Teaching Internal Control through Active Learning

EXHIBIT 1a
Student Preparation Instructions for In-class Team-based Competition
Student Instructions:
1. Read Chapter on Internal Control and become familiar with the six
principles of Internal Control covered in the chapter.
a. Establish responsibilities.
b. Maintain adequate records.
c. Safeguard company assets and bonding key employees.
d. Separation of duties (recordkeeping/ custody/ authorization)
e. Apply technological controls.
f. Perform regular and independent reviews.
2. Think about your work experience(s).
Think evilAnswer the questionHow could I steal from my company.
If it is

EASY to steal from your company, think about the following questions.
Why is it easy to steal from your company?
What is the weakness in the internal control system?
What is the internal control principle that is weak?

If it is DIFFICULT to steal from your company, think about the following

questions.
Why is it difficult to steal from your company?
What is the strength in the internal control system?
What is the internal control principle that is strong?
NOTE: If you have no work experience, think of examples when something
went wrong during your interaction with another company. An example might
be when an airline lost your luggage; another might be the wrong amount
was returned to you when you returned something to the store. Answer the
question, What Went Wrong? Provide 6 examples and try to link them to a
principle of internal control.
3. Write about your work experience(s).
a. Complete Exhibit 1b - Exhibit 1b will be collected by your
instructor as proof of preparation for the in-class team-based
competition. It will be assigned points by your instructor based on
level of effort and completeness. If you do not complete this form,
you will receive NO credit for the competition.
b. Describe at least one example of each of the 6 internal
control principles listed above. These must be examples from a
company you have worked for. On the sheet, name your company
and describe your job. For each internal control principle, describe a
work situation that illustrates the principle, and identify the
situation as an example of weak or strong internal control, and why.
4. Be prepared for an in-class discussion of your experiences

EXHIBIT 1b-Student preparation form for in-class team-based

competition

How Can I Steal from my Company?

Student name: Jeydev Beri

Company Name: Leader Valves
Job Title: Production unit manager
Limited
(Intern)
Description of job: The basic nature of my job was to shadow the unit
production manager and learn about the day-to-day production of gun-metal
valves, from melting the ingot, sorting out the inventory to the production
process of the final products.
1) ESTABLISH RESPONSIBILITIES leader valves being over an 80 year old valve
manufacturing unit had a very well formed hierarchy table, which meant that
the task were well organized and for each particular task there were separate
managers. Each employee working under a certain aspect of the production
process, may it be inventory or production, had to report to his or her
manager, hence everything was very well documented.
This was sure a strength for LVL as their responsibilities were well
established within in the organization and it would be very hard for any
employee to take advantage of the company.
MAINTAIN ADEQUATE RECORDS- As mentioned earlier LVL is a seasoned and well
established working production unit and over the years they have perfected
the adequate method of record keeping. Right from the employee attendance,
inventory usage, supply bills etc. everything was well accounted for.
According to me this is a strength for LVL again because they have perfected the accurate
method of record keeping which gives the employees little to no room to swindle any money or
other goods. Even though their technology is not up to date, the record keeping in up to mark.
3) SAFEGUARD COMPANY ASSETS- LVL has over 1300 employees who have various jobs
and are in different departments so there is always a lot of information that is
going around and each department has their own set of assets that eventually
contribute to the companys total assets. At my time there I realized that the
assets were not well guarded at times and it was easy for the employees to
find a way to cheat the system. During my time there I also witnessed a major
theft which helps support my case that the assets were not well protected.
According to me this is one of LVLs biggest downfalls, they lose a lot in terms of their
monetary value due to the loss in assets.
2)

4). SEPARATION OF DUTIES(recordkeeping /custody/authorization- As mentioned earlier the duties were well

established and divided between the departments. Each department had managers and juniors
managers who has their respective employees reporting to them. They also made it a point that the
cash register keeper and collector were different for each department and especially for the main
accounts department so there was little to no room for any money being lost or miscounted.
This sure was a strength for LVL and due to the appropriate separation of duties the accounts of
the company were very well managed.

5). APPLY TECHNOLOGICAL CONTROLS As

the manufacturing is plant is in India, the technology there

is still not that advanced. LVL lacks important electronics machines like cash registers and
employee time clocks which could help them safe guard their assets better and be more efficient.
This is also a major drawback for LVL and hence is a weakness which could help employees
be less efficient, eg. They still use manual attendance cards, and they can easily cheat the system
with those.
6). PERFORM REGULAR & INDEPENDENT REVIEWS I interned at LVL for 3 months over the last
summer and within those three months I personally witnessed 2 department reviews and
appraisal. This not only kept the employees on track but also kept them motivated.
This exercise was time consuming but it kept the employees motivated and
the kept the business running efficiently.