Answer
Internal control system should have the following five components:- A control environment, Risk assessment, Control activities, Information and communication, Monitoring.
Work Step by Step
1) A control environment – The top management should make it clear that the organization values integrity and any unethical activity will not be tolerated.
2) Risk assessment – Companies must identify the factors that create risk for the business and determine how to manage these risks.
3) Control activities – For the reduction in number of frauds, management must design policies and procedures to address the specific risks being faced by the company.
4) Information and communication – The internal control system should capture and communicate all important information to the Management. The same should be circulated among all concerned.
5) Monitoring - The Internal control systems must be also be monitored periodically for its effectiveness. Any deficiency noticed must be reported to the top management.
