Trust is not an internal control

It is just a feeling.

That is Amy Wilson’s explanation as she describes her journey through embezzlement into recovery as told in this earlier post. Thanks to Mrs. Wilson for granting me permission to reprint her article.

Her article is very good. It is so well constructed that we can analyze it in detail. I’ll have several posts to draw out my reactions to her article.

Trust is not an internal control

One of the major factors allowing her to steal over $300,000 was that her boss thought that trust was a sufficient internal control. Mrs. Wilson says that trust is nothing more than a feeling.

Feelings will not prevent someone from doing something wrong. Feelings will not find wrongdoing after it has been done.

Other things are necessary to protect resources and make sure the financial reporting works correctly. Accountants call those ‘other things’ internal controls,

Trust is a basic job requirement

Having complete trust in your bookkeeper is a prerequisite to even hiring the person. Look at what you are going to give that person access to:

  • blank checks
  • bank account numbers
  • credit card numbers
  • social security number of every one of your employees
  • knowledge of the compensation of every person in the organization

You had better trust your bookkeeper!

If you did not completely trust that person you would have never hired him or her.

Trusting your bookkeeper and other key financial staff is almost at the level of making sure they know debits are on the left and credits are on the right.

Believing a person is trustworthy is about as elementary as believing they know debits and credits have to be equal on a trial balance.

Of course the person you’re planning to promote to controller knows debits equal credits and is completely trustworthy. All that means is they have the absolute minimum skills necessary to perform the job.

Additional procedures are necessary to prevent someone from doing wrong.

Trust is not an internal control.

Update: here are my posts in this series:

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  1. Pingback: Another view of the devastation caused by a fraudster | Attestation Update - A&A for CPAs

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