Chapter 5 -Strong internal controls
- 1. Eelo University Faculty of Management science Strong Internal Controls Principles of Auditing Chapter - 5
- 2. Definition of internal controls The whole system of controls; financial, administrative, operational and otherwise, established by management to ensure that the finances, assets and all resources of the organization are properly kept. The controls must be respected or adhered to in conformity with organizational policies and the GAAP. Generally accepted accounting principles.
- 3. ORDASSICA 1. ORGANIZATIONAL PLAN/CHART/STRUCTURE 2. RECORD KEEPING 3. DIVISION/SEGREGATION OF DUTIES 4. AUTHORIZATION OF EXPENDITURE 5. SAFEGUARD OF ASSETS 6. SUPERVISION OF STAFF 7. INTERNAL CHECK 8. COMPETENCE OF STAFF 9. ARITHMETIC CORRECTNESS
- 4. ORGANIZATIONAL PLAN/CHART/STRUCTURE This explains the chain of command and gives the reporting procedures in an organization. It tells who in which position and who are under his control (subordinates/assistants).
- 5. RECORD KEEPING All organization’s data most be properly recorded and stored by responsible officials. All classified files and documents must have security keys. There should be both soft and hard copies for documents. It is advisable to have a software back-up as well, E.g hard disc.
- 6. Continuation… record keeping INFORMATION SYSTEMS Good strong controls must include data center, system software acquisition and maintenance, security access, and system development and maintenance.
- 7. DIVISION/SEGREGATION OF DUTIES Duties are segregated to reduce the risk of error or inappropriate action. Normally the responsibilities of the following should be separated: Initiating, approving, & recording transactions Handling the related assets Reconciling balances Reviewing reports One person cannot steal and conceal.
- 8. AUTHORIZATION OF EXPENDITURE All expenditures and other organization transactions must be approved and authorized by responsible officials. Management authorizes activities and transactions within limited considerations. Management specifies when prior supervisory approval is needed. A supervisor’s approval implies that he/she verified conformance with policies and procedures.
- 9. EELO UNIVERSITY GENERAL PAYMENT VOUCHER Serial number Date Please pay Mr. Buyera Saidi Amount in figures $300 (amount in words: Three hundred dollars) Reason Being cash for 3 days travel allowance to Addis Ababa research conference
- 10. AUTHORIZATION & APPROVAL ACTIVITY NAME POSITION SIGNATURE DATE Prepared by Mubarak Accountant Mubarak 27th /2/2020 Approved by Suad Dean Suad 29/2/2020 Authorized by Abdullahi Vice chancellor Abdullahi 29/2/2020 Paid by Ahmed Cashier Ahmed 29/2/2020 Checked by Muamin Auditor Muamin 29/2/2020
- 11. SAFEGUARD OF ASSETS Organizational assets should be in the custody of responsible officials. For example the organization vehicles ought to with qualified drivers and driven with strict instructions. After official work all cars must be parked in the premises of the organization. There should be recommended service maintenance of the organization assets.
- 12. SUPERVISION OF STAFF Staff need to be supervised. Every staff should be supervised by a more senior official. Staff should adhere to the set procedures of operations in the organization.
- 13. INTERNAL CHECK Internal check ensures that the work of every individual official is automatically checked by another responsible official. For example, the negotiation about the price of a good is done by the sales clerk, the receipt is issued by a cashier, the journal entries made by an accounts clerk, and transfers to the cash book by the chief cashier, a ledger posted by the accountant, a trial balance be a senior accountant, income statement by the principal accountant and finally the balance sheet by the chief accountant.
- 14. COMPETENCE OF STAFF All staff must be qualified for the jobs they do. Employees not meeting the required performance levels ought to be taken for further training to match their jobs. There should be set qualifications for each position. More qualified and experienced employees should be given more challenging duties.
- 15. ARITHMETIC CORRECTNESS All calculations need to be correct. Add and re-add to be sure of the figures. Check additions, divisions and subtractions and ensure they give correct totals. Wrong calculations can lead to untold losses to the organization.
- 16. THANK YOU FOR BEING PART OF THE GREAT PROFESSION “VIVA ACCOUNTANTS & AUDITORS” © Eelo university Buyera Saidi – PhD Research - (Agribusiness) Director research & innovations