INTERNAL CONTROL

INTERNAL CONTROL

The Auditing practices committee defines internal control system as the whole system of control, financial or otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management’s polices, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

Control procedures which means those policies and procedures which management has established to achieve the entity’s specific goals and objectives. Specific control procedures include:
a) Reporting, reviewing and approving reconciliations.

b) Checking the arithmetical accuracy of records.

c) Maintaining and reviewing control accounts and trial balances.

d) Approving and controlling of documents.

e) Comparing and analysing the financial results with budgeted amounts.

Some of the features of internal control are as follows:

1. Segregation of duties: One of the prime means of expenditure control is the separation of those responsibilities or duties which would, if combined, enable one individual to record and process a complete transaction, segregation of duties reduces the risks of intentional manipulation or error, and increases he element of checking.
2. Physical: These internal controls are concerned mainly with the custody of assets and involve procedures and security measures designed to ensure that access to assets is limited to authorized personnel.
3. Authorization and Approval: All transactions and actions should require authorization or approval by an appropriate responsible person.
4. Supervision: Any internal control system should include the supervision by responsible officials of day-to-day transactions and the recording thereof.
5. Arithmetical and Accounting: These are controls within the recording function which check that the transactions to be recorded and processed have been authorized, that they are all included and that they are correctly recorded and accurately processed. Such controls include checking the arithmetical accuracy of the records, the maintenance and checking of totals, control accounts and accounting for documents.
6. Personnel: This is the procedures to ensure that personnel have capabilities commensurate with their responsibilities.
   John (2002) states that even basically honest employees may be tempted occasionally to steal assets or otherwise o take advantage of his/her position of authority to trust in the company.Guarding against dishonest and honest mistakes are the prime concern of expenditure control which can be expected through its accounting procedures.

An organisation whether profit or non-profit making needs to design, install and enforce concrete procedure and method so that its accounting system will be highly reliable.

It is management’s lack of attention to internal control that encourages expenditure to reach a very high level.

There is no substitute for good internal control system as a means of expenditure control.

RESPONSIBLITY FOR INTERNAL CONTROL

Willsmore (1999) attests, that responsibility for establishing and maintaining adequate internal control rests with the management. This attestation is supported by the CICA in Audit Technique study, internal control and procedure audit test where it states that “it is management which is responsible for safeguarding the assets, ensuring that accounting data is reliable, promoting operating efficiency and adherence to prescribed policies.

It points out that the internal control system should not be regarded as something installed purely to meet the auditor’s need, but should include the controls which the management considers necessary to discharge its responsibilities.

Willsmore, however notes that an auditor in making audit is to review the internal control system and check that which is in existence. As a result, he noted that the auditor may recommend modifications and improvements to the system but the entire responsibility for safeguarding the asset still rest on the shoulder of the management.

There are two approaches to the classification of internal control, vix:

a) That given by the Auditing Statement and Guidelines 3204. The guideline classified internal control by organisation, segregation of duties, physical control, authorization and approval, arithmetic and accounting, personnel supervision and management.

b) International standards on Auditing (ISA 400) classified the internal control by its objectives, Jurisdiction method and general nature.

REFERENCES

Hermanson, E. S (2002). Accounting principle. Columbia Charika Publisher.

Jack, C. R. (2004). Auditing Practices. London: Butter Worst Publisher.

Nwoko, C. (2008). Internal Control in Business. Enugu: Abic Books Ltd.

Ama, G. A. N (2001). Management and cost accounting: current theory and practice. Abia. Amasons publishers ventures.