Chapter 6 & 7

• FRAUD: Dishonest act by an employee that results in personalbenefit to the employee at a cost to the employer.
• Three factors that contribute to fraudulent activity.

  opportunity, financial pressure, rationalization
• Sarbanes-Oxley requires public companies to have internal controls over their accounting systems and procedures.
• INTERNAL CONTROL

  • Safeguard assets
  • Enhance accuracy and reliability of accounting records
  • increase efficiency of operations
  • ensure compliance with laws and regulations
• Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to: Safeguard its assets
• Five Primary Components of Internal Controls: Control Environment, Risk assessment, Information and communication, Monitoring, and Control activities. CRIME
• PRINCIPLES OF INTERNAL CONTROL ACTIVITIES

  1. Establishment of Responsibility
  2. Segregation of Duties
  3. Documentation Procedures
  4. Physical Control
  5. Independent Internal Verification
  6. Human Resources Controls
• The principles of internal control includes:

  establishment of responsibility

  documentation procedures

  independent internal verification
• Establishment of Responsibility

  Only designated personnel are authorized to handle cash receipts ( cashiers)
• Documentation Procedures

  Use remittance advice(mail receipts), Cash register tapes or computer records, and deposit slips.
• Segregation of Duties

  Different individuals receive cash, record cash receipts, and hold the cash
• Human Resource Controls

  Bond personnel who handle cash require employees to take vacations; conduct background checks
• Independent Internal Verification

  Supervisors count cash receipts daily; assistant treasurer compares total receipts to bank deposits daily
• Physical Controls

  Store cash in safes and bank vaults; limits access to storage areas; use cash registers