Preventive Controls

Preventive Controls

Many preventive controls are based on the concept of separating duties. Examples include prohibiting the same person from conducting related transactions such as initiating and recording transactions; making purchases and approving payments; ordering and accepting inventory; approving vendors and making payments; receiving bills and approving payments; and authorizing returns and issuing refunds. Payroll preparation and distribution duties and approving, writing and signing checks should also be done by different people.
Examples of internal controls built around the concept of authorization, approval and verification include requiring supervisory review and approval of payroll information before disbursement, requiring interdepartmental dual authorization of payroll data by accounting and human resources departments and requiring prior approval of credit customers, vendors and purchases.

Detective Controls

Detective controls are internal controls designed to identify problems that already exist. Audits are an example of a detective control. Monthly reconciliation of bank accounts, review and verification of refunds, reconciliation of petty cash accounts, audits of payroll disbursements or conducting physical inventory are all examples of detective controls. Preventive and detective controls are often required in combination to provide sufficient protection. Computer systems require preventive controls through acceptable use and access control. Computer usage logs must be kept. Logs are a form of detective control to be reviewed and audited at regular intervals.

Directive Controls

Directive controls cause or encourage a desirable event to occur, such as employees meeting objectives effectively. Formally written procedure manuals would be a directive control in this case because it would encourage employees to carry out particular functions in an effective manner. The objective of directive controls is to cause or encourage desirable events to occur, for instance, providing management with assurance of the realization of specified minimum gross margins on sales. 

What is the Difference Between Speculative Risk and Pure Risk?

In the field of risk management, risks are often divided into two main categories. These are called "pure risks" and "speculative risks."

Basically both terms refer to bad things that can befall one. But they can be distinguished.

A pure risk is something that will necessarily be bad if it happens. There is the possibility of loss or no loss, with no possibility of gain.

Imagine you are being held captive by a sadistic terrorist who decides to submit you to a form of Russian roulette. He puts a bullet in a gun that holds six bullets, spins the cylinder, points it at your head, and pulls the trigger.

There is a one in six risk that you will be shot in the head. There is no corresponding good outcome. The only "good" outcome would be the absence of the bad outcome. Thus, this is a pure risk.

Pure risks tend to be out of the person's control, in that people, unless they're suicidal, do not intentionally put themselves in a situation that is all downside and no upside.

Pure risks can be personal (being sickened by an explosion at a chemical plant a few miles down the road), property (having a tornado wipe out your house), or legal (being sued because someone claims something you posted on the Internet constitutes hate speech).

Speculative risks, on the other hand, are gambles. Speculative risks are the downside of choices one knowingly makes that also have upside.

Having sex with an intriguing stranger is a speculative risk. You might have the best sex of your life, you might fall in love, you might so impress the person with your prowess that they name you the sole beneficiary in their will, die the next day, and turn out to be a billionaire. On the other hand you might get an STD, the sex might result in an unwanted pregnancy, there might be a hidden camera present that will be used to blackmail you, you might fall for the person and get your heart broken, etc.

Playing poker is a speculative risk. You risk losing some or all of the money you bring to the game. But it's not a pure risk because, one, you could also win, and two, you take on this risk knowingly and intentionally.

Investments are the classic case of speculative risk. You might end up behind, but you also might end up ahead.

There are degrees of speculative risk. If you invest in U.S. Savings Bonds, and if you invest in the most volatile of junk bonds, both involve speculative risks that you will lose your money, but they are not thereby equal. In the first case, the chances of that loss occurring are very close to zero. In the second case, the chances of that loss occurring are fairly high.

Definition of Forensic Accounting

Forensic accounting, sometimes called investigative accounting, involves the application of accounting concepts and techniques to legal problems. Forensic accountants investigate and document financial Fraud and white-collar crimes such as Embezzlement. They also provide litigation support to attorneys and law enforcement agencies investigating financial wrongdoing.
Many different organizations consult forensic accountants. Corporations hire forensic accountants to investigate allegations of fraud on the part of their employees, suppliers, or customers. Attorneys consult forensic accountants to obtain estimates of losses, damages, and assets related to specific legal cases in many areas of the law, including Product Liability, shareholder disputes, and breaches of contract. In criminal investigations, forensic accountants analyze complex financial transactions such as those in Stock Market manipulations and price fixing schemes. They also help governments achieve compliance with various forms of regulation.
Forensic accountants typically become involved in financial investigations after fraud auditors have discovered evidence of deceptive financial transactions. After conducting an investigation, they write and submit a report of their findings. When a case goes to trial, they are likely to testify as expert witnesses.

Insurance Fraud

Definition of 'Insurance Fraud' An illegal act on the part of either the buyer or seller of an insurance contract. Insurance fraud from the issuer (seller) includes selling policies from non-existent companies, failing to submit premiums and churning policies to create more commissions. Buyer fraud includes exaggerated claims, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, murder and much more.

Investopedia explains 'Insurance Fraud' Insurance fraud is basically an attempt to exploit an insurance contract. Insurance is meant to protect against risks. It isn't meant to be a tool to enrich the insured. Although insurance fraud by the policy issuer still occurs, the majority of cases have to do with the policyholder attempting to receive more money by exaggerating a claim. More sensational instances such as faking one's own death or killing someone for the insurance money are comparatively rare.

Definition of Corporate Fraud

Definition of 'Corporate Fraud'

Activities undertaken by an individual or company that are done in a dishonest or illegal manner, and are designed to give an advantage to the perpetrating individual or company. Corporate fraud schemes go beyond the scope of an employee's stated position, and are marked by their complexity and economic impact on the business, other employees and outside parties. 

Investopedia explains 'Corporate Fraud'

Corporate fraud can be difficult to prevent and to catch. By creating effective policies, a system of checks and balances and physical security, a company may limit the extent to which fraud can take place. It is considered a white collar crime.

Types of Management Control

Types of management control
they are five ways of controlling plans which are:


1. strategic control: it deals with resource maximization,the company checks the overall performance to see whether it is utilizing its opportunities and resources to the fullest.some of these opportunities may include the skills,experience and the abilities of the personnel involved in the organisation,the market demand of the products and the cost of production.this is normally done by the top management.



2. operational control management control: it is assessing the efficiency of the plans and methods used in order to ensure hat the various individual tasks are carried out effectively and efficiently



3. profitability control: this is when the company assesses its profit or losses and it is very important for a company since the aim of every company is profit maximization.It seeks to know if the company is loosing money so as to knoew the companies loop holes and how to fix it.Profitability control is normally the responsibility of the marketing department




4. Annual-plan control: it is the process whereby top management examines the actual outcomes of its company's effort annually in order to know if the companies efforts have been productive or not.



5. Management control: it is concerned with the human effort of plan implementation.it entails ensuring that relevant resources are well utilized andd workers are well motivated