In: Finance
XYZ Telecom Company incurred an average losses of 10 million dollars each year through employee’s theft and fraud practices. The company owner who is residing in USA doesn’t have direct interaction with the employees though the main office is located in USA, some of the branches are outside the country. Some of the disbursements receipts submitted by other branches are not original and fake. To prevent this, internal control systems should be strictly implemented. Based on the above scenario:
1. Identify the internal control issue that occurred in XYZ Telecom Company. Justify your answer practically.
2. Prepare feasible recommendations that the company owner may follow to avoid and control the overall operation of the company in a sound manner. ( 3 mar
Solution:
1.The reasion behind the fraud and theft is that there is no segregation of duty.Segregation of duties is the concept of having more than one person required to complete the task.
2.Segregation of duties is an internal control proccedure implemented to reduce risk of errors and fraud.To sum up,it is a pratice that aims to avoid negligence and misconducts.
In the given case,company owner may implement segregation of duties to avoid and control the overall operation of the company in a sound manner.The practice of segregating duties is the important part of setting a robust internal control system.By separating critical duties,the company can protect his assets against wrong doings.
For example,in the case of financial department,the person authorizing payments must be different from the person preparing them and recording them in the books of accounts.By separating these duties,the degree of convolution that must take place for a fruad to be committed is much more complex and this reduce the motivation to engage in such fraudulent activities.