Question

Analyze the fraud and suggest internal control measure for the information given below :

( Liam has full custody of assets, and she also does the record keeping) .

Answer 1

The fraud which can take place in captioned scenarios is of Asset Misappropriation.This kind of fraud results when there is inadequate segregation of accounting functions. The risk increases when sole person is responsible for handling assets, recording transactions and reviewing year end balances.

Suggested below some controls to avoid above related frauds in an organisation.

1.Segregation of duties- It means different individuals are assigned different responsibilities for various elements of related activities . For eg. a person who is responsible for physical control of an asset should not be doing record keeping of that asset. When different individuals perform these functions it creates as system of checks and balance.

2.Keeping adequate documents and records- It provides evidence that financial statement are accurate. Controls include creation of invoices and other documents that are easy to use and are informative.

3.Physical control- Physical control over assets and records helps protect the company's assets. It includes electronic or mechanical controls (such as a safe, employee ID cards, fences, cash registers, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures.

4.Independent checks by supervisor or outside agency (auditors) ensures reliability of accounting information and efficiency of operations. For example, a supervisor verifies the accuracy of a retail clerk's cash drawer at the end of the day. Internal auditors may also verity that the supervisor performed the check of the cash drawer.