What standards of internal control were violated here?
In their context, internal controls are procedures and policies that are used in an organization to ensure accounting systems remain reliable. Reliability and accuracy are significant in the world of accounting, and ignoring internal controls leads to bad financial decisions, and erroneous financial reports (Sands et al. 2018). In view of the case study involving the business manager of the District, Kathryn Hock, and Ameri- can Corporate Supplies, run by Marc and Teresa Suckman, some standards of internal control were violated. Firstly, the accounting system in the school lacked access controls. In that sense, it was easier for Hock to make payments without the system detecting the fraud and discrepancies. The district school board should have ensured the accounting system was only accessible through electronic access logs and lockouts. In addition, the system ought to have robust access tracking to deter any fraudulent access.
The system also lacked weekly trial balances, which would have ensured that the books remained balanced. The weekly trial balances would have provided the school management with a regular insight into the system, and they would have discovered the discrepancies early enough (Sands et al. 2018). In addition, the system ignored periodic reconciliations in accounting systems. By so doing, it was impossible to match up balances in the system with balances held by the supplier. Lastly, the district school accounting system ignored approval authority requirements. The system is supposed to be set in a way that specific personnel authorize transactions. That way, Hock would not have sole mandate of approving transactions. Requiring approvals would have prevented Hock from paying the bills one after another, to an extent of to embezzling $2,043,903 from the district.
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2. How would you revise financial practices in the District to prevent similar fraud in the future?
Following the fraud that hit the District, it becomes obvious that financial practices should be revised to prevent a similar occurrence in the future. The first financial practice would be to segregate the accounting functions (Sands et al. 2018). The management should prevent such a fraud by reducing the incentive of the fraud. This can only be possible if the accounting functions are well separated. Segregation would ensure that, more than one individual is handling financial issues (Sands et al. 2018). In the case of the district, Hock was left to handle accounting roles alone. She would hatch a plan to break up payments with different checks so that she would hide in the books. She had been left with the authority to sign checks, and stamp them with the signatures of the two officials. To prevent this from happening in the future, duties of authorization, recordkeeping and review processes within the accounting processes should be left in the hands of different parties. Therefore, for fraud to occur, two or more employees will have to collude, and that would be difficult.
Next, I would revise the financial practices in the District by initiating a regular examination on the financial statements, by an external auditor ( Young, 2013) . The failure by the strict to engage an auditor to review statements regularly made it easier for Hock and Suckmans to defraud the District for a long time without being detected. The fraud process began in 1984, and it continued until 1988, when the accumulated overspending had grown large that Hock found it hard to conceal it. She had to quit her job, when the new businesses manager noted the discrepancies and decided to perform a special audit.
In overall, to prevent similar fraud in the future, I would ensure all accounting functions are segregated, and conduct a regular examination of the financial statements by an eternal auditor.
Compare the roles of internal control and post-audit in the war against waste, fraud, and abuse
In the war against waste, fraud, and abuse, internal control and post-audit almost serve the same purposes of ensuring the afore-mentioned atrocities do not occur. When it comes to internal controls, they help to review and monitor the accounting system on periodic basis and as such, fraud and abuse can be detected in a timely fashion ( Young, 2013) . On the other hand, post-audit seeks to find out that the transactions were done according to accounting rules, and everything is accurate. The results of the audit are then incorporated into the future accounting decisions, and as a result, the accounting procedures are improved.
Both internal controls and post-audit practices promote effective and efficient operations. Both are geared towards maximizing efficiency and effectiveness in the operations. Post –audit comes up with recommendations of improving the accounting practices going forward, besides ensuring fraud and waster does not happen in the future.
Finally, internal controls are detecting methods already in place and they are known and visible to all the employees (Graham, 2015). The controls serve as the best ways of deterring fraudulent and waste activities. In contrast, post-audits are performed upon request or at the discretion of the management. Although they help in preventing waste and fraud, they ensure that outstanding audit issues are resolved to prevent waste and fraud in the future.
References
Graham, L. (2015). Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework. New York, NY: Wiley
Sands, J. et al. (2018). Managerial Accounting: Asia-Pacific Edition. New York, NY: Cengage AU
Young, M. R. (2013). Financial Fraud Prevention and Detection: Governance and Effective Practices. London: Wiley
