ACCT 201 1st Edition Lecture 17 Outline of Last Lecture I Recording purchases of merchandise Outline of Current Lecture II III IV Fraud Internal Control Sarbanes Oxley Act SOX Current Lecture Fraud is a dishonest act by an employee that results in personal benefit to the employee at the cost to the employer Fraud is not 100 avoidable The best defense against fraud is internal controls which consists of all the related methods and measures adopted within an organization to safeguard assets enhance the reliability of accounting records increase efficiency of operations and ensure compliance with laws and regulations When we have these internal controls together they create a control environment All fraud is calculated stealing and everyone has a difference risk tolerance Enron was the first time in the digital age that a corporate fraud scandal came to light The government stepped in after people were very upset about the safety of their funds Congress addressed this issue by passing the Sarbanes Oxley Act SOX Under SOX all publicly traded U S corporations are required to maintain an adequate system of internal control In addition independent outside auditors must attest to the adequacy of the internal control system Companies that fail to comply are subject to fines and company officers can be imprisoned Companies are assessed once a year This gives a stronger sense into the general public to make investments Common examples of internal controls 1 Physical security a lock on a door fences alarms cameras 2 Establishment of responsibility identifying who is in trouble if the company doesn t do what they re supposed to Control is most effective when only one person is responsible for a given task 3 Segregation of duties different individuals should be responsible for related activities the responsibility for record keeping for an asset should be separate from the physical custody of that asset These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 4 Independent internal verification involves the review of data prepared by employees like cameras showing tellers counting money or casinos watching the dealers 5 Document procedures writing down a list of the rules documents that provide evidence that transactions and events have occurred ex WVU code of ethics 6 Human resources controls background checks bond employees who handle cash bonding involves obtaining insurance protection against theft by employees security clearance