DECEMBER INTERNAL CONTROL FOR EFFICIENT AND EFFECTIVE SERVICE DELIVERY-1.ppt

INTERNAL CONTROLS FOR
FRAUD PREVENTION AND
EFFICIENT SERVICE DELIVERY
DR. ABDUL KOKORI

OBJECTIVES
Understand why an organization should have internal controls.
Understand the key components of internal controls.
Understand how various risks effect your internal control environment.
Provide participants with examples of policies and procedures to
implement good internal controls.

INTRODUCTION
Do you use internal controls?
When you leave home in the morning to go to work, do you lock the
doors to your house?
If you do, that’s your own “internal control” to safeguard the assets you
own in your home! You are an internal control user. Congrats!

INTERNAL CONTROLS
What are they?

Internal control is a “process” affected by an organization’s board, management
and other personnel designed to provide reasonable assurance regarding the
achievement of:
Effectiveness and efficiency of operations.
Reliability of financial reporting.
Compliance with laws and regulations.

What Is Internal Control
INTERNAL CONTROLS are the integration of the
activities, plans, attitudes, policies and efforts of
the people of an organization working together to
provide reasonable assurance that the
organization will achieve its mission.
Simply put -

What is Internal Control
Internal Controls are actions taken to make
sure the right things happen ---
-- and the wrong things don’t.

Internal Control System
Improve accountability
to
customers
Definition
Internal controls or an internal
control system are the integration
of the activities, plans, attitudes,
policies and efforts of the people
of an organization which, working
together, provide a reasonable
assurance that the organization
will achieve its mission.
Help organizations achieve
performance and budget targets.
Improve reliability of
financial reporting.
Improve compliance with
laws, regulations.
Help organizations achieve
performance and budget
targets
Prevent loss of
resources and public
assets.
Prevent loss of public
trusts and public
assets.
Reduce legal
liability and
public assets.

What is the Purpose of
Compliance with laws and policies
Accomplishment of mission
Relevant and reliable data
Economical and efficient
use of resources
Safeguard assets

Who is Responsible for
Internal Control
Everyone in an organization has responsibility
for internal control.
Senior Management sets the “tone at the
top” that affects integrity, ethics and other
factors of a positive control environment.

Internal Control System
System Components
Monitoring
Assess internal control
performance
Control Activities
Tools that help prevent or reduce
risk
Risk Assessment
Identification and analysis of relevant risks to
achievement of objectives
Control Environment
Sets the tone for the organization
The foundation for all other components of internal control

INTERNAL CONTROL OBJECTIVES
COMPLETENESS
Are the reports submitted complete?
Accuracy –Was the information recorded accurately?
Authorization –Who are authorized signers and what are their limitations?
 Adequacy of Audit Trail –Can a transaction be traced from the accounting records
back to the original documentation to provide a proper trail for the audit (invoice,
timesheet)?
Segregation of Duties
Are the various aspects of the accounting functions separated and performed by
more than one person?
Physical safeguard of assets?
Protection of the assets of the organization to ensure its mission can be carried out

GOOD INTERNAL CONTROL
PRACTICES
Documented policies and procedures.
Adequate review process for financial reports and budgets.
Adequate cash management procedures (e.g., monthly bank
reconciliations by supervisory personnel)
Physical safeguarding of assets.
System to track Members’ & employees’ activities.
System to follow-up on problems to ensure resolution
Existence of codes of conduct

Job descriptions.
Board of directors maintain timely communications about organization’s
objectives, strategy, and on dealing with issues.
Assignment of responsibilities Policies to hire, train, promote and compensate
employees are in place.
Positive “atmosphere” in the work environment.
A clear chain of command
Adequate Segregation of duties –The same employee should not authorize
purchase, sign the check and record the purchase in the accounting system.
Approval process for disbursing funds –Set different levels for approving
purchases, for example: Transactions up to =N=1,000,000 require one
signature on check Purchases over=n=1,000,000.00 require two signatures on
check.

