Internal Controls: Good Controls are Useless if Management Can Override Them

Some companies think they are protected against employee fraud because they have strong internal controls. Often, that’s the case. Good controls mean the rules are followed and the money is properly accounted for.

Sometimes, however, good controls are meaningless. What about the controls over the controls? All the rules and designated procedures in the world are meaningless if management has the ability to override them at will. When these overrides go unchecked, the company is often no better off than if they didn’t have any controls in place.

Indeed, the risk that management will override controls established to prevent fraud and ensure accurate financial statements is great. It is a constant risk as executives are in a position to manipulate numbers and direct employees to aid the manipulation. They can easily fabricate transactions or modify numbers to craft the financial statements to report whatever their hearts desire.

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