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What Are Internal Controls

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Toyin Emmanuel
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19 views

What Are Internal Controls

Uploaded by

Toyin Emmanuel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What are Internal Controls?

Internal control as defined by the Committee of Sponsoring Organizations of the


Treadway Commission (COSO) is a process, affected by an entity's board of
directors (trustees), management, and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives in the following
categories:
 Effectiveness and efficiency of operations

 Reliability of financial reporting

 Compliance with applicable laws and regulations


They include a wide range of activities that occur throughout the organization, by
supervisory and front-line personnel. Typically, management is responsible for
developing an appropriate system of internal controls, but every employee is
responsible for following and applying those practices.
Examples of Internal Controls
Segregation of Duties
When work duties are divided or segregated among different people to reduce the
risk of error or inappropriate actions.
Physical Controls
When equipment, inventories, securities, cash and other assets are secured
physically. This can occur through the use of locks, safes, or other environmental
controls. Access is restricted to those with authority to handle them.
Reconciliations
Comparisons are made between similar records maintained by different people to
verify transaction details are accurate and that all transactions are properly
recorded. Specific examples would include: Performing a reconciliation from bank
statements to check register/records. Balancing/reconciling cash on hand to sales
or transaction activity on the cash register totals.
Policies and Procedures
Established policies, procedures, and documentation that provide guidance and
training to ensure consistent performance at a required level of quality. These
should be available at all levels of the organization. Departmental and
University/Organization wide.
Transaction and Activity Reviews
Management reviews of transaction, operating, and summary reports help to
monitor performance against goals and objectives, spot problems, identify trends,
etc. Specific examples include: Monthly review of budget statements to actual
expenses. Review of telecommunication call activity reports for personal or non-
business related phone calls. Review of timecards and overtime hours by
employees.
Information Processing Controls
When data is processed, a variety of internal controls are performed to check the
accuracy, completeness and authorization of transactions. Data entered is subject
to edit checks or matching to approved control files or totals. Numerical sequences
of transactions are accounted for, and file totals are controlled and reconciled with
prior balances and control accounts. Development of new systems and changes to
existing ones are controlled, as is access to data, files and programs.

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