In summary about internal controls and fraud

To protect the equity of shareholders and owners, it is critical that businesses implement internal controls over their processes. Businesses should evaluate their control environment and conduct a regular risk assessments so that they understand where controls need to be implemented. Once implemented, those charged with governance should monitor these internal controls because any break down or circumvention of controls increases the risk of fraud.

As part of the risk assessment process, businesses do need to consider the risk of fraud, as well as the risk of accidental error in recording business transactions. To evaluate the risk of fraud, those charged with governance need to evaluate the incentives/pressures faced by employees to engage in fraud, opportunities caused by gaps in internal controls or break downs in control activities and the attitudes of employees towards fraud. The attitudes of employees towards fraud will likely be evident your evaluation of the control environment. Gaps in internal controls may become evident when conducting your risk assessment or from monitoring for failures of controls. It can be hard to identify external pressures faced by employees – but incentives (such as those related to pay and performance) are easily evaluated and modified by the business to minimise the risk of fraud.

Regardless of whether you want to be an accountant, whatever your role in a business – you will likely have a role to play in internal controls – whether that be evaluating risk, designing a control or implementing a control as part of a process. Therefore an understanding of internal controls and fraud is critical for any career in business.