Question 1.

Small businesses are the most vulnerable to fraud because they often don't have effective internal controls. They could also paralyse their business trying to cover every possible contingency. However, by removing opportunity and motivation for fraud and theft, and ensuring they have systems in place to discourage errors and identify mistakes and anomalies quickly, they are able to discourage fraud in the first place and, if that fails, they can take corrective action to minimise losses.

As a person newly appointed to the role of manager of a small business:

(a)Define internal control.

(b)Identify the components of an internal control system.

State and explain five internal control challenges commonly found in small businesses