This will serve to prevent frauds by boosting the awareness of senior employees who will refrain from committing frauds by virtue of the constant review of activities.
Also the periodic review of Company operations makes it difficult or impossible for Company’s employees to perpetrate frauds: constant review of actual performance against budget will deter perpetration of errors and frauds.
In addition, management will prevent errors and frauds by supervising other controls such as division of duties within the accountancy departments, providing routine and automatic checks supplemented by the use of the internal audit function to continuously review the level of such internal checks.
- Physical controls
The controls are used such that they limit access to Company’s portable, exchangeable, desirable assets, which would have been misused, for personal gains.
They work as follows:
a. Use of strong locks or doors to limit access to Company’s assets.
b. Use of cash registers to increase accountability and ensure all cash receipts are recorded.
c. Use of pre-numbered documents kept under lock and key to avoid their misuse for personal gains and consequent misappropriation of Company’s assets.
d. Use of closed circuit Tvs to warn off would be fraudulent individuals who will then keep away from misappropriating the Company’s assets.
All physical controls make it difficult to misuse the Company’s assets by limiting access.
- Segregation of duties
Various duties are segregated to minimise chances of frauds by boosting automatic checks, accountability and supervision e.g. The employee receiving cash should not
be the same one banking the cash collected.
Authorisation and approval should not be in the hands of a person who will execute that
duty. Recording should not be done by a person who authorised the transaction.
However, this segregation of duties should be done so that appropriate duties are given only to those with competence and necessary qualification to enforce such controls effectively.
- Arithmetic and accounting controls
Proper recording of transactions according to the principles of Generally Accepted Accounting Principals (GAAP) will prevent frauds such as manipulation of accounts. Periodic balancing of entries, that is reconciliation, will boost the awareness of accounting staff who may then refrain from committing frauds. It will also include the continuos review of monthly accounting statements which will serve to prevent frauds as exorbitant expenditure should be identified and investigated.
Any ICS should be implemented by qualified, competent and efficient personnel as they are less likely to perpetrate frauds if they have such personal qualities. The Company’s employees should be motivated and properly remunerated - two features that serve well to prevent frauds. The careful selection of employees taking into account human qualities (honesty and integrity) serve to prevent fraud as such virtues will increase the quality of the management team. Career development prospects will also be important factor in this regard.
- Routine and automatic checks
This control will minimise frauds through:
i. Boosting awareness that work will be continuously checked.
ii. Increasing accountability by reducing the possibilities of successful deception.
iii. Boosts the importance of being honest within the business.
- Control of documents
Sensitive documents will be kept under lock and key and this serves as a deterrent measure against frauds because it limits access to assets that these documents represent. The documents should be serially numbered or pre-numbered to avoid their misuse and to monitor the movement of receipts and other documents.
Also controlled authorisation of the use of the documents makes fraudulent conversion much harder for the aspiring criminal who will be forced to produce sophisticated plans in order to overcome internal controls of the business.
- Rotation of duties
This control works to prevent frauds by ensuring a sense of responsibility among the personnel to be rotated and also increasing visibility of their work to their supervisory management as an indirect check on the employee concerned. Additionally, he will also be checked by the person taking over from him which will additionally serve to prevent fraud.