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The effect of internal controls on financial management
Purpose of internal controls in accounting
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What do we mean when we think of Check Fraud? It’s one of the largest challenges that are facing most businesses and financial institutions. This is due to counterfeiting through desktop publishing and copying to create or duplicate a check. There are several types of check fraud, they are; forgery, counterfeiting and alteration, paperhanging, check kiting. Forgery is when an employee issues a check without proper authorization. Counterfeiting is fabricating a check while Alteration refers to using chemicals and solvents such as acetone, brake fluid and bleach to remove or modify information on a check. Paperhanging is writing or ordering checks on closed accounts. Check Kiting is opening accounts at two or more locations and using “the float time” of available funds to create fraudulent balances.
When it comes to internal control within the accounting role, having a segregation of duties is very important to keep this internal control in force. The person who is generating the checks within the accounting department is not the same person who will be signing the checks. The person who is usually the signer would be the Controller of the company, the President, or whoever is appointed to take over this function of signing checks. This segregation of these duties works well if the check signer is providing all the necessary documents such as invoices in which these checks are being processed. The Internal Control Systems are rules and regulations in which the company uses to confirm its financial reports are reliable, its operations are effective and efficient, and that it complies with the applicable laws.
To prevent fraud and only pay what is needed by any company, the check signer should confirm any backup document su...
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...ndor name that may be very similar in name to a real vendor that your organization uses. Then the accountant can generate checks/payments to that vendor with a slight name change and obtain the signature, and deposit them into this personal account. To prevent someone within the company from committing fraud, due diligence has to be taken from a company that all internal control are in place.
Works Cited
Henry & Horn (2009) - Preventing Fraud – A Check Signer’s Responsibilities - http://www.hhcpa.com
Appendix 6.1: Internal Controls for Cash. (2013). In James Wahlen, Jefferson Jones, & Donald Pagach., Intermediate Accounting, (pp. 6_32-6_36). Mason, OH: South-Western. Retrieved November 25, 2013 , from Cengage Learning's eText Collection. via Cengage Learning's eText
National Check Fraud Center (1995-2011) – Check Fraud Prevention - http://www.ckfraud.org
Electronic confirmations are often used to verify bank balances, but they can also assist in the verification of a company’s vendors. Therefore, I am going to request confirmations from Wayland Manufacturing Company’s vendors after the client accepts my request. The electronic confirmations will prove each vendor’s existence as well as the accuracy of the accounts payable subsidiary ledger balances. Evidence collected from third-party sources must remain confidential and I maintain my integrity by only seeking evidence I am authorized to review. If I decide to request Cash electronic confirmations without consent, I am violating integrity, confidentiality, and professional due care (AU Section 330-The Confirmation Process 1998) (Arens, Elder, & Borsum 2013) (AICPA Code of Professional Conduct
deposit to the total amount of the checks. After the deposit has been verified and all numbers are correct, the teller will then run the checks through the proof machine to be verified again.
For Tenth National Bank, we have reason to believe that the client intercepted the paper confirmation. After we sent the paper confirmation to the bank, we received an email from Lou Jennings stating that the bank forwarded the confirmation directly to their office instead of sending it to the audit team. In addition, Mr. Jennings provided login credentials and a link to the bank’s website, which did not appear to be reliable. As per the video, “How to Fight Confirmation Fraud”, presented by the founder of confirmation.com, Brian Fox, a fictitious website can be created easily. Our skepticism toward the reliability of the website is based on the unresponsiveness of most of the links on the site; the only link that works is the login button. In addition the website appeared dated and rudimentary. Another factor we found quite strange is that the website only offers paper statement deliveries, which we find highly unusual since paper statements are easier to modify. Furthermore, based on the tracking provided by USPS, the letter is still in the shipping process with no indication that Tenth National Bank has officially received the request for confirmation. This further supports our theory that Lou Jennings intercepted the Tenth National Bank confirmation letter. In our o...
Reimers, Jane L. (2003). Financial Accounting A Business Process Application. Upper Saddle River, New Jersey, Prentice Hall.
Due to this, the confirmation process has become of high risk. Third party intermediaries have been established to assist in this process by securely transmitting information to the bank and validating the authenticity of the respondent. The use of third-party intermediaries makes it more difficult for anyone to alter confirmation requests. There are risks that come with the use of third party intermediaries because the intermediary’s control weaknesses or deficiencies fall on the auditors as well when relying on confirmations received through them. Auditors must assess that the intermediary’s system of internal control has been designed and is operating effectively to meet the PCAOB
Donal E. Kieso, Wegandt J. Jerry, Warfield D. Terry. (2012). Intermediate Accounting. Hoboken, NJ: Wiley.
The stereotypical image correlated to the account mirrors that of a public accountant. An individual working as a public accountant can expect to work as an independent third party to a multitude of companies. As this third party it is their duty to oversee financial transactions to ensure that the statements of not only the company, but also its’ supporting companies, correctly correspond and match up to the position, results and cash-flow of the clientele. This general quota outlining a public accountants job description is not the same for a private accountant. The main difference between a public and private accountant is that unlike the public and its handle on a multitude of accounts, a private accountant specializes with a certain company or field. With this specialization, a private accountant tackles setting up a system that records the transactions within the business. The recordation of the transactions is then generated into statem...
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
Residual fraud risks could be included in the report. Because high cost and time consuming, some controls may be not using. Fraud risks can be addressed by accepting the risk of a fraud based on the perceived level of likelihood and significance, increasing the controls over the area to mitigate the risk, or designing internal audit procedures to address specific fraud risks. Management needs to implement the right level of controls based on the risk tolerance it has established for the
Albrecht, W. S., Stice, J. D., Stice, E. K., & Skousen, k. F. (2002). Accounting Concepts and Applications. Cincinnati: South-Western.
ABSTRACT: The quantity of accounting fraud cases keeps on rising. Fraud is a consistent thing that will reliably be around, and in a bigger number of routes than just a single. An extensive apportionment of organizations out there fighting fraud, either from within the organization, or from outside the organization. Knowing how to manage this is essential for an organization to be productive over an extended period of time. The investigation regarding the matter of accounting fraud will utilize sources from the web and the DeVry School Library.
(6)In order to ensure safety of company property, the company bank account should be monitored by someone out of the account payable department. However, in this system, there is no such person who could reconcile the account. As a result, it is difficult to measure whether the payment is equal to the value of purchased good. On top of that, treasurers and account payable clerks can hardly be controlled. The owner of this business is recommended to find some trusted and reliable accountants as supervisors of the company bank account. And the company should also design a system which requires the authorised fingerprint for each payment. This can maximize the protection of the company's property.
Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting: What the Numbers Mean. 5th ed. San Francisco: Irwin/McGraw-Hill.
Maintaining a company’s financial assets is a daunting task. Cash management techniques and short-term financing provide accounting executives with the tools needed to survive the constant changes within the economy. The combination of these tools and the knowledge of the world economy will assist companies in maintaining current assets and facilitates growth.