Internal Control in Accounting
Internal control in accounting is defined as the entire system of controls, financial and otherwise, put in place by management to ensure:
- the business continues to run in an orderly manner,
- safeguard its assets,
- and secure the accuracy and reliability of its records.
The 3 Prerequisites of an Internal Control System
- A proper organisational plan where operations are seperated into divisions, with someone in charge of that function, and the duties of each peson to have clear boundaries which do not overlap. (also called segregation of duties)
- Authorisation and recording procedures to ensure money is spent only after authorisation is given, and to account for money spent and income recieved.
- Management supervision and review that the above are in place and being used at all times.
The 6 Requirements of an effective internal control system:
- Continuous balancing of the books with each and every transaction.
- Stationery that is prenumbered, especially receipts and invoices.
- Tight control of unused stationery.
- A good filing system of all accounts and invoices, hard copy and soft copy.
- A neat and logical system to process the data. QuickBooks and Pastel make this easy.
- Regular checks and inspections by management, independent accountants or auditors.
There are specific internal controls and checks for each of these accounting areas:
- Salaries and wages
- Cash sales
- Credit sales
- Petty cash
- Fixed Assets
- Journal entries
A good auditor or accountant that is thorough and comprehensive in her work will examine each of these areas for loop holes, risks and errors, and make recommendations for their prevention. In this way your annual audit potentially saves you money and gives you peace of mind knowing your accounting system is secure.
When I was an audit clerk I was able to see real world examples of how these controls were designed and implemented in many companies across many industries.
If you’d like a system designed for your business give me a call or send me an email. Lets see what we can do for you.