Internal Control Limitation
Limitations in the internal control system consist of lack of training or communication, collusion, lack of management support, human error, staff size, or cost benefit considerations. Lack of training or communications can consist of employees not being trained in internal controls or not understanding correct procedures (McIntosh). Collusion is where employees find ways to work around the internal control system. It can include two or more employees exchanging passwords and entering false transactions. Lack of management support constitutes the tone at the top. Without management support, employees are not properly supervised.
Human error comes from carelessness, distraction, misunderstanding, or mistakes in judgment (Rennels). If a company does not have adequate staff size, segregation of duties are not proper for internal control and staff fatigue or stress can also cause weak internal controls. The benefit of the internal control should be more than the costs. If the benefit does not outweigh the cost of the internal control, the organization may not implement the control.
A good internal control procedure is the audit trail. Every transaction should be able to be traced from the ledgers back to the original transaction document. For example, a transaction recorded in the sales journal should also be recorded in the sales account and the cash or accounts receivable account. And, the...
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