Maintaining a strong system of internal controls is a key ingredient of a solid accounting system. The accounting system needs to be set up in a way that deters employees from intentionally or unintentionally misappropriating company funds.
Internal controls encompass the entire system of controls, both financial and non-financial. The processes should provide reasonable assurance of effective and efficient operation, internal financial control, and compliance with laws and regulations. Although the primary purpose of internal controls is to safeguard the company’s assets, strong internal controls should also provide a business owner with confidence that:
- company goals and objectives will be met.
- reliable financial reports will be produced.
- effective and efficient operations are encouraged.
- assets are protected.
- compliance with laws and regulations is ensured.
One of the most common areas of fraud within a custom builder’s organization is fraudulent disbursement of cash. Strong internal control over cash receipts and disbursements needs to be established to safeguard the company’s cash assets.
Check tampering is a type of fraudulent disbursement scheme whereby an employee either prepares a fraudulent check for his own benefit or intercepts a check intended for a third party and converts the check to his own benefit.
Separation of duties is the most important control function for preventing and detecting check-tampering schemes. Any serious attempt to control check tampering will include a system in which the following duties are segregated:
- check cutting (and posting)
- check signing
- check delivery
- bank statement reconciliation
