Accounting System

This means that if someone takes an asset, they have no way of altering the records that record the assets existence, and the discrepancy will be noticed. Limit to access can be through physical locks, passwords for computer records, signatures required on checks, etc. The first person in the management chain that has access to assets and can order the records to be changed can cheat the system.

Accountability controls assign responsibility for assets and records to specific individuals. These managers must either prove that the assertions of accounting system are accurate or face repercussions, regardless of whether or not they are the cause of the discrepancy. The outcome of a discrepancy can be anything from a warning from management to a prison sentence.

Periodic, preferably unannounced, inventories and account reconciliations are detection controls.

The difficulty with internal controls is that management has the ability to override them. Misappropriation occurs when company assets are redirected for an employee's personal gain. Misrepresentation is when records are changed to assert financial data that is different from the truth. If several managers with overlapping accountability are working in collusion, the fraud is almost impossible to detect.

Finally, personnel policies must be set up to provide for a good control environment. Vacations should be mandatory so that ongoing adjustments to records can be caught. The personnel handbook should clearly state all required control activities and identify the persons accountable for each area of the business. Finally, people should be rotated among jobs so that they are trained to recognize when someone else is performing their duties incorrectly.

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