ACCT6328

Introduction to Accounting
Week 4
Fraud, Internal Control, Cash
 Objectives
• Define fraud and internal control.
• Identify the principles of internal control activities.
• Describe the operation of a petty cash fund.
• Indicate the control features of a bank account.
• Prepare a bank reconciliation.
 Fraud
Fraud is a dishonest act by an employee that result in
personal benefit to the employee at a cost to the employer.
Three main factors that contribute to fraudulent activities:
1. Opportunity
2. Financial pressure
3. Rationalization
 Internal Control
Internal control is all methods and measures adopted by a
company to safeguard its assets, enhance the reliability of
its accounting records, increase efficiency of operations, and
ensure compliance with laws and regulations.
 Internal Control
Five primary components:
• A control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring
 Internal Control
Principles of Internal Control Activities:
1. Establishment of responsibility
2. Segregation of duties
3. Documentation procedures
4. Physical controls
5. Independent internal verification
6. Human resource controls
 Internal Control
Limitations of Internal Control:
1. Cost of establishing control procedures should not exceed
expected benefit
2. Human element
3. Size of the company
 Cash Control
Cash is the most susceptible to fraudulent
A. Cash Receipts Control
Application of internal control principles to cash receipts:
1. Establishment of responsibility
2. Segregation of duties
3. Documentation procedures
4. Physical controls
5. Independent internal verification
6. Human resource controls
 Cash Control
Over –the-counter receipts
Segregation of record-
keeping from physical
custody.

Source: Financial Accounting IFRS

edition 2e, Weygandt, Kimmel,
Kieso
 Cash Control
Mail Receipts
• Mail receipts should be opened by two person, a list prepared, and
each check endorsed.
• Signs the list to establish responsibility for the data by clerk.
• Original copy of the list is sent to the cashier’s department along with
the checks.
• One copy of the list is sent to the accounting department for
recording and one copy kept by clerks.
 Cash Control
B. Cash Receipts Control
Internal control over cash disbursement is more effective
when companies pay by check rather than by cash.
Applications:
1. Voucher system controls
2. Petty cash fund controls
 Bank Reconciliation
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
3. Bank memoranda.
4. Errors.
 Bank Reconciliation
Source: Financial Accounting IFRS
edition 2e, Weygandt, Kimmel,
Kieso

+ Deposit in Transit + Notes collected by bank

- Outstanding Checks - NSF (bounced) checks

+/- Bank Errors - Check printing or other

service charges
+/- Book Errors

CORRECT BALANCE CORRECT BALANCE

 References
Jerry J. Weygandt. (2013). Financial accounting. IFRS Edition.
02. Wiley. Danver. ISBN: 9781118285909.
Thank You