1 Inte r nal Contr ol Compone nts F ive Co mpo ne nts o f I - - PDF document

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Why ar e inte r nal c ontr

• ls

impor tant and why do we ne e d the m?

Inte r nal Contr

• ls

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What is Inte r nal Contr

• l?

An o b je c tive c a n fa ll unde r o ne c a te g o ry, c a n a ddre ss diffe re nt ne e ds, a nd ma y b e a dire c t re spo nsib ilitie s o f inte rna l c o ntro l Ob je c tive s c a n b e b ro a dly c la ssifie d into o ne o r mo re o f the fo llo wing thre e c lassific atio ns

Ope ra tio ns Re po rting Co mplia nc e

I nte rna l Co ntro l

Pro c e ss imple me nte d b y a n e ntity’ s o ve rsig ht b o dy, ma na g e me nt, a nd o the r pe rso nne l that pro vide s re aso nable assuranc e that the o bje c tive s o f an e ntity will be ac hie ve d 3

• Pla ns, me tho ds, po lic ie s, a nd

pro c e dure s

• Co ntinuo us b uilt-in c o mpo ne nt o f
• pe ra tio ns

I nte rnal Co ntro l

• Re spo nsib le fo r de sig ning a n

e ffe c tive inte rna l c o ntro l syste m

Manag e me nt

• Ma ke the inte rna l c o ntro l syste m

wo rk

Pe rso nne l

What do Inte r nal Contr

• ls look

like ?

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F ive Co mpo ne nts o f I nte rna l Co ntro l

• Co ntro l

E nviro nme nt

• Risk Asse ssme nt
• Co ntro l Ac tivitie s
• I

nfo rmatio n and Co mmunic atio n

• Mo nito ring

Inte r nal Contr

• l Compone nts

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E ffe c tive inte rnal c o ntro l syste m

• I

nc re a se s the like liho o d that an e ntity will a c hie ve its o b je c tive s

• Re duc e s the risk o f

fra ud o r e rro r Canno t pro vide abso lute a ssura nc e

• F

ac to rs o utside the c o ntro l o r influe nc e o f manag e me nt c an a ffe c t

• E

xample s: Na tura l disa ste r o r c o llusio n

What ar e Inte r nal Contr

• ls

going to do for us?

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E sta b lish

• Po lic ie s a nd

Pro c e dure s Co mmunic a te

• T
• Pe rso nne l

Re vie ws

• Pe rio dic a lly

a nd Re g ula rly Adjust Inte rna l Co ntro ls

• As ne e de d

Re pe a t

How do we imple me nt inte r nal c ontr

• ls?

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7

• F

ina nc ia l o r no n-fina nc ia l Inte g rity o f Info rma tio n

• E

mplo ye e Info rma tio n

• Ve ndo r Info rma tio n
• Ba nk Re c o nc ilia tio n info rma tio n
• Ca pita l Asse ts/ Inve nto ry Info rma tio n

E xa mple s

• Ho w a c c ura te is the info rma tio n use d to pro c e ss the

info rma tio n?

• Who a ppro ve s the info rma tio n o r c ha ng e s to the

info rma tio n b e fo re a nd a fte r input into the syste m? Que stio ns to Ask

F

• c us of Inte r

nal Contr

• l

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• Ac c e ss to the Info rma tio n sho uld b e limite d a nd

mo nito re d

• Que stio ns to a sk:
• Who ha s a c c e ss to the info rma tio n?
• Who ha s a utho riza tio n to c ha ng e o r a lte r the

info rma tio n?

• Are c ha ng e s to info rma tio n a ppro ve d?

Autho rizatio n

• No t o ne pe rso n sho uld b e re spo nsib le fo r a ll func tio ns o f

a ny pro c e ss.

• T

his inc lude s, b ut is no t limite d to

• Pa yro ll
• Re c e ipts
• E

xpe nditure s

Se g re g a tio n o f Dutie s

F

• c us of Inte r

nal Contr

• l

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Re vie w a nd re spo nsib ility

• Wo rk sho uld b e re g ula rly c he c ke d b y o ffic ia ls o r the ir de sig ne e

E xa mple s:

• Pa yro ll
• Pe rso nne l re c o rds / pa yro ll ro ste r, E

mplo ye e pa y ra te s a nd le a ve e ntitle me nts, Ve rifying pa yro ll re po rts a g re e to the ba nk sta te me nts

• Ve ndo r
• Ve ndo r Ma ste r F

ile , Ve ndo r Pa yme nts

• Ba nk Re c o nc ilia tio ns
• Pre pa re d mo nthly, Re vie w a ll info rma tio n o n the b a nk re c o nc ilia tio n-

inc luding the unde rlying info rma tio n

• Ca pita l Asse ts
• Ca pita l a sse ts/ inve nto ry listing

F

• c us of Inte r

nal Contr

• l

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Must use e ve ry time Ve rify Wo rking Pe rio dic Mo nito ring Adjust whe n ne e de d No t e no ug h to just se t up I nte rna l Co ntro ls!

Contr

• lling the Contr
• ls

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Maintain Do c ume ntatio n o f I nte rnal Co ntro ls be ing pe rfo rme d

• Assists in the inte rna l re vie w pro c e ss
• Pro vide s e vide nc e to a udito rs

E xa mple :

• Co ntro l: Invo ic e s a re re vie we d prio r to pa yme nt to

de te rmine tha t the g o o ds o r se rvic e s we re re c e ive d a nd the pa yme nt is fo r the pro pe r a mo unt/ pro pe r pub lic purpo se

• Co ntro l E

vide nc e : Invo ic e is ma rke d “o k to pa y” b y the de pa rtme nt e mplo ye e who ha s kno wle dg e o f the e xpe nse ”

Doc ume nt, Doc ume nt, Doc ume nt

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A de fic ie nc y in inte rna l c o ntro l e xists whe n the de sig n o r

• pe ratio n o f a c o ntro l do e s no t allo w manag e me nt o r

e mplo ye e s, in the no rma l c o urse o f pe rfo rming the ir a ssig ne d func tio ns, to pre ve nt o r de te c t fraud, e rro rs/ no nc o mplianc e , a nd/ o r fina nc ial re po rting missta te me nts o n a time ly b a sis.

T ake c o rre c tive a c tio n Basis fo r impro ve me nt Ove r time will g e t be tte r

Inte r nal Contr

• l De fic ie nc ie s

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• Cha ng e s to po lic ie s a nd pro c e dure s
• Co mmunic a te d to e mplo ye e s

Mo nito r I nte rnal Co ntro ls

• If the c o ntro ls a re n’ t wo rking – c ha ng e the inte rna l

c o ntro ls

No t e no ug h to imple me nt inte rnal c o ntro ls

• E

VE RY time no t just SOME

• f the time
• No t fo llo wing the c o ntro l pro c e ss o ne time is to o ma ny-
• T

ha t mig ht whe n fra ud/ misuse , e rro rs o r missta te me nts

• c c ur

Co ntro ls must b e fo llo we d

T hings to R e me mbe r

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