Monitoring
Ensuring that employees are carrying out their duties Comparison of
budget to actual and to program goals.
Obtaining feedback on operations and other initiatives.
Periodic outside review of the system (audit)

Risk Assessment.
Risk is different for each organization on every level Cost vs. Benefit
Analysis.
Determine the level of risk for misstatement for all transactions, then put
a control in place to mitigate the risk –Examples: Travel for some
organizations can be low risk, but high for others.
Salaries are typically a higher risk for most organizations

CONTROLS ACTIVITIES INCLUDE:
Pre-numbered receipts for cash and checks.
Cash collection should be under the control of at least two individuals.
Person opening mail should be different from person making deposits.
All cash received should be deposited, then organization’s checks used to pay
expenses.
All checks should be stamped “For deposit only” and deposited on the same day
received
All disbursements should be made by check and supporting documentation retained
A check should never be made payable to cash
A blank check should never be signed
If petty cash is used, ensure it is reconciled regularly. If treasurer or check signer is
also the accountant, two signatures should be required Bank reconciliation should be
done by person other than the accountant.

CONTROL ACTIVITIES???
Are transactions authorized by a person delegated approval
authority?
Are records routinely reviewed and reconciled by someone other
than the preparer or transactor?
Are equipment, inventories, cash and other property secured
physically, counted periodically, and compared with item
descriptions shown on control records?

POLICIES AND PROCEDURES
Documented Policies and Procedures are important because:
They are the standards for the organization’s operations.
They help in maintaining information that is crucial to operations that would otherwise remain in
employees’ “hands”.
They help in orienting new employees and substitutes if the appropriate personnel are absent.
They communicate the expectations of the board and staff
Policies should be established, followed, monitored, updated and reviewed As times change, so
does the need for our policies –Example: Internet access to cash accounts and ability to make
electronic transfers
Written Policies and Procedures Assist with consistency and clear communications of
expectations
Policy Expectations: “what is to be done” –Procedure or Process: “how is it to be completed”
Description of methods & procedures to be followed.

Policies and Procedures should include:-
Authorizations of transactions
Payroll procedures
Cash receipts procedures
Procurement Policies
Travel Regulations
Financial Reporting
Budgeting
Record of Retention.
Conflict of Interest

Organizational Information
Organizational Chart describing lines of authority
Job Descriptions outline key responsibilities.
Chart of accounts with details of what is expected to be entered within
each account.
List of Board members, types of committees and frequency of
meetings.
Organizational Documents (Articles of Incorporation) Sub-
contract/Cooperative Agreement

Job Description Should include:
Job Title
Reports to:
Supervises:
Basic Function:
Duties and Responsibilities:
Qualifications:
Classification:

Potential impacts of insufficient internal controls:
Audit findings
Federal funds may be managed inappropriately –
Funding sources are jeopardized
Inconsistencies
Inefficient use of time and resources

Internal Control and Everyday Tasks
Telephone Calls
What can go wrong:
 Unauthorized calls
 No one to answer telephones
 Wrong information given
Internal Controls:
 Utilize voice mail
 Provide staff with training, reference materials and updated information
 Policy on telephone use

Data Entry
What can go wrong:
 Erroneous Entries
 Unauthorized entries and overrides
 Data not up-to-date
Internal Controls:
 Provide staff with data entry training and reference manuals; proof data reports against actual
records
 Use passwords, change passwords periodically, test access privileges periodically
 Ensure all transactions are authorized

Supplies and Equipment
What can go wrong:
 Theft or misuse
 Running out of supplies
 Equipment breakdown
Internal Controls:
 Secure storage area; perform periodic inventories for
equipment; follow procedures for surplus equipment
 Provide training on use of equipment
 Follow manufacturers’ recommended maintenance schedules
 Periodically check supply levels

Who is Responsible for
Internal Control
Everyone in an organization has responsibility
for internal control.

Who Is Responsible For
Internal Control
Your role as an employee is
accomplished by:
◦ Fulfilling the duties and responsibilities established in your job
description
◦ Meeting applicable performance standards
◦ Attending education and training programs to increase awareness
and understanding
◦ Taking all reasonable steps to safeguard assets against waste, loss,
and unauthorized use
◦ Reporting breakdowns in internal control systems to your
supervisor

Conclusion
The people of an organization,
functioning as a team, set the
limits for how good an
organization will be. Internal
controls are those elements of
our day-to-day work activities
that help ensure success.

“Five percent of the
people think;
ten percent of the
people think they think;
and the other eighty-
five percent would
rather die than think.”
-Thomas A. Edison

“LIFE DOES NOT HAVE A
REMOTE CONTROL; YOU
NEED TO GET UP AND
CHANGE IT YOURSELF.”
DANIELMALCOM

DECEMBER INTERNAL CONTROL FOR EFFICIENT AND EFFECTIVE SERVICE DELIVERY-1.ppt

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