Question

Class, I want to mention Weak Internal Controls. Exploitation is easily manageable in situations like this and all too often, companies suffer the consequences of loss which is financially more stressful than if they had taken the time and effort to do it right from the beginning. One of my greatest stresses as an auditor is writing up an institution for lack of internal controls only to find that management deems my recommendations too expensive to remedy....then come the loss and in more cases than not, the loss is larger than the cost they would have incurred if they had just listened to the auditor in the beginning....Make sense?

Answer 1

The above statement is true that the company should have strong internal control.

Internal control is a system that is designed by the top management in order to ensure that all the activities of the organization is conducted in the manner it is designed and which ultimately help the organization in achieving the goal of the company. Further, there are three types of internal control one is preventive, other is detective and the last one is corrective.

The basic objective behind the internal control is:

1. All the transaction is duly authorized.

2. To ensure that no transaction is omitted from the books.

3. All the transactions which are entered in the books is accrurate

4. There must be safeguarding of the resources of the company

5. There is proper segregation of duties

Some of the advantage it provide are as under:
1. It helps in keeping the moral check on the staff

2. It help the management in receiving correct information

3. It ensures that the data entered into the system is accruate

4. It help in safeguarding the assets of the company

5. It helps in identifying the fraud and error.

If internal control is applied properly in the organization then it may be initially costly, but it help in preventing various fraud which may prove more costlier. We have lots of example of the same like dot.com bubble where due to lack of proper internal control, it then turned out to be one of the most discussed fraud.

I have answered the question if you have any doubt do give comment, if you are satisfied then give a thumbs up.