Internal-controls Flash Cards

7/31/2019 Internal-controls Flash Cards

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Internal control structure of the

organization


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INTERNAL CONTROLS

Plans and actions of the organization includingmanagements attitude, methods, procedures andother measures that provide for reasonable assurancethat the following general objectives are achieved


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1. Assets are safeguarded against loss due to

waste, abuse, mismanagement, errors, fraudand other irregularities

2. Laws, regulations and management directivesare complied with

3. Reliable financial and management data aredeveloped maintained and fairly disclosed intimely reports


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Why look at controls Understanding of internal controls is important in

order to

1. Assess the risk an organization is facing in its daily

transactions and routine course of business2. In order to make recommendations for

improvements

3. Identify the reasons as to why the error occured


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Understanding & Examining Internal

Controls

The auditor is expected to review the internalcontrols as a part the audit

1. Review and document the systems and procedures inplace to carry out transactions and other operations(permanent file)

2. Identify the points in accounting system and othersystems being audited

3. Identify and document the controls and determinethat the controls are operating

4. Assess the adequacy and effectiveness of the controls


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Documenting the controls Narrative

Flow chart

METHODS OF ASSESSING THECONTROLS

1. Internal Control Questionnaire

2. Walk trrough


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Responsibility of maintaining the

controls Internal controls are the responsibility of the

management to install, review and update thecontrol system

In government it is also the responsibility of theController General of Accounts to

lay down the principles governing the internal

financial controls for government departments inconsultation with the Ministry of Finance andprovincial Finance Departments


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Elements of Control Control Environment

Risk Assessment Control Activities

Information and Communication

Monitoring


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Control Environment Methods of assigning responsibility

Management and staff s integrity and values

Management and staff s commitmant to competence Managements reaction to outside change and

influence

Internal audit unit


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Risk Assessment Identification and assessment of risks to the

achievement of objectives This would allow the management to install internal

controls


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Control Activities Policies and procedures that help management

directives are carried out. They help ensure that

necessary actions are taken to address theidentified risks

Control Activities include

1. Proper authoriztion

2. Control over physical assets and records3. Inependent checks on performance

4. Segregation of duties


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Information and Communication

Prompt and proper recording of transactions

Prompt communication of instructions1. vertical and horizontal

2. Outside and inside


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Monitoring

Ongoing and periodic evaluation of internal controls Spot checks


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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


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Internal Control Questionnaire

(Environmental ) By verbal enquiry and observation concludeon the overall level of control consciousness

Questions include

1. Do employees have clear understanding oftheir responsibilities

2. Is management accountable for theestablishment of internal controls

3. Are controls applied all the time


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Are there clear procedures and directives and arethere clear management procedures to ensure they

are complied with1. Communication of what is acceptable

2. Employee evaluations provide a feedback on theirperformance

3. Promotions and rewards are consistant withperformance


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ICQ on Organization Is organization clearly defined in terms of:

1. Functions and Authority

2.Responsibility for decision making

3. Rotation of officers in key positions

4. Limitations on authority


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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 ofpayment

Recording of assets

This can be done by obtaining an

organizational chart, description of duties andresponsibilities


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ICQ on Competence of personnel

Do procedures for selection of staff ensure that staffselected 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


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ICQ on management and operating

style Clear policies and procedures

Extent of computerization

Do PAO and DDO exercise adequate control overfinancial matters like timely budget and accountpreparation and analysis

Benchmarks for performance

Corrective actions


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ReportingAre management reports prepared and circulated

regularly

Are management reports used for monitor financialand operational activities\

What are the checks on reliability of data

What actions are taken on the reports


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Protection of assets and recordsAre there checks for protection of cash collection and

custody

Are checks there for avoiding unauthorized access torecords (manual & comptuer)

Disaster recovery plan

Record retention plan


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Internal Audit It is a kind of internal control

For the management

System analysis and effectivenessAdvise for greater efficiency and effectiveness


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Thank you

Documents

Internal-controls Flash Cards