Fraud Prevention
Internal Controls
At times, it is difficult as a business owner to stand back and evaluate their business. You live it day in and day out, and it can prove to be difficult to make clear decisions. We can provide an alternative solution to this problem and evaluate your company's operations from an unbiased standpoint. We can assess your internal control systems to determine the efficiency and effectiveness of your operating procedures. We can then make recommendations to help your company become more profitable by correcting any inefficient or ineffective operating procedures. The bottom line is that proactive, internal controls are one of the best fraud prevention tools for any organization to have in place.
Set-Up of Internal Controls
When setting up internal controls, remember management’s commitment sets the tone. That commitment or lack of commitment will send a signal to all employees on the importance of internal controls, accurate information, and fraud prevention. To protect assets and reduce risk, decide which areas need more internal controls: sales, accounts receivable, accounts payable, bank accounts, payroll, etc. In your business, who has access to the accounting program? Consider access limits and a formal back-up process. Also, developing an open door policy and reward incentives that encourage employees to report suspicious behavior is a great process to initiate. A survey was conducted by the Association of Certified Fraud Examiners that showed the primary weakness contributing to fraud was the lack of internal controls which accounted for over 32% of the cases.
Separation of Duties
A fundamental element of internal control is the segregation of certain key duties. The basic idea behind separation of duties is that the flow of transaction processing and related
activities should be designed so that the work of one individual is either independent of, or serves to check on, the work of another. It institutes a check and balance system to reduce the risk of undetected errors and limit opportunities to misappropriate assets or conceal intentional misstatements in the financial statements. The following functions should be separated among employees:
Testing & Maintenance
Controls can weaken over time and fail. If a control fails or events occur that are outside the parameters of the control system, this could be a warning sign that the systems need improvement. Possible causes could include:
-Lack of knowledge.
At times, it is difficult as a business owner to stand back and evaluate their business. You live it day in and day out, and it can prove to be difficult to make clear decisions. We can provide an alternative solution to this problem and evaluate your company's operations from an unbiased standpoint. We can assess your internal control systems to determine the efficiency and effectiveness of your operating procedures. We can then make recommendations to help your company become more profitable by correcting any inefficient or ineffective operating procedures. The bottom line is that proactive, internal controls are one of the best fraud prevention tools for any organization to have in place.
- Conduct surprise and regular audits.
- Provide fraud training for managers.
- Keep employees aware of fraud issues.
- Develop a code of ethics for employees and managers that enforces a fraud prevention policy.
- Conduct background checks when hiring new employees.
- Incorporate employee evaluations into performance reviews.
- Train employees about fraud prevention.
- Exhibit management commitment when infractions occur.
- Require mandatory job rotation and vacation time.
- Provide accessible, documented policies and procedures for employees.
- Conduct periodic inventory checks for equipment, inventory, cash, and other assets.
- Implement a check and balance system.
- Review and reconcile records routinely, by someone other than the preparer, to determine that transactions have been properly processed.
- Authorize transactions by a designated person in authority.
Set-Up of Internal Controls
When setting up internal controls, remember management’s commitment sets the tone. That commitment or lack of commitment will send a signal to all employees on the importance of internal controls, accurate information, and fraud prevention. To protect assets and reduce risk, decide which areas need more internal controls: sales, accounts receivable, accounts payable, bank accounts, payroll, etc. In your business, who has access to the accounting program? Consider access limits and a formal back-up process. Also, developing an open door policy and reward incentives that encourage employees to report suspicious behavior is a great process to initiate. A survey was conducted by the Association of Certified Fraud Examiners that showed the primary weakness contributing to fraud was the lack of internal controls which accounted for over 32% of the cases.
Separation of Duties
A fundamental element of internal control is the segregation of certain key duties. The basic idea behind separation of duties is that the flow of transaction processing and related
activities should be designed so that the work of one individual is either independent of, or serves to check on, the work of another. It institutes a check and balance system to reduce the risk of undetected errors and limit opportunities to misappropriate assets or conceal intentional misstatements in the financial statements. The following functions should be separated among employees:
- Approval
- Accounting/reconciling
- Asset custody
Testing & Maintenance
Controls can weaken over time and fail. If a control fails or events occur that are outside the parameters of the control system, this could be a warning sign that the systems need improvement. Possible causes could include:
- Constant changes in the company or the environment.
- Controls were not properly designed.
- A control is not being properly executed.
-Lack of knowledge.
We, at Searchlight Forensic Accounting, can assist you and your staff implement a set of internal controls that uniquely fits your circumstances, and help you set-up maintenance procedures to ensure the system is maintained and functional. Remember, a proactive
stance is the best approach to avoiding fraudulent behavior in your business.
stance is the best approach to avoiding fraudulent behavior in your business.