INTERNAL CONTROL SYSTEM

1. INTRODUCTION

First of all I shall start by defining the Internal Control Systems (I C S) as the whole

systems of controls, financial or otherwise established by the management to ensure that

its business is discharged in an orderly and efficient manner. They assist management in

ensuring that management policies are adhered to, assets are safeguarded, early detection

and prevention of fraud and secure as far as possible the completeness and accuracy of

records.

Below are perceived components of internal control systems suggested to effectively

enhance the operations of the firm

2 ORGANISATION STRUCTURE

2.1 A well defined Organization Structure showing the chain of command, how

responsibility and authority are delegated from the top to the bottom. The structure

should work as a guideline to every member of staff to know the limits of authority,

responsibility for promoting, hiring and firing. Below is a proposed structure.

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 DIRECTORS

ADMINISTARATION

MARKETING BOOKKEEPER

3. PHYSICAL CONTROL (PROTECTIVE DEVICES)

3.1 I shall dwell more on this topic as it is concerned with ensuring that access to records

and assets is limited to authorized personnel only. Things to look out for are cash,

cheques, negotiable instruments and other securities.

3.2 CASH AND CHEQUE RECEIPTS

3.2.1 Identify the person who will be responsible for receiving cash.

3.2.2 Ensure that cash received is receipted and bank within 24 hrs.

3.2.3 Reconcile receipts to actual cash received and must tally.

3.2.4 Responsible authorities must make spot checks and report immediately any

anomalities to the superiors.

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3.3 PETTY CASH

3.3.1 A petty cash book must be used.

3.3.2 Petty cash vouchers with supporting documents detailing the purpose for which

the cash would have been used must be attached on the petty cash vouchers.

3.3.3 Petty cash book balances must be maintained.

3.3.4 Petty cash vouchers must be authorized and spot checks or cash counts are

encouraged.

3.3.5 Cash must be well secured.

3.4 CHEQUE PAYMENTS

3.4.1 Ensure that all cheque books are kept under lock and key.

3.4.2 Serial numbers of the cheques must be recorded in the security items register which

must also be kept safely.

3.4.3 Payments vouchers must be raised first before any tractions is made which must be

checked, verified and certified by a different person other than the preparer.

3.4.4 The signatories must check for authenticity before putting on a signature and

signing of blank cheques is strongly discouraged.

3.4.5 All trade payments must be supported by the suppliers invoice, or statement

followed by receipt or acknowledgement.

3.4.6 Cheque payment vouchers must be filed in numerical order.

3.4.7 Ensure that all payments made strictly are for the business.

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3.4.8 Check frequently on the outstanding cheques and ensure that the bank statement

balance is certified by the bank.

3.4.9 A proper cash book must be maintained and check to verify whether proper bank

reconciliation statements are being done.

3.5 ASSET REGISTER AND INVENTORY

3.5.1 This register assists in identifying the firm’s assets at any given time, to safeguard

and take stock of the assets of the company.

3.5.2 It also assists in the verification of the following aspects:

(a) Cost of the asset-correct purchase price.

(b) Authorization-whether the purchase was authorized.

(c) Value-whether actual cost was recorded inclusive of department.

(d) Existence-the physical existence of the asset.

(e) Beneficial ownership-whether the firm actually owns and benefits from the

asset and not being used for personal gain.

ASSET REGISTER

DATE PURCHASED ASSET NAME SERIAL No No ON HAND VALUE

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3.5.3 This book must be properly secured, reconciled with the asset inventory and spot

check and counts carried every week by an authorized person.

3.5.4 An inventory list must be kept behind the door of every office detailing all assets

that are in that particular office checked on daily bases with spot check done timeously

without notice and report of any discrepancies.

INVENTORY LIST

Asset Description Number on hand

Checked………………. Date…………………….

Signed correct ……………… Date…………………….

Control of assets in, out and around the office is safeguarded.

3.6 SECURITY ITEMS REGISTER

An index book can be used to record all security items such as cheque books, invoice,

order books, date stamps, asset register, blank bonds, Title deeds, keys and other

negotiable instruments which must be kept under lock and key.

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Security Items Register

Date Invoice Supplier Name of office Serial No IN OUT BAL SIGN

3.7 PROCUREMENT PROCEDURES

3.7.1 Purchasing procedures must be followed.

3.7.2 Proper authorization must be obtained at every stage and consent must be obtained

from the management where purchases of large quantities and large amounts are

involved.

4. SEGREGATION OF DUTIES

4.1 This refers to the separation of duties within the systems, activities and

responsibilities achieved by ensuring that authorization, recording, custody and execution

of functions are kept separate.

4.2 Job descriptions and work programs which show the person’s area of jurisdiction and

responsibilities are recommended.

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5. AUTHORISATION \ APPROVAL

5.1 Every stage of the above functions must be obtained and determined by the

management of the firm.

5.2 Thus, a system should always require checks to be made of supporting documents by

action at the next stage of the system for authorization and approval by the responsible

authority.

5.3 These stages should be followed;

PREPARATION-VERIFICATION – CERTIFICATION – APPROVAL OR PASS FOR

PAYMENT – PAYMENT.

6. PERSONNEL

6.1 The proper function of a system depends upon the employment of well-motivated and

competent personnel that possesses the necessary integrity of the tasks.

6.2 Staff induction courses and training can enhance the effectiveness and efficiency of

staff.

6.3 An important aspect of any internal control is the existence of the supervisory

procedures by management. That is getting things done through other people correctly,

efficiently and effectively.

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7. MANAGEMENT CONTROLS

7.1 Must ensure preparation of monthly budgets, accounting statements such as Income

and Expenditure and that they are discussed and implemented with the view to measure

performance and profitability.

7.2 Investment portfolios must be explored, measured and implemented

8. SECURITY

8.1 Pro-activeness is more beneficial than re-activeness. Total security of the pemises and

important documents should be taken seriously

8.2 Proper security of doors and locks and burglar bars to secure the building is

recommended besides the employment of security guards.

8.3 Use of passwords to computers to safeguard unauthorized access to confidential

information is also recommended.

9. INTERNAL SPOT CHECKS

9.1 These are routine checks on the day to day transactions which operate continuously as

part of the system.

9.2 Work of one person is proved independently or complimentary to the work of

another, the object being prevention and early detection of errors and frauds.

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10. REVIEW AND AMENDMENT OF THE SYSTEM

10.1 An effective control system should always have an ongoing systems appraisal to

gauge the continued application of the systems.

10.2 In conclusion follow up on adverse reports from previous month is recommended.

KEY ROLES

Staff

1. Supervision

Work

2. Management of Resources - Preparation of monthly Budgets

- Proper functioning of machines

- Monitoring efficiency and effectiveness use

3. Meeting Statutory Dates VAT the 3rd day of every month

NSSA

PAYE the 1st day of every month

NEC

4. General Expenditure

5. Internal Control Systems

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6. Banking: Business and Personal Accounts

7. Receipts and Banking

8. Maintenance of proper books of accounts

9. Income and expenditure accounts

10. Custody of Assets/Inventory

11. Updating Kardex (movement of stock)

ACCOUNTING RECORDS AND BOOKS

1. Petty Cash Book

2. Cashbook

3. Petty Cash Vouchers

4. Cheque stubs

5. Bank Statements

6. Debtors’ receipts and statements

7. Creditors’ receipts and statements

8. Asset registers

9. Kardex cards

10. Files

11. Order books

12. Invoices

13. Cash receipts and payments reconciliations daily

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