Controls for Fraud and Theft

In my previous news letter I ended with the following comment:

"Accountants design the internal controls for the bookkeeping system. This will help to minimize errors in the recording of daily data. These internal controls also helps with the detection of theft, embezzlement and fraud."

My next question is Why Have Internal Financial Controls?

Internal controls filter through the whole business to:

• Safeguard assets

Ensuring the business's physical and monetary assets are protected from fraud, theft and errors

• Prevent and detect fraud and error

Ensuring the systems quickly identify errors and fraud if and when they occur

• Allow action to be taken against undesirable performance

Authorising a formal method of dealing with fraud or dishonesty if detected

• Reduce exposure to risks

Minimising the chance of unexpected events

• Ensuring proper financial reporting

Maintaining accurate and complete reports required by legislation and management and minimising time lost correcting errors and ensuring resources are correctly and efficiently allocated

Each internal control procedure is designed to fulfil at least one of these eight criteria:

• Completeness that all records and transactions are included in the reports of business

• Accuracy the right amounts are recorded in correct accounts

• Authorisation the correct levels of authorisation, which cover such things as approval, payments, entry, computer access

• Validity that the invoice is for work performed and the business has properly incurred the liability.

• Existence of assets and liabilities. Has a purchase been recorded for goods or services that have not been yet received?

• Error handling that errors in the system have identified and processed

• Segregation of duties to ensure certain functions are kept separate. For example the person taking cash receipts does not also do the banking

• Presentation and disclosure timely preparation of financial reports in conformity with generally accepted accounting principles.

All internal controls, whether administrative or accounting, are linked to a financial consequence. For example, keeping records for long service leave entitlements is an administrative control but it does ultimately have a financial consequence.

Nasico Auditors will help you set up controls against Fraud and Theft. Call us for a free consultation. Let's help you succeed in your business...