C4 - Internal Control Systems & Fraud

Question 1

Examples of internal control systems

Answer 1

• money limits for certain transactions
• levels of responsibility for authorising transaction
• referral of decision making to another person when required

Question 2

What is meant by segregation?

Answer 2

More than one person is involved in the processing of a transaction.

Question 3

Potential problems with poor accounting systems??

Answer 3

• 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

Question 4

Examples of fraud within the work force??

Answer 4

• loss of money - stealing from petty cash
• loss of inventory - staff stealing products
• loss of time - disappearing from work to do something else

Question 5

What is meant by fraud??

Answer 5

The use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to someone else or an organisation.

Question 6

What is meant by theft

Answer 6

Dishonestly taking someone else’s property such as bag/purse

Question 7

What is meant by false accounting

Answer 7

Dishonestly destroying, defacing, concealing or falsifying an accounting record for personal gain

Question 8

Meaning of bribery and corruption

Answer 8

Taking or giving a bribe that might influence the actions of others

Question 9

Meaning of deception

Answer 9

Obtaining property, money or services by deception

Question 10

Methods of prevent fraud

Answer 10

• fraud staff (ex police)
• management supervision
• segregation
• lock & key
• authorisation

Question 11

What’s the purpose of internal control systems?

Answer 11

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.

Question 12

Examples for the types of internal controls:

Authorisation

Answer 12

Purchase invoices over £1000 need to be authorised by the finance director

Question 13

Example of the type of internal control:

Physical

Answer 13

Passwords kept on computers for personal data such as wages

Question 14

Example of the internal control:

Arithmetical and accounting

Answer 14

Reconciling the bank to make sure it balances and no errors are found

Question 15

Fraud prevention:

Fraud staff

Answer 15

Large organisations may appoint employees who work full time on fraud prevention and detection.

Question 16

Fraud prevention:

Management responsibility

Answer 16

Managers should be given specific areas to manage so keep the risk of fraud as low as possible

Question 17

fraud prevention:

Management supervision

Answer 17

Management supervising (overseeing and checking) accounting activities on a regular basis.

Question 18

Fraud prevention:

Segregation of duties

Answer 18

Duties are given to different people so errors and fraud can be detected

Question 19

Fraud prevention:

Lock and key

Answer 19

Physical security is the best way to prevent theft. This also applies to business assets such as laptops and phones.

Question 20

Fraud prevention:

Authorisation

Answer 20

Accounting activities may require authorisation.

Petty cash authorisation
Signing cheques
Authorising purchase invoices over £2500

Question 21

What are some danger signs when detecting fraud??

Answer 21

• 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

Question 22

What are the 8 types of internal controls?

Answer 22

Segregation of duty 
Authorisation 
Management 
Supervision 
Physical 
Organisation
Personnel 
Arithmetical & accounting

Question 23

What is meant by organisational controls?

Answer 23

A clear identification of who is responsible for what within an organisation

Question 24

What is meant by management controls?

Answer 24

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.

Question 25

What is meant by personnel control?

Answer 25

Organisation must be able to carry out their roles competently to prevent errors