Question

Though companies might do their best to enact internal control procedures, it doesn't mean it will always work. Discuss 1-2 reasons why internal control might not work, despite best efforts. In addition, discuss how employers should enact procedures for internal control for the most risky activities.

Answer 1

Internal Control means whole system of control applied by management to conduct the business. It also includes Internal Check and Internal Audit. The scope of internal controls not only includes examination of accounting controls,but also administrative controls concerned with decision making process.

It is worth looking at some reasons why your internal controls dont always work

Some of these reasons include :

1. Staff simply may make a mistake due to lack of knowledge, poor judgement or just not caring.

2. Staff bypass or don’t follow correct procedures as they may argue that it saves time, there is too much bureaucracy and they believe they know a better way to do it.

3. Equipment and other assets are not locked away or secured safely and have been left out in the open raising the chances of theft.

Some are the most risky areas in the organisation where chances of fraud is more

1. Cash and Valuable items

2. Payroll Fraud

3. Banking Transactions

Key internal controls activites

1. Duties are divided among different employees to reduce the risk of error or inappropriate action.

2. Transactions should be authorized and approved to help ensure the activity is consistent with departmental or institutional goals and objectives.

3.Equipment, inventories, cash, checks, and other assets should be physically secured and periodically counted and compared with amounts shown on control records. For example, the periodic confirmation of equipment by individual departments is a physical security control.