Fraud, Ethics, and Internal Controls

Fraud, Ethics, and Internal Controls

Chapter 7 – Fraud, Ethics, and Internal Controls

This chapter will also introduce the topic of workplace fraud and the components required to design a system of internal control. After we have completed this chapter, you should be able to:
1. Describe the major types of workplace fraud.
2. Explain the purpose or goals of an internal control system.
3. Define and discuss some basic internal control principles that should be followed when setting internal control policies.

Key Points to Remember:

1. Types of workplace fraud
1. Asset misappropriation – theft or misuse of the employer’s resources
2. Corruption – wrongful use of influence in a business transaction with the result that the employee receives financial gain at the expense of the employer
3. Fraudulent financial statements – falsification of financial statements

2. Internal control – the policies and procedures by which management
1. Protects the assets of the company
2. Ensures the accuracy and reliability of the accounting records
3. Promotes efficient operations
4. Urges adherence (compliance) to company polices

3. Principles for designing internal control activities or procedures
1. Establish responsibility – authorization for completion of transactions/events
2. Maintain adequate documentation and records – establishes policies and recordkeeping practices for documenting and recording transactions or events
3. Insure assets and bond key employees -- insure assets against loss and require employees that handle large amounts of cash to be bonded by an outside agency
4. Separation of duties – separate the authorization of transactions, handling of assets, and recordkeeping of those assets
5. Physical (technological) controls – maintain physical protection of assets and accounting records
6. Periodic independent verification – establishes system for reviewing/verifying accounting records and assets

4. Limitations to...

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