There is a rising wave of embezzlement or diversification of company cash and assets in most organizations in Nigeria arising from poor internal control measures by these organizations, in most cases staffs of these organizations embezzle cash or diversify assets of the organization for personal use. Presently, there has been an increase in the Nigerian dailies with publications of wanted staff in connection to defrauding the company he or she was working for.
This article will be looking at important internal control procedures for middle – level managers and account supervisors in organizations in order to increase business efficiency.
It is management’s responsibility to establish and maintain an adequate internal control structure.
In establishing an effective control structure, management can consider a number of specific objectives, including the following:
- Attempting to ensure that all transactions are authorized: For example, the collection and management of the accounts are accomplished only when properly authorized and controlled. Thus, all user fees should be tracked and accounted for on numbered receipts.
- Ensuring that all documentation and accountability for assets conform to local and national laws and procedural requirements: for example, only authorized forms that are completed in accordance with known laws and regulations should be used.
- Preventing unauthorized access to assets: such as cash or stock inventories. In addition, the internal control system should prevent unauthorized access to non-asset items, such as Pre-numbered checks or receipts.
- Ensuring that assets such as cash amounts on hand are accounted for: For example, such assets should be periodically compared with actual amounts, and the appropriate action should be taken in the event of any discrepancy. In addition, the internal control system should ensure the timely posting of transactions.
CONTROL PROCEDURES.
When establishing internal control management should follow five main procedures:
- Establish a system for authorizing transactions and activities. This is normally accomplished through a written policy with the approval of senior management.
- Segregate duties in order to reduce the opportunity for any one person to be in a position to perpetrate and/or conceal errors or irregularities in the normal course of his or her duties.
This can be done by assigning different people (delegation) the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets.
- Design and use documents and records that help ensure the proper recording of transactions and events.
- Institute adequate safeguards for accessing and using records and assets such as cash or inventories. Such safeguards should also cover access to records, documentation, and record-keeping files.
- Perform independent checks of the internal control process and periodic validation via auditing to ensure that records reflect assets, and that a reconciliation of assets and records is accurate and balanced. The independent checks should first attempt to identify the types of errors or irregularities that could occur, and then determine the risk of these errors or irregularities actually occurring.
Finally, the checks should provide relevant tests and audit procedures to evaluate the possibility that errors have occurred. Those performing the periodic audits should be familiar with the internal control process but not be a part of it. In other words, the auditor should be somewhat independent of those involved in the process.
DEFICIENCIES INDICATIVE OF INADEQUATE INTERNAL CONTROL
A number of deficiencies indicate poor or inadequate internal control procedures or policies.
These can be categorized into three groups:
- Deficiencies in the design of the internal controls structure.
- Deficiencies in the operation of the structure, and
- All other deficiencies.
Typical Deficiencies in Internal Control Structure Design
- An inadequate overall internal control structure, including a lack of a minimal structure (for example, no written policies or defined responsibilities for managing cash).
- The absence of appropriate segregation of duties consistent with the appropriate control objectives (for example, the individual who collects the cash also maintains the bookkeeping records and retains control over deposits).
- The absence of appropriate reviews and approvals of transactions, accounting, or bookkeeping entries, or reconciliation of records with assets (for example, no periodic audits or minimal checks of bookkeeping accuracy). This deficiency also includes inadequate Procedures for performing periodic checks.
- Inadequate provisions for safeguarding assets (for example, cash is not secured in a daily manner in a safe place).
- The absence of control techniques considered appropriate for the type and level of transaction (for example, the authorization of discounts in excess of material [minimum but significant] amounts is not clearly defined).
- Evidence that the system fails to provide adequate and accurate outputs (for example, an internal control system that is subject to abuse, fraud, or frequent errors).
Typical Deficiencies in Internal Control Structure Operations
- Evidence of the internal control system’s failure to prevent or detect misstatements of accounting or bookkeeping information;
- Evidence that the system is failing to safeguard assets from loss, damage, or misappropriation;
- Evidence of the intentional override of the system by those in authority;
- Evidence of failure to perform the tasks that is part of the internal control structure (such as reconciliations not being prepared in a timely and accurate manner);
- Evidence of willful wrongdoing by employees or management;
- Evidence of manipulation, falsification, or alteration of accounting records or supporting documents;
- Evidence of intentional misapplication of accounting principles; and
- Evidence that employees or managers lack the qualifications and training to fulfill their assigned functions.
Other Deficiencies
- Absence of a sufficient level of control consciousness within the organization;
- Failure to follow up on and correct previously identified internal control structure deficiencies;
- Evidence of significant or undisclosed transactions; and
- Evidence of an undue bias or lack of objectivity on the part of those responsible for the organization’s accounting functions.
On a final note for business efficiency and revenue improvement internal control should not be compromised in any organization, qualified people should be put in managerial and supervisory positions in every organization.
Onakomaiya Adekunle. O.
onokok@yahoo.com
