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Internal Control Failures Paper - Essay Example

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Rules of internal control generally are regarded as belonging within the self-disciplinary purview of professional associations, but talk of rules or standards for financial reporting often gives rise to concern that because such rules affect something loosely called "the public interest," their formulation should not be entrusted to the private sector…
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Internal Control Failures Paper
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Download file to see previous pages It was found that most cases of internal control failures were caused by individuals external to the firm, management-level and non-management-level employees, attitude of employees towards ethics and fraud, and lack of strict reporting and double control measures within the organization (Chrorafas, 2000). The main problem was that top management did not support internal control procedures. In some quarters, this project was regarded with extreme wariness, but there also was caution about appearing to attack the idea of a conceptual framework overtly because the logic of seeking such a basis for decision making was difficult to assail. "The displacement and resettlement of the local population, of 192 World Bank projects displacing 2.5 million people between 1986 and 1993, dam and reservoir projects caused sixty-three percent of those displacements" (Macdonald 2001, p. 1011). This meant that although the issues were extremely contentious, the debates were conducted in a lower key than those over specific standards, and the subject rarely broke into the public prints because the media tended to view it as too esoteric for popular consumption. "A lack of regular monitoring limits the public's access to project information and impairs accountability" (Macdonald 2001, p. 1011).
Therefore, in both the building and funding contexts, personal interests are given greater consideration than technological, ecological, or economic feasibility" (Macdonald 2001, p. 1011). The cause of the bank instability and the associated inefficiency is to be found in a specific characteristic of the financial intermediation activity: maturity transformation. The bank relies on fractional reserves. As consumers have random needs for liquidity, a financial intermediary can offer a liquidity insurance while holding in cash only a fraction of the amount deposited and investing part of the deposit in longer-term and relatively illiquid projects. This increases the welfare of depositors but it also causes instability. Project failures show the need to change policies and internal control procedures. "Bank involuntary resettlement policy requires resettlement plans to compensate relocatees, by either improving or restoring the economic base of those relocated" (Macdonald 2001, p. 1011). This situation leads to shortage of funds and implementation of stricter financial policies. The financing of highly illiquid projects on the international markets relies on relatively short-term debt, and a run of creditors may lead a country into deep trouble even if it would otherwise have had no problems in servicing its debts (Chrorafas, 2000). "In addition, the Bank "bears special responsibility for resettlement issues in the preparation and appraisal of projects because this period before signing loans is when the Bank has maximum involvement and leverage" (Macdonald 2001, p. 1011).
These failures influence internal control procedures and new internal policies. The difference is that the rules-of-conduct approach leads to relatively small and infrequent ...Download file to see next pagesRead More
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