Accounting 1, Control Systems Limitations

Principles of Accounting I

Achille Tyson

American InterContinental University

Professor: Brian Smith

Due Date: May 13, 2012

I was asked to audit your company and I also was asked to educate your accounting department in relation to the limitations of the internal control system in an attempt to help prepare the company for the upcoming audit. However, due to the weak internal control system, an adjusting entry because the prepaid insurance was not recorded for the first three months of the year at $500 per month.

Internal controls are reliable and they keep your company compliant with the government regulations. However, the systems are extremely helpful but are not entirely effective. Errors, not following policy and procedure, and employees’ collusion can reduce the effectiveness of the system. Great internal control systems are supposed to reduce the probability of mistakes, and omissions in business operations. Moreover, there can be limitations in the effectiveness which may come from system omissions. One of the primary features of an effective internal control system is that the jobs of the employees are segregated properly and this gives for more transparency and accountability to management. So when a company has employees who complete various account duties may give that employee too much power to engage in fraud or embezzling money from the company. In an attempt to prevent these kinds of issues, the company need to adopt internal control procedures to ensure that one employee does not complete too many account functions through the use of segregation of duties (Hererra, 2010).

Internal Control System should be created and designed to detect and prevent fraud, but it...