Question

Class, let’s brainstorm here. Can you think of one solid internal control and also think of a way that a crafty employee might be able to work around this control?

Answer 1

As we know that an effective control system is very essential for a company to smooth running of business operations, such as minimization of frauds and mismanagement etc.

Top level of management designs internal control in two ways;

1. Detective internal control;

This type of internal control is design and implemented to find errors after they have occurred. In other words we can say that detective internal control system is done after occurrence of errors and frauds. So detective internal control is known as post internal control system. So for this type of internal control system well skilled and trained employeed are required so that all types of frauds and errors can be esily find out and future happening of such frauds and errors can be minimized.

2. Preventive internal control

This internal control is put into place to keep errors and irregularities from happening. Preventive internal control is done on regular basis to prevent any happening of frauds & errors so that a company can be made safe from the losses of frauds & errors.

Apart from this we know that an internal control system will be more effective if following steps are properly followed by a company or firm;

·        Separation of duties

·        Proper and better access of control

·        Proper physical audit

·        Standardized documentation system

·        Making timely trial balances

·        Making periodic reconciliations

·        Approval from correct authorized persons in the organization

Yes, it is true that a crafty employee will be able to work around any type of internal control whether it is detective or preventive internal control system. As we know that implementation of internal control system always requires skilled & crafty employees hence without having crafty employees we can not imagine about the success of internal control system. Thus it is true that in any type of internal control skilled & crafty employees will be prerequirement for proper implementation of internal control system because skilled employees can easily understand the format & system of internal control and can easily adjust themselves into internal control system in desired way.