(c) Controls to reduce the risk of fraud occurring again
Tutorial note: This type of fraud is known as a teeming and lading fraud.
Control
Members of staff who are related should not be permitted to work in the same department whereby they can breach segregation of duty controls.
Cash receipts should be processed by two members of staff.
Monthly customer statements should be sent out promptly to all customers. The sales ledger supervisor should review to ensure that all customers have been sent statements.
Bank reconciliations should be reviewed by a responsible official (different to the preparer of the reconciliation) on a regular basis. Any unreconciled amounts should be promptly investigated and resolved.
On a regular basis staff within the finance department should rotate duties.
The sales ledger should be reconciled to the sales ledger control account on a monthly basis, and this reconciliation should be reviewed by a responsible official.
Management should consider establishing an internal audit department which could assess the effectiveness of controls and identify areas of weaknesses, as well as perform specific fraud investigations.
Mitigate risk
This should reduce the risk of staff colluding and being able to commit a fraud without easily being discovered.
This should reduce the risk of one person being able to steal cash receipts. In order to commit the fraud these two members of staff would need to collude and to avoid detection, also collude with other members of the finance team.
If customers receive regular statements then they would be in a position to flag to Tinkerbell that there was a delay in their payments being credited to their accounts. This should then flag a possible ‘teeming and lading’ fraud.
A small unreconciled amount can actually represent two large balances which almost cancel each other out and hence could indicate significant problems with cash and bank.
Where fraud arises it can often be quickly spotted by performing and reviewing a bank reconciliation.
If staff members know that they will need to rotate their roles then they will be less inclined to commit fraudulent activities, as the chances of them being caught increase significantly.
This will increase the likelihood of spotting errors in the receivable balances and help to create an environment of controls, which will decrease the likelihood of frauds occurring.
As there has been a significant breakdown in the internal controls then the mere presence of an internal audit department would help to deter employees committing fraud. In addition, fraudulent activities would be more likely to be identified quicker as internal controls would be tested.
Tutorial note: Marks will be awarded for any additional general fraud points made.
|
