This presentation is centered on the topic internal controls

1. INTERNAL CONTROLS
By: Renae Newby

2. LESSON OBJECTIVES
 Define the term internal control
 Identify two types of internal controls in a business
 Outline the characteristics of good internal controls
 Explain the internal control for various aspects of a business
 Differentiate between an internal and an external auditor.

3. DEFINITION OF INTERNAL
CONTROL
 These are the procedures, policies, guidelines and regulations that
are put in place to protect the assets of an organization from theft,
robbery, unauthorization and misuse
 They are used to improve or maintain the operating efficiency and
smooth running of the organization.

4. TYPES OF INTERNAL
CONTROLS
 Accounting Controls
 Administrative Controls

5. ACCOUNTING CONTROLS
 Focuses on the protection of the assets of a business from being
manipulated by way of theft and misuse.
 It includes proper recording of transactions and the presentation
of reliable accounting data that reflects the true value of assets.

6. EXAMPLE
 Recording all cash received immediately is an accounting control to
keep track of the cash in the business.

7. ADMINISTRATIVE
CONTROLS
 Focuses on making sure that the business is operating as efficient
as possible to achieve the overall objectives.

8. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Segregation of record keeping and custodianship
The person recording for the assets should not be the person who has
ultimate responsibility or custody of the asset.
 Rotation of duties
When employees are rotated it allows for individuals to learn of any
illegal or erroneous acts.

9. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Documentation procedures
Allows for the recording of all transactions and the use of source
documents to support or justify historical economics events. It
includes the use of receipts, invoices, debit and credit notes, goods
received note, etc.

10. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Reconciliation/ check/ balancing
These are necessary for the continuous checking and verification of
amounts received or paid as well as balances of assets. It is usually
performed by senior employees such as supervisors, junior managers
and any other senior personnel in an organization.

11. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Competent and trustworthy personnel
Ensures that employees entrusted with the responsibility or function
of the organization are as effective as possible (competent) in
achieving the objectives of the organization

12. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Establishing responsibility
This identifies particular individuals as having responsibilities for
different aspects of the business, so as to ensure that there are
persons liable for errors or other unwanted acts that are inconsistent
with the company’s objectives.

13. C H A R AC T E R I S T I C S O F G O O D
I N T E R N A L C O N T RO L S
 Physical, Mechanical and Electrical Controls
Physical : includes the use of supervisors to make sure that people
work or keep order within a company.
Mechanical: includes camera or gas pump that enables additional
protection or effectiveness of the functions to be done
Electronical: includes alarms or beeping devices to alert members of
a company that something is wrong.

14. A P P RO P R I AT E I N T E R N A L
C O N T RO L S
For cash and bank balances
 All cash and cheques received should be accounted for and
accurately recorded in the books.
 At least 2 persons must be present at the opening of amounts
received through the post.
 Regular bank reconciliation should be done.

15. A P P RO P R I AT E I N T E R N A L
C O N T RO L S
For stock
 Ensure that stock is adequately protected against loss or misuse
 Stock should be stored under conditions that will prevent
deterioration due to heat, cold, damp.
 Recording of all receipts and issues should be done at all times

16. A P P RO P R I AT E I N T E R N A L
C O N T RO L S
For Accounts Receivable
 Ensure that all credit sales are made to loyal customers
 Ensure that all customer claims are fully investigated before
offering credit notes.
 Every effort should be made to collect all debts and the claims of
bad debts should be proven

17. A P P RO P R I AT E I N T E R N A L
C O N T RO L S
For Accounts Payable
 Ensure that goods and services are ordered in the quantity, of the
quality and at the best terms available after appropriate requisition
and approval.
 Only specified personnel should request goods and services on
specified forms with space for acknowledgement.

18. I N T E R N A L AU D I T O R V S.
E X T E R N A L AU D I T O R
Internal auditor
 A regular member of staff with the responsibility for the
implementation, reviewing and withdrawal of internal controls
 Reports to management up on reviewing internal controls and
make suggestions for improvement
 Usually seen as part of management even though their roles are
prescribed by management

19. I N T E R N A L AU D I T O R V S.
E X T E R N A L AU D I T O R
External auditor
 Not a member of the company but represents the firm, contracted
to perform auditing services.
 Their work is prescribed by law
 He/she needs to be qualified and licensed to perform his/her
roles.

20. I N T E R N A L AU D I T O R V S.
E X T E R N A L AU D I T O R
External auditor
 Examines the internal control system
 Examine records and supporting documents
 Verify values of assets and liabilities

21. THE END