By definition, internal control is an
independent appraisal function within an organization, carried out by employees
of the organization, for the review of operations (financial and otherwise): as
a service to management. It is a management controls which functions, by
measuring and evaluating the effectiveness of other controls. Fraud or
irregularities, which arise in the conduct of the affairs of a company, may be
classified broadly into:

Defalcations involving the
misappropriate of money or goods, such acts may be performed by an individual
or group of individuals without the knowledge of the board of directors, or
sometimes, by the board with the intention of defrauding the member.

Fraudulent manipulation of , financial
statements not involving defalcation. The main reasons for this are:

To attempt to improve the apparent
position or the company e.g to justify a dividend that would not otherwise have
been payable or to assist in raising new finance: or To attempt to defraud the
tax authorities by            reducing
taxable profits.

The internal auditors should
continuously review the existing controls to ensure that they are followed and
update them when need be. This shall ensure that the occurrence of fraud is
prevented and that when any such ‘frauds occur, they are easily and timely
identified and reported to management. It is his duty to search for fraud, to
examine the books, accounts and control/processes/system with the objective of
discovering whether there have been defalcations or other irregularities by
directors or employees of the company. However, if the directors of the company
decide to defraud the members, there is not much the internal auditor can do.
Being a staff of the organization, he probable reports to the directors and
depends on the board for his remunerations, promotion and other employment
incentives.

Similarly, where the management .of
business wish to manipulate the a misleading impression without actually
diverting any of the business assets, the internal auditors cannot do much as
management misstate the assets or liabilities. While the more common target for
manipulations is stock, other areas are also susceptible.

financial statements to give It is
painful to observe that in practice, members in the employment of companies as
accountants, finance controller, internal auditors etc are used to, enhance and
perpetuate these management/ directors aided fraud. Members must always beings
to bear on all activities they are carrying out for clients and employees the
institute’s codes of professional conduct and ethics.

Misappropriation of cash may result
from the making of fictitious payments or the diversion of cash receivable. The
number of ways in which these may be done depend on the systems of control in
existence and the ingenuity of the person or persons involved. In many cases,
it is the attempt to cover of rather than the original theft that is detected.
So prevention of fraud is continuous review of controls and operations. The
opportunities for fraud will depend on the system of controls. Particularly,
important are those leading to segregation of duties. Although frauds involving
collusion are not uncommon, it is generally agreed that the chance of detection
rises with the number of people involved.

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     STATEMENT OF PROBLEM