2. internal control
TRANSCRIPT
Universidad CuauhtémocCampus Aguascalientes
Análisis de CostosMaestría en Administración
INTERNAL CONTROLSINTERNAL CONTROLS
Internal Controls
Contents
1 Issues you would face
2
Objectives & Elements3
Real World4
Internal Control Concept
Internal Controls
Issues you would Face
Some of the issues you would face as a manager in controlling the operation of a business are:
Service or product must be provided on time. Quality must meet customer expectations. Employees must provide work for the hours they are
paid. Work equipment should be used for business purposes
only. Vehicles should be used for business purposes only. Customers must be billed and bills collected for services
redered.How would you adress some of these issues?
Internal Controls
Concept
Internal Controls are the policies and procedures that protect assets from misuse, ensures that business information is accurate, and ensures that laws and regulations are being followed.
Business use internal controls to guide their operations and prevent abuses of their systems.
Internal Control Objectives
Assets Safeguard
Accurate Information
Laws & Regulations Compliance
Control Environment
Internal Controls
Assets are safeguard and used for business purposes only
Employees comply with laws and regulations.
Business information is accurate
Risk Assessment
Control Procedures
Monitoring
Information & Communication
Internal Control ElementsInternal Controls
Control EnvironmentM
anag
emen
t
Risk Assessment
Control Procedures
Monitoring
Information & Communication
1. Control environment2. Risk assessment3. Control procedures4. Monitoring5. Information and communication
Elements of Internal ControlInternal Controls
Management philosophy and operating style influences the
control environment.
Management philosophy and operating style influences the
control environment.
Internal Controls
Control Environment
Internal Controls
1. Control environment2. Risk assessment3. Control procedures4. Monitoring5. Information and communication
Elements of Internal Control
Once risks are identified, they can be analyzed to estimate their significance, to assess their likelihood of occurring, and to determine actions that will minimize them.
Once risks are identified, they can be analyzed to estimate their significance, to assess their likelihood of occurring, and to determine actions that will minimize them.
Internal Controls
Risk Assessment
Internal Controls
1. Control environment2. Risk assessment3. Control procedures4. Monitoring5. Information and communication
Elements of Internal Control
Internal Controls
Competent Personnel Rotating Duties Mandatory Vacations Separating Responsibilities for
Related Operations, Custody of Assets, and Accounting (Segregation of Duties)
Proofs and Security Measures
Control Procedures
Process
Accounting
Operations Custody of Assets
Receiving SuppliesPurchasing of Supplies
Paying Supplies
Segregation of DutiesInternal Controls
Independent check
Independent check
Independent check
1. Orders may be placed on the basis of friendship with a supplier, rather than on price, quality, and other objective factors.
2. The quantity and quality of supplies received may not be verified, thus causing payment for supplies not received or poor-quality supplies.
3. Supplies may be stolen by the employee.
4. The validity and accuracy of invoices may be verified carelessly.
Otherwise, the following abuses are possible:Otherwise, the following abuses are possible:
Internal Controls
Segregation of Duties
1. Control environment2. Risk assessment3. Control procedures4. Monitoring5. Information and communication
Elements of Internal ControlInternal Controls
Warning Signs
1. Abrupt change in lifestyle (without winning the lottery).
2. Close social relationship with suppliers.
3. Refusing to take a vacation.
4. Frequent borrowing from other employees.
5. Excessive use of alcohol or drugs.
1. Missing documents or gaps in transaction numbers (Could mean documents are being used for fraudulent transactions).
2. An unusual increase in customer refunds (refunds may be phony)
3. Differences between daily cash receipts and bank deposits (could mean receipts are pocketed before being deposited).
4. Suden increase in slow payments (employee may be pocketing the payment).
5. Backlog in recording transactions (possibly an attempt to delay detection of fraud).
1 2
Internal Controls
An accounting clerk for the Grant County (Washington) Alcoholism Program was in charge of collecting money, making deposits, and keeping the records. While the clerk was away on maternity leave, the replacement clerk discovered a fraud: $17,800 in fees had been collected but had been hidden for personal gain.
A 1996 survey by KPMG, an international accounting firm, identified expense accounts manipulation, receiving payments from suppliers for favorable purchase treatment (kickbacks), purchase for personal use, and misappropriation of cash as the most typical methods of employee fraud. Based on a 1995 survey by Association of Fraud Examiners, annual fraud losses are estimated to be $400 billion in the United States, which for the average organization would be 6% of revenues or $9 per day per employee.
REAL WORLDInternal Controls
An employee of J.C Penney Co. was convicted of taking $1 million in bribes and kickbacks from suppliers in exchange for information about competitors´ bids. One of the prosecuting attorneys told the court. “This case will be discussed in corporate boardrooms… The message ought to be sent out that there´s a consequence to corporate fraud.”
REAL WORLDInternal Controls
In one of the largest frauds ever committed against a university, a former financial aid officer for New York University, was charged with stealing $4.1M from the state of New York. The aid officer allegedly falsified over a thousand tuition assistance checks to students who were not entitled to receive aid and who did not know about the checks. The aid officer deposited the bogus checks for personal use. The initial evidence of the fraud was the officer spending $780K on expensive jewelry.
Universidad CuauhtémocCampus Aguascalientes
Análisis de CostosMaestría en Administración