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control procedures so that the actions of employees will be congruent with the goals of management or the owners. The following five primary control procedures are necessary:1. Segregation of duties, or dual custody. Segregation of duties involves dividing a task into two parts so that one person does not have complete control of the task. 2. System of authorizations. Authorization control procedures take many forms. Passwords authorize individuals to use computers and to access certain databases. Signature cards authorize individuals to enter safe deposit boxes, to cash checks, and to perform other functions at financial institutions. Spending limits authorize individuals to spend only what is in their budget or approved level
Control Activities (Procedures)(Procedures)133. Independent Checks. If people know that their work or activities will be monitored by others, the opportunity to commit and conceal a fraud will be reduced. Mandatory vacations, periodic job rotations, cash counts or certifications, supervisor reviews, employee hot lines, and the use of auditors are forms of independent checks4. Physical Safeguards. Physical safeguards, such as vaults, safes, fences, locks, and keys, take away opportunities to commit fraud by making it difficult for people to access assets. Money locked in a vault, for example, cannot be stolen unless someone gains unauthorized access or unless someone who has access violates the trust
Control Activities Control Activities (Procedures)(Procedures)145. Documents and Records. Documents rarely serve as preventive controls but provide excellent detective controls. Without documents, no accountability exists. Without accountability, it is much easier to perpetrate fraud and not get caught
Factors that Allow Frauds to OccurOccur15Inability to judge the quality of performance. If you hire a lawyer, a doctor, a dentist, an accountant, an engineer, or an auto mechanic, it is often difficult to know whether you are paying an excessive amount or receiving inferior service or products. With these kinds of contracts, it is easy to overcharge, perform work not needed, provide inferior service, or charge for work not performed.Failure to Discipline Fraud Perpetrators. The next highest rate of repeat offenders is probably fraud perpetrators who are not prosecuted or disciplined. An individual who commits fraud and is not punished or is merely terminated suffers no significant penalty and often resumes the fraudulent behavior. Lack of prosecution can give others a “perceived opportunity” that, when combined with pressure and rationalization, can result in additional frauds in the organization
Factors that Allow Frauds to Occurto Occur16Lack of Access to information. Most investment scams and management frauds are dependent on the ability to withhold information from victims. Individuals can attempt to protect themselves against such scams by insisting on full disclosure, including audited financial statements, a business history, and other information that could reveal the fraudulent nature of such organizations. Certain