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Internal Controls Development and Implementation

Consider the following story from the December 10, 2008 edition of the Las Vegas Review-Journal:
Authorities unsealed the indictments of 15 people involved in a Eurasian gang on Tuesday, revealing an organized crime ring that raked in about $1.5 million through stolen credit cards and identity theft in the Las Vegas Valley. The suspects are facing federal charges including trafficking and possession of counterfeit devices, identity theft, production and use of counterfeit devices and fraud. [A U.S. Attorney] said some of the suspects were involved in "skimming," an act by which a person can obtain credit card information by running the card through a handheld counterfeiting device. The gang members would have people working in restaurants, bars and smoke shops who would scan a customer's credit card on a legitimate machine and then swipe it again with a counterfeiting device.
Suppose the Las Vegas Review-Journal contacted you for some feedback on the article, Prepare a response to the following questions:

a. What is internal control?
b. What type(s) of risk are indicated by this situation?
c. What internal controls would you recommend to address the risks?

Solution Preview

a. What is internal control?
Internal controls are the policies and procedures implement by management to safeguard company assets, ensure that financial information is reliable, credible and created with integrity, ensure compliance with local, state and federal laws and regulations, promote effective and efficient operations ensure that goals and objectives are achieved through monitoring.

The company will implement policies and procedures that will safeguard and protect company assets such as: employees, money, buildings, equipment, etc. The protection will ensure that there is no accidental loss, loss due to fraud or theft, employees and facilities are kept safe as well.

The company will implement policies and procedures that will ensure that the financial information reported internally and externally is accurate and reported with integrity. The company will achieve this through constantly monitoring business operation performance and ...

Solution Summary

An examination of internal controls that should be implemented by companies. Also, the benefits of internal controls. Finally, there is a review of a company that didn't have internal controls, which resulted in a criminal and what controls to implement to ensure that this doesn't occur again.