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 control in an entity includes the checks, procedures, tools, systems adopted by the company to ensure the prevention of frauds, integrity of financial information, safeguarding of assets, errors, etc. The procedures and policies to minimize errors and human frauds are discussed as below:

-- Restrict access to records: Lock up the important documentation and files of employee the company for preventing unauthorized access. The protection by password can be used when these records are stored on line.

-- Separation of duties: In an internal control the segregation of duties is designed with a motive for the prevention of an error and fraud by ensuring that at least two employees are responsible for the separate parts of any task

-- Monitoring: The separate evaluations, monitoring and reporting on the deficiencies contributes for a sound internal control. Search for any fluctuations in the expenditures in the financial statements, and then investigate the reasons for such fluctuations

-- Audit: A periodic audit either through external auditor or internal auditor ensures the verification of the financial reports on being computed correctly.

-- Adequate documentation and error-checking reports: A proper record of the documentation ensures the less probability for the fraud

-- The purchases by the company need to be made only after appropriate authorization has been provided in writing. Moreover the purchases must be checked carefully. The purchase order, billing and report of receiving must be carefully checked

-- Authorization or approval helps in reducing undetected error risk and limit options to conceal intentional misstatements or misappropriate data in the financial reports. The control activities must be taken throughout the company in all functions and at all levels.