Internal accounting control

Internal accounting control consists of the entity’s plan, procedures and records to assure the reliability of financial reporting as well as safeguard the assets of the organization.

An effective internal control structure includes a series of checks-and-balances required for the appropriate recording and authorization of transactions and ensures that access to assets is limited to authorized personnel. Each transaction should be divided into component tasks completed by different staff members in order to increase the likelihood of detecting unintentional errors and ABC Company misappropriation of entity’s assets.

As an example, the person who approves vouchers for payment should not prepare or sign cheques.

The following chart includes other examples of the appropriate segregation of duties:

Finance Officer Who: Should Not:
*Prepares vouchers *Approve Vouchers
*Prepares Cheques *Sign Cheques
*Has access to Blank Cheques *Post Payments
*Receives Cash *Bank or deposit the cash receipts at the bank
*Is responsible for the physical *Perform the physical
  security of Assets    inventory of Assets
*Prepares Bank Deposits *Reconcile Bank Accounts
*Prepares payroll *Distributes payroll payments
*Maintains Driver Logs *Monitor Fuel Usage

The following four basic tests of completeness, validity, accuracy and maintenance should be consistently applied to all transactions.

Completeness

Each element of a transaction must be documented, approved and recorded.

For example: A cash payment to a worker requires the signature of the worker or other proof as evidence of payment.

Validity

Is the disbursement made to a verifiable vendor or employee?

Is there such tangible proof, such as a vendor’s receipt, purchased item, to confirm that the item was received or the services performed?

Accuracy

Is the amount recorded as received or disbursed correct?

Are all relevant charges recorded?

Maintenance

After a payment has been approved for payment and recorded, it should be impossible to make changes, such as addition of a zero to the amount or changing the payee name, or in deed using the same documents for other double payments. All documents after use must be stamped PAID to avoid re-use.

Close supervision by the Finance/Operations Manager and oversight by the Executive Director are vital to ensure that control systems are working and that weaknesses are identified and corrected.

 

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