Big Business, Small Office: Implementing Increased Controls to Reduce Risk of Fraud, Errors and Misstatements

Abstract

As a business owner you open doors to management, staff, and accountants to operate the daily activity of finances and assets of your company. You anticipate due diligence however you can also face potential for fraud, errors and risk. The purpose of this paper is to review the existing internal controls in a small office setting while determining where strengthening controls can reduce misstatements or fraudulent activity. Identifying strengths, limitations, and weaknesses in existing controls will assist to recognize recommendations for Information Technology (IT), Accounting and Entry level controls. Monitoring these areas of controls increases your organizations reliability and more specifically provides a truer representation within financial reporting.

Table of Contents

Abstract2

Internal Controls4

Purpose of Internal Controls4

Understanding the Entity & its Environment4

Corporate Responsibility5

Management Philosophy & Operating Style5

Stakeholder collaboration6

Governance6

Management7

Provide Oversight and Review8

Audit Committee Participation8

Organizational Structure8

Framework of Existing Controls8

IT General Controls9

Control Environment9

Risk Assessment Strengths & Weaknesses9

Summary10

Recommendations10

Conclusion11

References12

Big Business, Small Office: Implementing Increased Controls to Reduce Risk of Fraud, Errors and Misstatements

Internal Controls

Internal control are essential element in reducing fraud and risk, internal control involves looking after things, which can help in maintaining the financial information that depicts accurate position of company, internal controls includes segregation of duties, policies and procedure, it includes safeguarding of assets and red flags for fraud, these red flags are different checks in accounting process, moreover without internal control company will be seen as unlocked door with the drawer cash register, with the hope that no person will steal money. On the other hand, declining trend of economy can result in a great loss for specific people in company if controls are not placed. There are many employees in companies who are honest, but these can be tempted and there is a strong probability that employee can be involved in embezzlement, when they see a large sum of money in front of them. This fact is true, particularly if owner of business have not implemented any internal control, or deployed a shared control for controlling finance of business (Ratliff, R. L 1988).

Without implementation of proper internal control owner of business can never get awareness about the completion, accuracy, or reliability of information. Time variable should be considered as one of the important element for reviewing and implementing internal control policy. Once company policy is developed, management should make sure that developed controls are followed, Red flags, safeguarding of assets and segregation of duties can be found helpful for implementing the internal control system (Chambers, A. D. 1996). Fraud is a larger issue, as many growing businesses need to cope up with many threats, economic changes, competition, and increasing costs of goods. On the other hand larger threat to business can be looming killer resulting in silent fraud. Fraud results in many different forms that include check fraud and credit card fraud and theft of employee as well. Common category of employee theft includes filch of assets with schemes of fraudulent billings or directly, or tampering of ...