C4 - Internal Control Systems & Fraud Flashcards
Examples of internal control systems
- money limits for certain transactions
- levels of responsibility for authorising transaction
- referral of decision making to another person when required
What is meant by segregation?
More than one person is involved in the processing of a transaction.
Potential problems with poor accounting systems??
- poor training which means errors being made
- errors being made but not being picked up straight away due to poor checking processes
- fraud being committed
Examples of fraud within the work force??
- loss of money - stealing from petty cash
- loss of inventory - staff stealing products
- loss of time - disappearing from work to do something else
What is meant by fraud??
The use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to someone else or an organisation.
What is meant by theft
Dishonestly taking someone else’s property such as bag/purse
What is meant by false accounting
Dishonestly destroying, defacing, concealing or falsifying an accounting record for personal gain
Meaning of bribery and corruption
Taking or giving a bribe that might influence the actions of others
Meaning of deception
Obtaining property, money or services by deception
Methods of prevent fraud
- fraud staff (ex police)
- management supervision
- segregation
- lock & key
- authorisation
What’s the purpose of internal control systems?
To prevent everything becoming totally disorganised within the company.
For example: not having any levels of authority meaning anyone could make an expense purchase whether it’s a manager or assistant.
Examples for the types of internal controls:
Authorisation
Purchase invoices over £1000 need to be authorised by the finance director
Example of the type of internal control:
Physical
Passwords kept on computers for personal data such as wages
Example of the internal control:
Arithmetical and accounting
Reconciling the bank to make sure it balances and no errors are found
Fraud prevention:
Fraud staff
Large organisations may appoint employees who work full time on fraud prevention and detection.
Fraud prevention:
Management responsibility
Managers should be given specific areas to manage so keep the risk of fraud as low as possible
fraud prevention:
Management supervision
Management supervising (overseeing and checking) accounting activities on a regular basis.
Fraud prevention:
Segregation of duties
Duties are given to different people so errors and fraud can be detected
Fraud prevention:
Lock and key
Physical security is the best way to prevent theft. This also applies to business assets such as laptops and phones.
Fraud prevention:
Authorisation
Accounting activities may require authorisation.
Petty cash authorisation
Signing cheques
Authorising purchase invoices over £2500
What are some danger signs when detecting fraud??
- staff acting suspiciously
- staff working long hours and taking less than normal holiday time
- staff that holds a grudge against the company
- staff who’s short of money
What are the 8 types of internal controls?
Segregation of duty Authorisation Management Supervision Physical Organisation Personnel Arithmetical & accounting
What is meant by organisational controls?
A clear identification of who is responsible for what within an organisation
What is meant by management controls?
Periodic management checks should be taken place such as budget reviews and internal audits to make sure the company is running smoothly and everything is correct.
What is meant by personnel control?
Organisation must be able to carry out their roles competently to prevent errors
