Dollars and Sense: Controls key part of reducing fraud risk
In the aftermath of some of the largest accounting frauds in history, business owners and upper management should take a hard look at their organization&8217;s internal control structure. Although all businesses face some degree of risk, it is imperative that an organization employ sound internal controls to minimize this risk and prevent breaches of the internal control system.
Business owners and upper management should develop and manage their control structure to ensure assets are safeguarded, business information is accurate and employees comply with laws and regulations. Making certain that the above objectives are met should be high on any business&8217; priority list.
Regardless of the size of the organization, there are certain internal controls that should be in place and management personnel should strictly adhere to them. If management breaches the control structure, severe consequences will follow. Having a management team with organizational ownership and a reputable operating style will provide reasonable assurance that all internal control objectives are met.
Segregation of duties is the most important of the control procedures. There should be complete separation of employees who have custody of assets and those who prepare the accounting records. Separating these functions lessens the likelihood of employee fraud. Other essential control procedures are checks and balances, approval forms, competent personnel, rotating clerical duties and mandatory vacations.
Business practices in today&8217;s operating environment dictate that all organizations should have a code of ethics that is signed by all employees. However, some organizations are still operating without this policy. If your organization does not have a code of ethics, it is imperative that one be written in the very near future.
Communication between owners and managers, managers and employees and management and outside agencies is crucial in any organization. Accurate and timely business information is needed by owners and management to assess events and conditions that affect decision making. Implementing a sound internal control structure may be costly, but it makes good business sense