fraud risk. It is important for management to be involved with their employees and take time to get to know them.

2. Make Employees Aware/Set Up Reporting System:- Awareness affects all employees. Everyone within the organization should be aware of the fraud risk policy including types of fraud and the consequences associated with them. Those who are planning to commit fraud will know that management is watching and will hopefully be deterred by this. Honest employees who are not tempted to commit fraud will also be made aware of possible signs of fraud or theft. These employees are assets in the fight against fraud.

3. Implement Internal Controls:- Internal controls are the plans and/or programs implemented to safeguard your company’s assets, ensure the integrity of its accounting records, and deter and detect fraud and theft. Segregation of duties is an important component of internal control that can reduce the risk of fraud from occurring.

4. Hire Trustworthy Experts:- Many of the people working for your company, including Certified Fraud Examiners (CFE), Certified Public Accountants (CPA), and CPAs who are Certified in Fraud Forensics (CFF) can all play important roles in establishing antifraud policies and procedures.

Fraud Detection:-

In addition to prevention strategies, you should also have detection methods in place and make them visible to the employees. According to Managing the Business Risk of Fraud: A Practical Guide, published by Association of Certified Fraud Examiners (ACFE), the visibility of these controls acts as one of the best deterrents to fraudulent behavior. It is important to continuously monitor and update your fraud detection strategies to ensure they are effective. Detection plans usually occur during the regularly scheduled business day. These plans take external information into consideration to link with internal data. The results of your fraud detection plans should enhance your prevention controls. It is important to document your fraud detection strategies including the individuals or teams responsible for each task. Once the final fraud detection plan has been finalized, all employees should be made aware of the plan and how it will be implemented. Communicating this to employees is a prevention method in itself. Knowing the company is watching and will take disciplinary action can hinder employees’ plans to commit fraud.