Internal control comprises the plan of organization and
all of the coordinate methods and measures adopted to
safeguard assets, check the accuracy and reliability of
accounting data, promote operational efficiency, and encourage
adherence to prescribed managerial policies. This definition
possibly is broader than the meaning sometimes attributed
to the term, It recognizes that a "system" of
internal control extends beyond those matters which relate
directly to the functions of the accounting and financial
Internal control, in the broad sense, includes controls
which may be characterized as either accounting or administrative
a. Accounting controls comprise
the plan of organization and all methods and
procedures that are concerned mainly with, and related
directly to, the safeguarding of assets and the reliability
of the financial records. They generally include such
controls as the system of authorization and approval,
separation of record keeping duties so that one person
does not have control over a complete transaction, accounting
reports from those concerned with operations or asset
custody, physical controls over assets, and internal auditing.
b. Administrative controls
comprise the plan of organization and all methods and
procedures that are concerned mainly with operational
efficiency and adherence to managerial policies, and usually
relate only indirectly to the financial records, They
generally include such controls as statistical analyses,
time and motion studies, performance reports, employee
training programs, and quality controls.
The ultimate responsibility for good internal controls
rests with management, Internal controls should not be
viewed as a separate specialized system, but rather should
be recognized as an integral part of each system that
management uses to regulate and guide operations.
Internal controls, however, have limitations, They cannot
provide absolute assurances that errors, omissions, or
commissions of improper acts will not occur. Moreover,
while internal control systems are necessary, each element
must be weighed in terms of the cost benefit to be derived.
Officials are often defensive when alerted to shortcomings
in their internal control systems. The following are common
a. No defalcation or misappropriation
At audit closing conferences, after listening to control
weaknesses and the problems which can develop, officials
often comment that ",,.you didn't find any fraud."
Because the audit disclosed no fraud there is a feeling
of vindication. But there are no future guarantees, This
attitude is an invitation to a future fraudulent act,
sometimes by senior staff who realize the potential. Weak
controls provide the breeding ground for the development
of fraud and theft.
b. We're too busy providing
Officials frequently assert they are too busy providing
program services to be bothered with internal controls.
They are in business, they say, to provide health
care, education or other essential government services,
not to do bank reconciliation's.
While their primary responsibility is indeed to pursue
program goals, there is a collateral fiscal responsibility
which cannot be disregarded .
c. There is not enough staff.
This is perhaps the most common response given to deficiencies.
However, in many cases a redistribution of tasks among
existing staff can improve control. Also, where there
is minimal staff, periodic supervisory review of tasks
d. There are outside controls.
Many times officials ask, "Why restrictively endorse
checks 'for deposit only'?" or "Why remove the
signature space on voided checks?". They say that
the banks would be liable for forgeries, so why bother?
Taking these steps is a precaution,- It sets a climate
in which potentially dishonest employees have no opportunity
e. Our employees are bonded,
This may be true, but only after a $100,000 deductible
per occurrence, and then recoupment occurs only if the
fraud is detected, An agency's program(s) will be charged
with any unrecovered loss as a matter of State policy.
Decreasing government resources require that managers
place greater emphasis on internal controls. The protection
they provide will enable an agency to get the most benefit
from available resources. Some fundamental internal controls
plus additional control techniques are discussed in subsequent
sections. However, it is incumbent upon managers to establish,
and become familiar with, a system of internal control
that will safeguard the assets under their responsibility.
Detailed internal controls and internal control systems
are described in many accounting and auditing texts and
in publications of the American Institute of Certified
Public Accountants and the Government Accounting Office.
Once an adequate system of internal controls has been
established, managers must continually monitor and test
transactions for accuracy, -authorization, validity and
accountability. For example, a manager might: trace a
sample of receipts from source documents to bank deposits;
review documentation supporting a sample of disbursements
for reasonableness and propriety; make surprise cash counts;
and participate in an inventory count of supplies or financial
stationery. Other steps such as timely review of bank
reconciliation are really not optional; these steps must
be exercised, Managerial oversight of this nature provides
for early identification of problems and corrective action.
It also provides a deterrent to improprieties and early
detection if improprieties are committed.
The following sections contain internal control guidelines
|Payroll Time and Attendance
|Materials and Supplies
| Internal Auditing