Chapter 6. Control Systems[*]

One of the chief roles of the CFO is to examine each process that involves financial transactions to see where there is a risk of losing assets, and installing control points that will prevent those losses from occurring. For example, a major potential weakness in the billing process is that the shipping department may never inform the accounting staff of a shipment, resulting in no invoice being sent to a customer. In this chapter, we review the need for control systems, the types of fraudulent activities that make the use of controls particularly important, and describe over 85 controls that can be added to the typical accounting system.

Since controls frequently have a cost associated with them, it is also possible to take them out of an accounting system in order to save money; we will discuss the process of spotting these controls and evaluating their usefulness prior to removing them.

Need for Control Systems

The most common situation in which a control point is needed is when an innocent error is made in the processing of a transaction. For example, an accounts payable clerk neglects to compare the price on a supplier’s invoice to the price listed on the authorizing purchase order, which results in the company paying more than it should. Similarly, the warehouse staff decides to accept a supplier shipment, despite a lack of approving purchasing documentation, resulting in the company being obligated to pay for something that it does not need. These ...

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