Question

You own a small business with 25 employees. In your initial post, explain which internal controls you would use to protect your assets and ensure that your financial statements are accurate.

Answer 1

No matter the size of business there will be always scope for employees to commit fraud until and unless there are strong internal controls

From this nobody can eliminate the frauds as a whole but can reduce the chances for committing fraud. Some of the internal controls that the owner of small business must implement to reduce the fraud are explained below:

1)Precautions for protecting assets:

a)In no case, the accountant must be given right to use the cash without proper authorization. This practise makes the owner closely watch every expense incurred in the business.

b) Not only in expenses but also in other areas proper care must be taken by the owner in areas like Cash Sales,Any amount paid to temporary employees of a any as there may by any payments to dummy employees.

c)Discount and sale of scraps if any also must be seen by the owner regularly.

d) Accounts receivables especially baddebts must be carefully scrutinised by the Owner.

e)A strong controls must be established at purchase and storage of inventory.

f)Assets and it's records are to be carefully watches and get audited of needed.

2)Precautions for ensuring the financial statements are accurate:

a)Ensure that employees working at highly Risk areas are taking leave for vacations already once an year which increases the chances for revealing the frauds if any committed by then.

b)Although practically it may not be possible to rotate employees regularly, practising Jab sharing approach is possible, which may lead to revealing of fraud committed by one employee by other.

c)The owner must possess atleast basic knowledge in accounting and observe books of accounts regularly.