Fraud Prevention Through Internal Controls

Abstract

Fraud is a problem that occurs in all types of businesses. Documented frauds can be found in very small non-profit organizations as well as in multi-million dollar corporations. The costs can range from a few hundred dollars to millions of dollars, resulting in lost revenues and profits. Faced with the potential for diminished profitability, management should be more concerned with the issue of fraud. Many managers and executives consider fraud an unfortunate cost of doing business. However, it is a cost that business leaders can address. Internal controls have been called "protection from fraud and waste" (Whittington et al., 238), and an effective system reduces the possibility of fraudulent acts, thereby diminishing the internal contro extent of potential losses. However, even the best s do not catch all employee frauds, particularly management fraud. While fraud may still occur regardless of good internal controls, an effective internal control system is the best tool available to arrest fraud. This paper's primary focus will be on employee and management frauds. Preventing these types of fraud through internal controls will be addressed by first defining fraud and then internal control. Next, the proper utilization of internal controls will be examined. Finally, solutions for businesses to consider for mitigating their losses from fraud will be explored.