INTERNAL CONTROLS & INTERNAL AUDIT.ppt
- 2. 2 Two levels of Organizational Activities Operational Financial Control (administrative as well as accounting)
- 3. 3 Internal Controls Integral component of an organization’s management Management tool to provide reasonable assurance that organization objectives and goals are being achieved Include programmes, plans, policies, procedures, practices & processes to achieve those goals & objectives Provide a signal of alert in cases of departure Disclose deviations & their cost/adverse effect Safeguard assets; acquisition, utilization and accountal Ensure economic, efficient and effective use of resources i.e. operational efficiency Ensure reliability of reports
- 4. 4 Fundamental Concepts A continuous built-in operation/mechanism As good as the people who are implementing it Provides a reasonable assurance and not absolute assurance
- 5. 5 Types of Internal Control Preventive: prevent undesirable outcomes before occurrence; Detective/Diagnostic: detect errors; omissions and irregularities Corrective: taking remedial action to reverse the effect of undesirable occurrences and ensuring that these do not recur. Re-engineering of controls based on Detective / Diagnostic study.
- 6. 6 Elements of Internal Controls Management’s philosophy and operating style Vision, objectives, goals: clear & shared Assessment of risks (both internal & external). Clear job/task description, specification and staffing: organizational structure Clear lines of authority & responsibility. Clear demarcation of operational, custodial and recording functions. Clearly defined performance standards. Generation of timely, relevant and reliable information (financial as well as operational) Monitoring / evaluating output against standards Positive control environment: carrots & sticks/Incentives & Disincentives. Internal Audit
- 7. 7 Internal Audit Integral part of Internal Control System. Evaluates the very system of which it is a part Independence within the organization Internal, External Audit: Relative Term External/Statutory Auditors to assess internal control system: Assurance certificate of established and operational Internal Control System Internal and External Audits supplement and compliment each other;
- 8. 8 Self Control Organization, living organism and vice versa