British Motor Company Case Internal Controls

Question 1: What is the main issue in this article? Explain why you think this is the main issue. The main issue of the Internal Controls article is financial control to prevent opportunity for fraud and theft. Due to the current troubled economy, the likelihood that fraud will occur has increased significantly. The pressures on employees and customers have increased through lower or lost wages, spouses being out of work, and lack of medical insurance. These tough times also have allowed potential fraudsters to easily rationalize the fraud that they are contemplating. They think: "They will never miss $200 a day with all the money they make," or "They don't pay me enough anyway." Operations has little control over most of those pressures and rationalizations. By evaluating and strengthening the financial internal controls of the operation, internal auditors can greatly reduce potential opportunities.

Question 2: Why do companies need internal controls? Internal controls help businesses establish protocols and procedures for staff to follow as they perform their day-to-day activities. These established protocols help bring order and cohesiveness to companies, as everyone knows what's expected. Additionally, establishing internal controls can help companies prevent or reduce fraud and theft within their organizations. To avoid fraud and theft, companies can conduct background and credit checks on all new employees. “The law requires employers to make a clear and conspicuous disclosure to an employee or job candidate that a consumer credit check will be conducted. Informing job applicants upfront of the check is also an effective screening technique.”1

Internal controls can also help companies reduce errors, saving them money and protecting their reputations. By training employees on processes and procedures, and updating them on new ones, employees are less likely to make mistakes. Lastly, the Sarbanes-Oxley Act stresses the importance of maintaining...