The cases of corporate fraud have increased recently where organizations have suffered huge financial losses as a result of this practice. To curb this problem, accounting and audit professional bodies have come up with comprehensive internal control requirements that need to be adopted by public organization to minimize cases of fraud and risks mismanagement (Sebastian, 2011). This paper analyses how these rules can be implemented in the organization.
Benefits of internal control programs
A good internal control program provides management of the organization with an assurance, which is independent on the effectiveness of governance. The program will ensure that there is effective evaluation of all the controls for the risks the organization may be facing. The internal audit department will provide audit committees and the board with the information they require to assure them that all the risks of the organization are managed effectively. The internal audit manager will work together with the financial directors and other departmental heads to ensure that all the operations of the organization are controlled effectively. This will expose any form of risk the organization may be facing such as non-financial and financial fraud, risk of business continuity, risks of data security, reputation risks, and other risks that are related to acquisition strategy and supply chains (Zain et al., 2006). The internal control department is strategically placed to provide an independent professional judgment on the effectiveness of internal control processes in the whole organization as well as how risk are managed. Good internal control will ensure that the organization will be more effective on meeting its objectives towards all the stakeholders. Internal auditors have deep knowledge about the organization compared with the external auditors which enables them to look at the financial and non-financial control more effectively. Internal auditors know all the procedures, systems and operations of the whole organization which give them an upper hand when it comes to understanding the risks that may be facing the organization.
Specific benefits to the organization Procedures for detective controls
The procedures for internal control that the organization may implement include:
a) Duties segregations
The internal control department manager may segregate or divide duties among different individuals to reduce chances of inappropriate actions or errors. For example, the duties of receiving checks or cash, deposit preparation in the cashier’s office and reconciling the balances and receipts should be assigned to different individuals rather than being assigned to one person.
b) Structural organization
There should be clear separation of responsibilities and authority to ensure that employees know the office or manager to whom they can report any problem related to their duties and operations of the whole organization. The management should also establish effective procedures and policies that should govern the behaviors of the employees. This may include rules and regulations to guide employees when they are doing their duties and also give disciplinary actions that will be taken against those who breach these rules.
c) Authorization and approval
All the transactions of the organization should be appropriately approved and authorized to ensure that all the funded activities are in line with the goals and objectives of the organization. The person who authorizes such payment should have the required authority and ability to make informed decision.
Fraud hotline will be an added advantage to the organizations’ efforts to fight fraud from within and from outside (Sweeney, 2008). Employees will be able to report on time any detected form of fraud in their respective departments. This will enable management to take the necessary action immediately which will stop such fraud or call for further investigations to establish whether the fraud has already taken place. Development of fraud hotline enhances cooperation among all the employees in fighting fraud since it encourages them to report any irregularities in their department.
In order to implement a fraud hotline in the organization, an email address, telephone number or a post office box may be launched to facilitate reporting of fraud cases from within or outside the organization. The following steps may be followed to create a fraud hotline:
Provide a telephone hotline where employees can report any cases of fraud in their areas of working. The line should be confidential and open most of the hours within the week.
Provide a post office box which is confidential where employees can write to report any irregularities in the organization.
It is necessary for the organization to adopt the comprehensive internal program provided by the accounting and audit bodies to prevent and detect different types of fraud. The program has many benefits such as improving its efficiency and effectiveness, protecting employees, and ensuring there are checks and balances in the organization.
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Sebastian, S., (2011Status of GAO Financial Audit and Related Financial Management Report Recommendations.). GAO Reports, preceding 1-106.
Sweeney, P., (2008). Hotlines Helpful for Blowing the Whistle. Financial Executive, 24(4), 28-31.
Zain, M., Subramaniam, N. & Stewart, J., (2006). Internal Auditors’ Assessment of their Contribution to Financial Statement Audits: The Relation with Audit Committee and Internal Audit Function Characteristics. International Journal of Auditing, 10(10), 1-18.