CHAPTER 1: INTERNAL CONTROLS
By contrast, the best practice is to create an environment that not only tracks the types of errors and how often they occur, but also provides time to find solutions to eliminate the error from occurring again. Once that process is tested and shown to be effective in removing the error, rewrite the P&Ps and educate all those involved in the updated process. Benefits to this approach are lower cost, enhanced customer satisfaction, and reduced risk. PREVENTIVE CONTROLS Preventive controls are proactive and attempt to deter negative outcomes. The following are four examples of preventive controls: Segregation of Duties can be described as the most important control an organization can implement. This simply means ensuring that an entire process does not belong to one individual. The steps that comprise each process should be assigned among different staff. Examples of segregation of duties in the AR process include the following: The person responsible for the customer master file should have no access to billing or cash application. Cash application staff should not reconcile the bank statement or create orders. Creating lines of credit or putting a supplier on hold, cash receipts, and cash application are functions that should be separate from sales order entry. Those who can extend credit should be separate from those who handle sales, billing, cash receipts, and cash application. Bank reconciliations should be separate from the AR process. The simple control method of segregating duties can prevent an unscrupulous employee from easily committing fraud against the organization. It can also help uncover errors made during the process, since each step handed off to another person essentially undergoes a review as that person goes about performing his or her role. In surveys of fraud committed by employees against their organizations, the Association of Certified Fraud Examiners (ACFE) has found that, in a very high percentage of cases, the fraud perpetrator was a trusted individual who had control over an entire process on his or her own without intervention by others and with minimal review. For smaller organizations, segregation of duties can be difficult to implement simply because there are more tasks than staffers. In these instances, additional compensating controls should be conceived and implemented.
In order for segregation of duties to work effectively, there must be both personal commitments on the part of employees and comprehensive system controls.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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