Question

Discuss the limitations of the internal control principle and suggest a policy the company should have in place to ensure prevention or early detection of fraud. What GAAP principles are being used? Provide examples of internal control that you use at work and or at home. Answer in at least 2 paragraphs.

Answer 1

Internal Control policies will help your organization to work more effectively and efficiently. But there are some limitation to Internal control principles : -

1, Management Pressures  

Management some times impose pressure on the persons doing internal control in order to hide any deficiencies or to make unjust enrichment by illegal means. As the the persons controlling the internal affairs is the employee of the company, he should , at most times surrender to the pressures of management.

2, Failure to understand the internal procedures.

If the person carrying the work of internal control is not aware of the flow of procedures inside the organization , he cannot implement a effective internal control policies and there by his actions may be failed. So a person acquire proper knowledge before formulating internal control policies.

3, Lack of Training and morale

Even if internal policies are implemented effectively, if the workers don't know how to do the job or if they lack the morale to do the way the policies are implemented then also there is a chance of failure in the internal control mechanism.

So, to overcome the above limitations of Internal control principles we can implement more effective policies with help of GAAP principles. They are :-

1, The participation of management and employees in formulating and implementing decisions.

2, The company should follow values and ethics. This will help to create a positive environment , not only in internal perspective but also in the external environment

3, Giving more responsibility to the divisional mangers so that they have a freedom of making decision in their division and it will not only cut the lengthy decision flow from the top management , it also have a sense of recognition to all the people working in the particular department.