ch 6 ntoes - Reporting and Analyzing Cash and Internal...

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Reporting and Analyzing Cash and Internal Controls I. Internal Controls A. Purpose 1. Management can not supervise every detail of policy and procedures a) Policy and procedures are set up to ensure safety of assets and efficiency b) Internal controls fill the gap between lack of supervision and necessity of policy and procedures B. Internal controls are procedures managers use to 1. Protect assets 2. Ensure reliable accounting 3. Promote efficient operations 4. Urge adherence to company policies C. Functions (principles) 1. Establish responsibilities a) Each worker has clearly defined jobs and tasks b) Makes detecting source of fraud easy 2. Maintain adequate records a) Records can be used to trace the source of fraud 3. Insure assets and bond key employees a) Insures expensive assets against theft and misuse b) Bond against theft or fraud committed by employees 4. Separate recordkeeping form custody a) Two employees must coordinate efforts in order to commit fraud 5. Divide responsibility for related transactions a) Where work of one employee ends, work of another employee begins b) Fast detection of fraud; following employee notices a problem 6. Apply technological controls a) Passwords b) Limited access to spaces 7. Perform regular and independent reviews a) Checks the efficiency of policy and procedures b) Preformed by internal and external auditors D. Technology and internal controls
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1. Reduced processing errors a) Disadvantage: assume data is accurate 2. Limited evidence of processing a) Advantage: makes theft of important information more difficult b) Disadvantage: makes tracing fraud more difficult 3. Increased e-commerce a) Advantage: online transactions are quick and inexpensive b) Disadvantage: identity theft 4. Crucial separation of duties a) Advantage: allows for easy manipulation of data and consolidation of jobs b) Disadvantage: limits checks and balances making fraud easier to commit 5. More extensive testing of records E. Limitations 1. Human error a) Humans become exhausted by adherence to policy and procedures b) Humans become confused by policy and procedure 2. Human fraud a) Intent to defeat for personal gain 3. Costs of internal controls must outweigh the benefits of internal controls
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ch 6 ntoes - Reporting and Analyzing Cash and Internal...

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