INTERNAL CONTROL

Internal control

This is the general methodology by which management is carried on within an organisation? It is the organisation of working procedures, duties and responsibilities aimed at

1. Protecting the organisation against misuse of resources, corruption and inefficiency;
   
2. Ensuring that all accounting information is properly kept with accuracy in accounting data and operating information;
   
3. Ensuring compliance with the accounting entity's policies;
   
4. Evaluating the level of performance in the accounting entity.
   

• Internal controls may either be administrative or accounting.
  
• There has to be a clear structure with clear assignment of responsibilities commensurate with authority
  
• The accounting system is informed by the organisational structure whereas administrative controls are informed the need to increase operational efficiency and adherence with management policies.
  

Characteristics of internal control system

• Must have appropriate allocation of functional responsibilities
  
• Must be a system sufficient in provision of reasonable accounting control
  
• Good systematic performance of duties and functions
  
• Quality personnel, commensurate with responsibilities.
  

Controls are necessary to enhance compliance with the accounting entity's objectives and policies. Proper records should be systematically maintained for quality and quantity outcomes.

Steps to be followed in an organisational transaction include (1) authorisation; (2) approval; (3) execution; (4) recording.

For proper checks, record keeping responsibilities should be kept separate from custodianship. Money to be kept in the bank, as records are maintained by the entity's accountants.

Operating procedures to provide for cross-checking mechanisms whereby an officer verifies work of another officer in the sub-systems.

Internal auditor audit office to ensure compliance of the organisation with all the accounting procedures.

Mechanisms of control

• Organisational structure.
  

  This has substance in assignment of responsibilities, accountabilities and division of labour;
  

  Selection and placement (replacement) of personnel;
  

  Establishment and formalisation of work flow and communication requirements.
  

• Operating procedures are laid down phases of actions for purposes of meeting goals and objectives of the accounting entity.
  

Basic principles of internal audit

• Organisation of working procedures: This has to be made in a way that what an office dies routinely verifies another office's routine activity;
  
• Specification of functions: clear-cut demarcation of what an officer does. No office should be handling a transaction form its inception to the conclusion;
  
• There has to be separation of records and the safe custody of assets. For instance, money should be banked while the financial records are maintained by the finance office;
  
• There has to be a verification of records and assets;
  
• Internal checking system entailing designing transaction flows. Internal check is the allocation of organisational responsibility. It is informed by the principle that no individual has exclusive control over a given transaction. There has to be cross-checking and cross-controlling through other groups;
  
• Internal audit- is the relatively independent internal appraisal function. It reviews the effectiveness, systems of controls and operations within the accounting entity. It protects and constructs the entity;
  
• Competent and efficient personnel- this has to be assured by the management.