Internal Controls

What are internal controls?

Internal controls are the financial processes and procedures that enable the organization to safeguard its assets.

How is this done?

The most effective procedures are those that have the greatest segregation of duties. The more people involved in the process, the less likely it is that an error or defalcation will occur.

For example, the person who writes the checks should not be the person signing the checks. The person who orders the service or product should approve the invoice. The person with budget responsibility should also approve the expenditure and should determine how the amount on the invoice will be coded (ie: type of expense, prepaid).

Who establishes the procedures?

Generally management establishes the system of controls.

Should the controls be documented?

It is helpful to have an accounting manual detailing in writing the procedures to be followed. This enables all involved to understand their role and provides a mechanism for maintaining the procedures in the event there is a change in personnel or leadership.