Question

Companies lose millions of dollars each year through employee theft and fraud. To prevent this, internal controls are implemented. We will examine the types of controls companies use, and discuss what happens when these controls are missing.

Consider this scenario: 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

There is five important idea to control internal matter of business. When we implement internal control in our company whether it is big or small it helps us to detect fraud as well as improve the efficiency or quality of the company/ business. The financial statement the company becomes more crystal clear and even external auditors interference will be less.

1. Control environment – When leaders demonstrate a good ethical and moral framework, appear to be approachable about all issues and a commitment to excellence, nearly everybody takes notice and adjusts their behavior accordingly. It also helps to develop a rapport with your management team to encourage engagement throughout all levels of leadership.
2. Risk assessment – Find out the areas where risk can be more. There are areas such has financial team, marketing team, Hr team etc. So we need to find out which team or which part can do fraud for the company. More scrutiny is required in that particulat area. By conducting a thorough risk assessment, we can identify which control activities to implement which means in short which team should be controlled more.
3. Control activities – As we discussed in risk assessment, the areas of business need to be controlled, the best way to safeguard your business or organization is to segregate duties. This means that you should have different employees managing different areas of the company’s accounting responsibilities. When you put one person in charge of your accounting process you are freely giving them the opportunity to alter documents or mismanage inventory – and it’s a clear indication that you have weak internal controls. Dividing the work among your other employees is critical to the checks and balances of your company or organization. It’s also a good idea to develop procedures for recording, posting and filing documentation. Here are a few activities to get you started:
   1. Reconcile bank statements.
   2. Require documentation with expense reports.
   3. Match invoices with the goods and services you received prior to paying off your accounts payable balances.
   4. Make sure the person who has access to your business assets is different from the person responsible for the accounting of those assets, which will establish a form of checks and balances.
4. Information and communication – Providing your employees with information about the internal control process and the resources available to them is a critical component to your success and the overall success of the internal control activities. In fact, simply knowing there are certain controls in place to promote accuracy and prevent fraud is enough to stop problems before they even start.
5. Monitoring activities – Your job doesn’t end at the implementation of your internal control procedures; in fact, it’s just beginning. For your internal controls to work (and work well) you must establish your monitoring activities – and monitor frequently. Establishing internal controls is great, but they will have no effect if you neglect to monitor them. Furthermore, your internal controls should grow with your business or organization to ensure their long-term effectiveness.

Risk management and internal controls are necessary for the long-term success of every business and organization and a financial statement audit is a great way to provide you with insight into the internal controls of your organization or business.