Internal control structure of the organization

INTERNAL CONTROLS

Plans and actions of the organization including managements attitude, methods, procedures and other measures that provide for reasonable assurance that the following general objectives are achieved

1.

2.
3.

Assets are safeguarded against loss due to waste, abuse, mismanagement, errors, fraud and other irregularities Laws, regulations and management directives are complied with Reliable financial and management data are developed maintained and fairly disclosed in timely reports

Why look at controls

1.

2.
3.

Understanding of internal controls is important in order to Assess the risk an organization is facing in its daily transactions and routine course of business In order to make recommendations for improvements Identify the reasons as to why the error occured

Understanding & Examining Internal Controls The auditor is expected to review the internal controls as a part the audit
1.

2. 3. 4.

Review and document the systems and procedures in place to carry out transactions and other operations (permanent file) Identify the points in accounting system and other systems being audited Identify and document the controls and determine that the controls are operating Assess the adequacy and effectiveness of the controls

Documenting the controls

Narrative Flow chart

METHODS OF ASSESSING THE CONTROLS

1. 2.

Internal Control Questionnaire Walk trrough

Responsibility of maintaining the controls

Internal controls are the responsibility of the management to install, review and update the control system In government it is also the responsibility of the Controller General of Accounts to lay down the principles governing the internal financial controls for government departments in consultation with the Ministry of Finance and provincial Finance Departments

Elements of Control
Control Environment Risk Assessment Control Activities Information and Communication Monitoring

Control Environment
Methods of assigning responsibility
Management and staffs integrity and values Management and staffs commitmant to competence Managements reaction to outside change and

influence Internal audit unit

Risk Assessment
Identification and assessment of risks to the

achievement of objectives This would allow the management to install internal controls

Control Activities

1.

Policies and procedures that help management directives are carried out. They help ensure that necessary actions are taken to address the identified risks Control Activities include
2.

3.
4.

Proper authoriztion Control over physical assets and records Inependent checks on performance Segregation of duties

Information and Communication

1.

Prompt and proper recording of transactions Prompt communication of instructions

2.

vertical and horizontal Outside and inside

Monitoring
Ongoing and periodic evaluation of internal controls Spot checks

Limitation of Internal Controls

Internal control structure can provide only a

reasonable and not an absolute assurance Judgments in making decisions can be faulty Controls can be circumvented by collusion

Internal Control Questionnaire (Environmental )

1. 2. 3.

By verbal enquiry and observation conclude on the overall level of control consciousness Questions include
Do employees have clear understanding of their responsibilities Is management accountable for the establishment of internal controls Are controls applied all the time

Are there clear procedures and directives and are there clear management procedures to ensure they are complied with
1.

2.
3.

Communication of what is acceptable Employee evaluations provide a feedback on their performance Promotions and rewards are consistant with performance

ICQ on Organization

1. 2. 3. 4.

Is organization clearly defined in terms of:

Functions and Authority Responsibility for decision making Rotation of officers in key positions Limitations on authority

2. Are these functions performed independently of each other

Accounting and internal audit Recording of receipt and collection of money Approval/authorization of payment Recording of expenditure and issue of payment Recording of assets This can be done by obtaining an organizational chart, description of duties and responsibilities

ICQ on Competence of personnel

Do procedures for selection of staff ensure that staff

selected is competent Do staff get adequate training Do staff have a clear description of their dutues Is the staff properly supervised Evaluation and rewarding systems are in place

ICQ on management and operating style

Clear policies and procedures
Extent of computerization Do PAO and DDO exercise adequate control over

financial matters like timely budget and account preparation and analysis Benchmarks for performance Corrective actions

Reporting
Are management reports prepared and circulated

regularly Are management reports used for monitor financial and operational activities\ What are the checks on reliability of data What actions are taken on the reports

Protection of assets and records

Are there checks for protection of cash collection and

custody Are checks there for avoiding unauthorized access to records (manual & comptuer) Disaster recovery plan Record retention plan

Internal Audit
It is a kind of internal control
For the management System analysis and effectiveness Advise for greater efficiency and effectiveness

Thank you