Internal Control/Anti-Fraud Program Design for the Small Business: A Guide for Companies NOT Subject to the Sarbanes-Oxley Act

CHAPTER 9 Control Activities Specific Control Areas

CONTROL ACTIVITIES FOR GENERAL PROCESSES were presented in Chapter 8. This chapter is devoted to the various control activities associated with specific line items on the financial statement, such as inventory or investments. It should be understood that all control activities will be a part of the control activities section of the final documented anti-fraud program as presented in Chapter 13.

The presentation in this chapter is formatted in the same manner as those control activities presented in Chapter 8. The introductory information included in that chapter applies equally to the control activities presented here.

FINANCIAL STATEMENT LINE ITEM CONTROL ACTIVITIES

Control Area: Cash in Bank

Condition: The individual responsible for performing bank reconciliations can also sign checks and perform electronic payments.

Fraud risk: Ability to perform and conceal fraudulent disbursements. An example is an employee’s ability to disburse funds for personal purposes, such as a personal mortgage payment or any of a multitude of other personal expenses. In this circumstance, the employee has the custody of the asset, can authorize transactions related to this asset, and has the ability to record transactions related to this asset. Therefore, the employee can conceal disbursement fraud for an extended period of time.

Control Activities ...