Design Internal Controls System to Minimize Fraud

Powerful Essays
Designing Internal Control System To Minimize Fraud And

This paper gives an introduction to Microfinance Institutions (MFIs) informal financial service delivery mechanism which are not under any regulatory framework like the formal sector. So, there is a necessity to internalize a built-in internal control system through self-regulation to mitigate exposure to risk in MFI. In 2.0 sound and reliable management system for MFIs through self-regulation are discussed. Section 3.0 discussed under internal control its basic criteria: appropriateness, consistency and cost effectiveness. In section 4.0 an overview of risk management of MFIs are discussed under different dimensions: governance risk, management risk which are split into operating risk and financial risk. Financial risk is again sub-divided under portfolio risk, liquidity risk and interest risk. Under section 5.0 tools for effective internal control in MFI are discussed. Section 6.0 portrays steps for designing internal controls for MFI. In section 7.0 conclusion has been drawn that the internal control can be expected to provide only reasonable assurance.

INTRODUCTION

Microfinance Institutions (MFIs) are informal financial service providers and are not under any regulatory framework like the formal sector. On the demand side the MFIs offer collateral-free loans. Social collateral replaces material collateral through an intangible micro-network of mutual accountabilities. Again, from the supply side, distinct characteristics of MFIs in Bangladesh are not- for profit organizations. Board members are not shareholders, they do not have financial stakes. MFIs through microcredit programs (MCPs) mobilize poor and distressed target people and extend collateral- free small loans to them with the objective of creating self-employment for poverty alleviation. The most important asset in MFIs is the portfolio, and the

You May Also Find These Documents Helpful

  • Good Essays

    Fraud and Internal Control

    • 5566 Words
    • 23 Pages

    When does employee fraud occur? It is commonly accepted that the presence of the three elements of the “Fraud Triangle” increases the risk of employee fraud: Motivation: The employee is somehow motivated to commit a fraud. Economic factors such as personal financial distress, substance abuse, gambling, overspending, or other similar addictive behaviors may provide motivation. The current national economic recession may serve to increase the incidence of such financial motivations. Opportunity:…

    • 5566 Words
    • 23 Pages
    Good Essays
  • Good Essays

    Internal Controls System

    • 1991 Words
    • 8 Pages

    THE INTERNAL CONTROL SYSTEM The internal control system includes all the strategies, policies and procedures adopted or instituted by the management of an entity to assist in their objective achieving as far as practicable, the orderly and efficient conduct of the business and includes adherence and compliance to management policies and applicable laws and regulations; the safeguarding of assets; the prevention and detection of fraud and error, the accuracy, reliability and completeness of the accounting…

    • 1991 Words
    • 8 Pages
    Good Essays
  • Good Essays

    Internal Control System

    • 1250 Words
    • 5 Pages

    Lecture note on monitoring business and accounting systems. ------------------------------------------------- internal control systems and internal controls An internal control system is the whole system of controls, financial and otherwise, established by the management in order to * Carry on the business of the enterprise in an orderly and efficient manner, * Ensure adherence to management policies, * Safeguard the assets and secure as far as possible the completeness and accuracy…

    • 1250 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    backward development of Nigeria was attributable to weakness in the internal control systems of the banks. This has clearly pointed out the picture of how fraud is being penetrated in the financial strength of Nigerian banks. In a nut-shell , the damage which the menace, called fraud has done to the banks is innumerable and needs urgent attention. Internal control are measures established by directors relating to the accounting systems in order to check if all transactions made are recorded using the…

    • 6026 Words
    • 25 Pages
    Powerful Essays
  • Good Essays

    Internal Control System

    • 430 Words
    • 2 Pages

    A system of internal control refers to the process by which organizations maintain environments that encourage incorruptibility and deter fraudulent activities by management and employees. An organization’s components of internal control are evaluated during the planning phase of an independent financial statement audit. The results of the evaluation directly influence the auditor’s level of detailed testing. To reduce detailed testing, and perhaps the audit fee, organizations implement common features…

    • 430 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Internal Fraud

    • 659 Words
    • 3 Pages

    The Global Fraud Survey not only provides information about different types of frauds schemes and characteristics of fraud perpetrators but also provide a deep insight into the red flags associated with it. According to Survey, Two thirds of frauds were committed by males, between the age of 31 and 45, and male perpetrators have caused twice the loss as compared to women perpetrators. According to the article, only 7% of fraud perpetrators had previously been convicted or charged with fraudulent…

    • 659 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Justification for an Internal Control System Cynthia Kinney ACC544/Internal Control Systems June 27, 2011 Gary Godfrey Justification for an Internal Control System An internal control system is described as a way to control an organization better, minimize risk, reduce loss, and achieve goals. Two approaches, political and insurance, are used to justify the need for this type of system. Issues such as security valuation, asset allocation, optimization, and performance are considered with…

    • 538 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Justification for an Internal Control System Ginger Lankford Internal Control Systems ACC544 Robert J. Cornett, MBA October 4, 2010 Justification for an Internal Control System Businesses need an efficient and cost-effective internal control system even with insurance and a portfolio approach control in place. Insurance is necessary and the portfolio approach is very effective but is more reactive than preventive. Internal control sets the foundation to ascertain reasonable assurance…

    • 755 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    ways and means are called the system of ‘internal control (I.C).’ (D.P. Jain, 1993). Management not the auditor must establish and maintain the entity’s of control. (Alvin J., James K., W. Morley, Ingrid B., 2000). According to Spicer and Pegler, “internal control is best regarded as indicating the whole system of controls, financial and otherwise estimated by the management in the conduct of a business including internal check, internal audit and other form of controls.” (D.P. Jain, 1993). Larry F…

    • 11569 Words
    • 47 Pages
    Powerful Essays
  • Good Essays

    for an Internal Control System ACC/544 December 2, 2013 Justification for an Internal Control System The internal control system has been used since the company was in need of the system and until this day it has been working to its fullest potential. Internal control plays an important key in making sure that the accounting information, financial data, meeting the targets, and ensuring that the management policies are getting followed. There are two elements in making an internal control…

    • 681 Words
    • 3 Pages
    Good Essays