By understanding the characteristics of effective internal control systems, you can design, implement and effectively operate controls to protect the assets of your business. Control Environment The control environment is the company's attitude toward internal controls. Known as "tone-at-the-top," the control environment is a necessary condition for effective internal control, because even the best-designed systems can be thwarted if management overrides the controls that are in place.
To help clients, prospects and others understand internal controls best practices, Selden Fox has provided a summary of key points below. Purpose of Internal Controls Internal controls are processes that an organization develops to prevent or detect deviations from pre-determined standards, errors or fraud, which ultimately help management achieve their goals.
Internal controls can be designed to: Safeguard company assets; Guard against theft of both physical and intellectual property; Mitigate risks to acceptable levels Enable reliable financial reporting; Promote efficient operations e.
Internal controls are highly customizable and are unique to each organization, but all businesses should have a framework in place, even companies that undergo internal or external audits.
Customary in larger organizations, management may choose to create a specific department to monitor and assess the effectiveness of the system of internal control.
Control Activities The common types of control activities that all organizations should consider implementing include the following: Separation of Duties Separation of duties requires different individuals to be responsible for different tasks to ensure more than one set of eyes is part of an entire process.
For example, someone who authorizes a transaction should not also be executing the transaction; two different people should perform these roles independently. Physical Control over Assets Physical assets and the physical access points to intangible assets should always be safeguarded.
Cash should be stored safely, equipment should be locked away, and access to sensitive records should be limited.
Proper Authorization and Training Only authorized employees should have access to the most sensitive information or be able to approve or execute certain activities, and they should be well-versed in how the system works.
These privileges should be reviewed regularly and updated as duties change. All employees should receive sufficient training to be able to identify and respond to a deviation or a potential issue. Independent Checks and Review Employees independent of the activity should perform periodic reviews, and the review process should be well-documented.
For more complex or crucial processes, multiple levels of review may be needed.
Adequate Record-Keeping The steps in any sensitive business process should be recorded, and the records should be routinely reviewed for accuracy. Using standardized documentation can help, such as reconciliations, invoices, expense reports, and receipts with documented approvals.
When searching for the cause of an error or a discrepancy, these records can be referenced to help pinpoint the breach or the mishandling of information. Contact Us Maintaining a robust internal controls program will help ensure your company is addressing various risk factors and taking steps necessary to prevent or detect issues which may negatively affect your business objectives.
Since each company is different the specifics of their internal controls approach will vary.
If you have questions about your internal controls program or need assistance reviewing or refining it, Selden Fox can help. For additional information please call us at Michael Ploskonka, CPA As a member of the Selden Fox Auditing and Assurance Group, Michael conducts independent reviews of financial statements and audit reports prepared by the firm for a variety of clients.
Contact us today to learn more about how Selden Fox can assist your business with any tax, audit, consulting, or accounting needs.The importance of internal control in financial reporting and safeguarding plan assets Employee Benefit Plan Audit Quality Center 5 How to establish cost-effective internal control • Monitoring your controls • Plan auditor communications of internal control deficiencies.
Using specifically formulated case studies, you will examine the critical elements of internal auditing: assessing risk, flowcharting, designing flexibility into the audit program, performing and applying audit results to solve business problems. Developing Effective Internal Controls Using the COSO Model Office of State Controller Internal Controls in a COSO Environment Seminar Raleigh, North Carolina March Mark S.
Beasley Director, ERM Initiative and Professor of Accounting Communications program to reinforce IC objectives? COSO by Information & Communications.
Management uses quality information to support the internal control system. Effective information and communication are vital for an entity to achieve its objectives.
Using specifically formulated case exercises, you will examine the critical elements of internal auditing: assessing risk, flowcharting, designing flexibility into the audit program, performing the audit and applying audit results to solve business problems.
The “Three Lines of Defense” model provides a simple and effective way to enhance communications on Internal Financial Controls by clarifying roles and duties.