Chapter_7_Internal_Control

Chapter_7_Internal_Control - Chapter 7 Internal Control...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7 Internal Control Internal control strives to protect assets, provide accurate information, and provide compliance with the law. The Sarbanes-Oxley Act 2002. Chief executives and chief financial officers are ultimately responsible for maintaining strong internal control and for their company financial reports. Post Sarbanes-Oxley. Bernard Madoff ran a 50 billion (with a b) dollar Ponzi scheme. Despite repeated warnings from whistle-blower Harry Markopolos there was no timely investigation of Madoff. At the time of his arrest Madoff was having difficulty paying off early investors. There is a second case similar to Madoff. Allen Stanford has been arrested and charged (the trial has not taken place yet so Mr. Stanford is entitled to a presumption of innocence) with an 8 billion scheme. Not everyone is convinced the Sarbanes-Oxley has been the success pictured in the text. Elements of internal control. The control environment is the attitudes and structure created by management. Enron is an example of arrogant attitudes and poor structure. Fastrow (the CFO) negotiated against his own subordinates at Enron on behalf of his partnerships. No one was allowed to question this arrangement. Risk assessment evaluates risk and the cost of controlling it. Avoiding risk by doing nothing is too high a cost. Control procedures are created to help achieve business objectives. Competent personnel, rotating duties, and mandatory vacations help achieve objectives and protect assets. Competent employees are the first line in achieving objectives. The last time I had my air conditioner serviced the technician related the story of a service call in which the customer wanted Freon pumped into their leaking 15 year old system at no charge. This would violate company objectives and anti pollution laws. Rotating duties on an unannounced basis greatly increases the rise that a fraud will be detected. To cover a fraud I have to do something wrong. The person that rotates in behind me will run the system correctly and not balance. I’m discovered. Mandatory vacations keep me from staying in the office to cover my fraud. Separating responsibilities for related operations is critical . This one sounds bad. People must be responsible for their operations; however they should not verify their operations. I should not order, receive and pay for supplies. If I can sign checks I cannot reconcile the checkbook. Signing checks and reconciling the checkbook is one of the most violated prince
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Proofs and security measures should be taken. Expense accounts should be checked. The checkbook should be reconciled as an independent verification of cash. Information
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/22/2011 for the course ACCT 2021 taught by Professor Leonard during the Spring '11 term at St. Petersburg College.

Page1 / 5

Chapter_7_Internal_Control - Chapter 7 Internal Control...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online