Internal Control Focus

Internal controls may lag at smaller organisations as managers sacrifice them for the sake of service delivery, particularly at cost-conscious not-for-profits and start-up organisations.

Yet the risks are too great to ignore. Consider that the Association of Certified Fraud Examiners (ACFE) in its Report to the Nations on Occupational Fraud and Abuse: 2016 Global Fraud Study found that businesses with fewer than 100 employees are more vulnerable to occupational fraud. The median annual fraud loss for religious, charitable, or social service organisations was $82,000. This amount does not take into account the cost to the organisation’s reputation. Because charitable organisations are in the public eye, the occurrence of fraud, or even allegations of fraud, can significantly affect an entity’s ability to attract support.

There are many approaches to risk management, but the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) Internal Control – Integrated Framew...

It stands to reason that accounting areas that are highly subjective and complex also are prone to fraud, errors, and breakdowns in internal controls.

A recent study by the Anti-Fraud Collaboration discovered challenges in these accounting areas and has led to new recommendations for company accounting policies and internal control over financial reporting (ICFR).

The details are described in the Anti-Fraud Collaboration report issued Thursday, Addressing Challenges for Highly Subjective and Complex Accounting Areas.

In examining SEC Accounting and Audit Enforcement Releases issued during 2013, 2014, and the first quarter of 2015, the study found nearly 40 unique filers that were targets of enforcement action that included some discussion of ICFR.

The accounting issues that caused problems for companies under investigation were revenue recognition, loan impairment, and valuation. All three areas are highly subjective and complex, and they were under stress during the most recent fi...