7.
INTERNAL CONTROL
WHAT IS INTERNAL CONTROL?
WHY IS INTERNAL CONTROL IMPORTANT?
HOW TO IMPLEMENT INTERNAL CONTROL?
THE WHO & WHEN OF INTERNAL CONTROL
WHAT IS INTERNAL CONTROL?
Internal controls are the policies and procedures
adopted by management to ensure that the
organization conducts business in an orderly and
efficient manner.
Internal Control is a process designed to enhance
accountability and provide reasonable assurance that a
project implementing entity achieves certain objectives
It refers to a system designed by management of an
organization to ensure:
Efficient and effectiveness of operations
Reliability of financial information and
Compliance with applicable laws , regulations,
covenants, and internal policies and procedures.
INTERNAL CONTROL
Added benefits:
Helps prevent fraud
Maintains the public trust
Safeguards entity’s assets
Consistent treatment of similar issues
WHY IS INTERNAL
CONTROL IMPORTANT?
Consequences of poor internal control:
Bad information -> bad decisions
Inability to carry-out mission, achieve
objectives
Waste of resources or loss of assets
Violation of laws and regulations
Conflict of interest, fraud, abuse
Adverse media/congressional attention
HOW TO IMPLEMENT
INTERNAL CONTROL?
Establish the Control Environment
Make a Risk Assessment
Implement Control Activities
Share Relevant Information
Continuously Monitor the Process
THE WHO & WHEN OF
INTERNAL CONTROL
It is important to have:
• Clearly written and communicated
POLICIES
• Detailed PROCEDURES for all key
transactions
• Consistently applied RULES and
boundaries
POLICIES, PROCEDURES &
RULES
:Policies
The guiding principles designed to influence and determine
decisions or actions
:Procedures
Set of established directives that define how work is to be
.done. Usually specific steps in a systematic order
Rules:
Directives for regulating actions based on laws, regulations,
policies, or other authority.
ELEMENTS OF INTERNAL CONTROL
There are several different categories of internal
controls:
Delegated Authority
Separation of Duties
Reconciliation
Cash Control
Physical Control
Other issues: information and communication ( is
the policy available to all?), Risk assessment,
monitoring ( how the internal control is working )
DELEGATED AUTHORITY
It is good to decide in advance who should do what in
finance and record in a Delegated Authority Document.
Delegated Authority Document should include:
Placing and authorizing orders for goods and
services
Signing checks
Authorizing staff expenses
Handling incoming cash and checks
Access to the safe and petty cash
Checking and authorizing accounting records
Signing legal undertakings
SEPARATION OF DUTIES
Procurement Procedure
outline the process and authorities for ordering, receiving and
paying for goods and services
describe which method of payment or acquisition is to be used
for different goods and services – for example, when it is
acceptable to use petty cash (this should be rare), bank
transfers (eg salaries) or suppliers’ accounts (eg stationery,
petrol);
clarify when it is necessary to obtain quotations from suppliers
– eg 3 quotations for all expenditure over $X;
include a list of Approved Contractors or Suppliers, if used.
Signing Checks:
It is usual to have more than one signature on a check to
help avoid fraud.
NEVER ask signatories to sign blank checks for future use
as this defeats the whole purpose of having more than one
signatory.
Checking and authorizing accounting records
RECONCILIATION
verifying accounting records to make sure that there
are no errors or omissions that have so far gone
undetected
Records that should be reconciled at regular
intervals are:
Bank Book
Petty Cash Book
Stock control records
Salaries and Deductions schedules
CASH CONTROL
Keep money coming in separate from money
going Out
Always give receipts for money received
Always obtain receipts for money paid out
Pay surplus cash into the bank
Have properly laid down procedures for receiving
cash
Restrict access to petty cash and the safe
Keep cash transactions to an absolute minimum
PHYSICAL CONTROLS
Having a safe
Insurance cover
Safeguarding Fixed Assets
The Assets Register
Building and Equipment Maintenance policy
Vehicle policy
INTERNAL CONTROL
The End!
