Signs of Weak Internal Controls
Strong internal controls are a necessity for businesses, especially investment banks. Internal controls are applied to the company’s financial and accounting procedures, with the intention of preventing and identifying fraud and errors. If a company has weak internal controls, it is opening itself up for big problems down the road, as it cannot accurately account for the actions of its employees.
It’s important for companies and employees to understand the signs of weak internal controls. If you’ve identified a weak internal control, already reported it to the company’s compliance program, and waited as nothing happened, it might be time to contact the Securities and Exchange Commission (SEC) and become a whistleblower.
These are some of the signs to look out for:
Lack of Oversight
Lack of oversight essentially gives employees free reign to manage themselves. While this works fine for some, it can prove disastrous in other cases. This is especially true in investment banks, as lack of oversight can allow a rogue trader to run roughshod with the company’s finances.
For example, if the investment bank doesn’t have a system of approvals or review for the transactions made by its traders, one could make a bad trade that loses a substantial amount of money and then try to make up for the loss by making increasingly high-risk, high-reward trades. Truly weak internal controls could allow this to continue for some time, only being discovered after millions of dollars have been lost.
Missing Reports and Documents
The numbers included in a company’s financial and accounting reports need to be backed up by original documentation. These numbers would have originally come from things like invoices, receipts, and purchase orders. If the original documentation can’t be found, it becomes very difficult to verify the accuracy of the numbers in the reports.
Unscrupulous employees and managers can take advantage of this weakness. If they know that they aren’t required to save original documentation, they will also realize that there won’t be a way to fully question fudged numbers later.
Lack of Audits
Any company interested in maintaining accurate books will routinely employ a third-party auditor to check the work of its employees. If a company doesn’t bother to administer audits, a dishonest employee or manager can get away with committing fraud for a very long time before getting discovered.
No Separation of Duties
One person should not be responsible for everything when it comes to accounting. This can lead to a situation where there’s no “check” on the employee’s work. Similar to a lack of audits, a company with no separation of duties is essentially giving immoral employees a free pass to commit fraud at will.
Blow the Whistle on Weak Internal Controls
Meissner Associates helped a Monsanto whistleblower expose weak internal controls that led to the largest whistleblower award yet paid to a US citizen. If you’ve discovered weak internal controls that have—or could—lead to fraud, we can help you tip off the SEC.
Arrange a free, fully confidential tip evaluation today. Just give us a call at 1-866-764-3100 or complete the tip evaluation form below to get started.