Managerial supervision and reviews
During periodic reviews the management will possibly detect frauds through investigating variances from planned performance. Variances are revealed through the comparison of various performance parameters. Such comparisons of related but independently prepared statistics should be an essential internal check procedure. Strong supervision will detect frauds at their earliest stages. The supervisors will check unfavourable or irregular performance in the work place and identify those situations which, if allowed to develop, may expose the Company to losses.
These may enable management to detect frauds. Some of these controls such as automatic bells, automatic alarm systems, closed circuit TV will reveal frauds during the process of their perpetration.
Segregation of duties
In the process of executing transactions frauds will be revealed by personnel checking their colleagues and this will be brought to the attention of the senior management. By segregating duties company personnel are made aware of their duties and responsibilities, they will be motivated to advise their supervisors as soon as irregularities are discovered, and not cover them hoping that they will pass without notice.
Rotation of duties
This is effective in detection of frauds because the personnel taking over from their
colleagues will necessarily report existing irregularities if they wish not to be blamed forthem. This ensures that errors are discovered at early stages rather than when they are already advanced.
Routine and automatic checks
In so far as these are on a surprise basis, they may reveal frauds in their initial stages. The checks are made at a time least expected by the employees and they are caught unawares.
This lowers the possibility of initiating a fraud.
The period of absence can be used by the management to assess the volume of work in a particular position and through the report of the employee temporarily working in that position any corrupt practice can be independently revealed
Authorisation and approval
Authority limits are used to define the authority of an individual to execute or approve a specific transaction. If such authority is abused, then it is possible to identify who was responsible for any fraudulent conversion of frauds or misuse of assets that may have taken place.
Arithmetic and accounting controls
These are used to detect frauds as follows:
- a. Comparison of suppliers statements with the creditor’s ledger balance.
- b. Reconciliation of bank statements with cash at bank account.
- c. Accounting entries which do not agree either with Generally Accepted Accounting Principals (GAAP)or reasonable situations differing from the expected or budgeted situation.
- d. Reconciliation of customer’s statements with debtor’s account.
- e. Reconciliation of control a/c’s to detailed ledger totals i.e. stores ledger.