Internal controls

 

These are the policies and procedures companies use to protect assets, improve operating efficiency and ensure reliable financial statements. A strong system of internal controls, including fraud training programs and whistleblower hotlines, is a company's first line of defense against fraud. Other examples of internal controls that minimize fraud risks include:

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• Restricted access to physical assets, including locks, passwords,   electronic   surveillance   and  security systems. 

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• Formal job descriptions,  codes of conduct and employee manuals

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• Mandatory vacation and job rotation policies

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• Segregation   of duties,   such   as   record  keeping, authorization and custody over assets

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• Duplicate signatures on checks above a preset dollar amount

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• Monthly bank reconciliations and physical inventory counts

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• Background and reference checks on prospective job candidates

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• Have bank and credit card statements mailed or emailed to owner.  Owner then provides statements to bookkeeper (if bookkeeper reconciles the statements) 

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• Annual (or surprise) audits conducted by owners, internal auditors or a CPA firm.

 

Internal controls can be intentionally circumvented and thus are less effective if managers override the system or become lax in supervising subordinates. These loopholes undermine a company's efforts to detect and prevent fraud