Internal controls are an organization’s plan and all the methods and measures used by a business to monitor assets, prevent fraud, minimize errors, verify the correctness and reliability of accounting data, promote operational efficiency, and ensure that established managerial policies are followed. Internal control extends to functions beyond the accounting and financial departments. Accounting controls encompass safeguarding assets and the accuracy of financial records. They are designed to give assurance that transactions are properly authorized and are recorded to allow for accurate financial statement preparation. Further, accounting contols deal with maintaining accountability for assets, proper authorization to access assets, and periodic reconciliations between recorded assets on the books and the physical assets that exist. Administrative or managerial controls deal with operational efficiency, adherence to managerial policies, and management’s authorization of transactions. Examples are quality control and employee performance reports. Accounting and administrative controls are not mutually exclusive since some procedures and records falling under accounting control may also be used for administrative control.
Our evaluation will study and appraise your system of internal control and concentrates on the nature of the internal controls, whether the controls are adequate in reducing to a minimum errors and irregularities, and whether the controls have been properly maintained and operated effectively. Evaluation steps include:
- ascertaining the procedures and controls established and their effectiveness,
- determining which controls can be relied upon,
- deciding which procedures must be expanded or curtailed and
- recommending ways to improve internal controls.
In evaluating your internal control, items to be considered are segregation of duties, internal checks and verifications, quality of personnel, duties and relationships of employees, quality and characteristics of the accounting system, and the effectiveness of the internal audit function.