Chapter 7 I Fraud Internal Control A Fraud employee at the cost to the employer 1 Reason fraud occurs is a dishonest act by employees that result in the personal benefit to the i Opportunity workplace envrironment provides opportunities for employees to take advantage ii Financial Pressure too much debt or trying to live too nice of a lifestyle iii Rationalization make their actions seem like they are ok and deserve the money consits of all the related methods and measures adopted B Internal Control within an organization to safeguard assets 1 A control Environment Determine where risk is created and determine how to To reduce the occurance of fraud management must management makes it clear that organization does not tolerate unethical activity 2 Risk Assesment manage this risk 3 Control Activities design policies and procedures to address the specific risk faced by company Information Communication Internal control system must capture and communicate all info both down and up organization as well as communicate to appropriate external parties for their adequacy Deficiences need to be reported to top level management C Principles of Control Activities internal control systems must be monitored periodically 5 Monitoring 4 2 Segregation of Duties 1 Establishment of Responsibility control is most effective when only one person is responsible for a given task duplication of effort provide a reliable basis for evaluating the work of another employee the work of one employee should without a i Different individuals should be responsible for related activities ii The responsibility of record keeping for an asset should be separate from the physical custody of that asset 3 Documentation Procedures all documents should be accounted for and promply forward documents for accounting entries to the accounting department realiability of the accounting records Independent Internal Verification data prepared by employees Safeguarding assets and enhance the accuracy and pronciple involves the review of the 4 Physical Controls 5 i Companies should verify records periodically or on a surprise basis ii An employee who is independent of the personnel responsible for the information should make verification iii Discrepencies and exceptions should be reported to a management level that can take the appropriate corrective action 6 Human Resource Controls i Bonding involves obtaining insurance protection against theft by employees 1 background checks all employees 2 employees know that employees will prosecute to the fullest extent of the law ii Rotate employees and and require employees to take vacation iii Conduct Background checks on employees
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