Internal control has been designed, applied and considered as the most important tool for achieving objectives, efficient use of resources and to obtain productivity, as well as preventing fraud, errors, violation of accounting, fiscal and tax principles and regulations..
Theoretical fundament:
Internal control is a process executed by the board of directors, the administration and all the personnel of an entity, designed to provide reasonable security with a view to achieving objectives in the following areas:
- Effectiveness and efficiency in operations. Reliability in financial information. Compliance with applicable laws and regulations.
Internal control includes the organization plan and the set of methods and measures adopted within an entity to safeguard its resources, verify the accuracy and veracity of its financial and administrative information, promote efficiency in operations, encourage observance of policies prescribed and achieve compliance with the programmed goals and objectives.
Responsibility
All members of the organization, be it public or private, are directly responsible for the internal control system, this is what guarantees Total Efficiency.
Internal control objectives:
- Obtaining timely, reliable and sufficient financial information as a useful tool for management and control. Promote the obtaining of technical information and other non-financial information to be used as a useful element for management and control. Procure adequate measures for the protection, use and conservation of the financial, material, technical resources and any other resource owned by the entity. Promote the organizational efficiency of the entity for the ogre of its objectives and mission. Ensure that all institutional actions in the entity are carried out within the framework of constitutional, legal and regulatory standards.
Elements of internal control:
All the elements that make up internal control must gravitate towards the principles of quality and suitability, among them are:
Planning, Organization, Procedures, Personnel, Authorization, Information system, Supervision.
Sub-elements of internal control
These are the perfectly defined objectives and plans with the following characteristics:
Possible and reasonable, Clearly defined in writing, Useful, Accepted and used, Flexible, Communicated to all staff, Controllable.
Components of internal control
Control environment, Risk assessment, Control activities, Information and communication, Monitoring
Internal control classes:
| Internal financial or accounting control | Administrative internal control |
| General Steps | General Steps |
| Planning | Planning |
| Assessment | Control |
| Execution | Supervision |
| Monitoring | Promotion |
| Example of area | Example of area |
| Organization Plan | Organization Plan |
| 1. Relational method and procedures | 1. Relational method and procedures |
| 1.1, Asset protection | 1.1, With operation efficiency |
| 1.2, Reliability of accounting records | 1.2, Policy adherence |
| 2, Controls | 2, Controls |
| 2.1, Authorization systems | 2.1, Statistical analysis |
| 2.2, Approval systems | 2.2, Study of times and movements |
| 2.3, Segregation of duties | 2.3, Performance reports |
| 2.4, Physical controls | 2.4, Selection programs |
| 2.5, Training Programs | |
| 2.6, Training programs | |
| 2.7, Quality control | |
| 3, Ensure | 3, Ensure |
| 3.1 All transactions according to specific authorization | 3.1, Efficiency, Efficiency and Effectiveness of operations |
| 3.2, Transaction log | |
| 3.3, GAAP financial statements | |
| 3.4, Access assets with authorization |
Internal control is based on protection through all pertinent instruments, adequate coverage of possible contingencies, and verification of preservation and registry systems.
Internal control system:
The internal control system is the set of all the elements where the main thing is people, information systems, supervision and procedures.
This is vitally important, since it promotes efficiency, ensures effectiveness, and prevents generally accepted accounting standards and principles from being violated. Organizational managers must create a control environment, a set of direct control procedures, and the limitations of internal control.
Elements of the internal control system:
- Definition of objectives and goals, both general and specific, in addition to the formulation of the operational clients that are necessary. Definition of the policies as action guides and procedures for the execution of the processes. Use or adopt a suitable organization system to execute the plans. Precise delimitation of authority and levels of responsibility. Adoption of rules for the protection and rational use of resources. Management and administration of personnel in accordance with an adequate evaluation system. Application of the recommendations resulting from the internal control evaluations. Establishment of mechanisms that allow organizations to know the opinions that their users or clients have about the management carried out.Establishment of modern information systems that facilitate management and control. Organization of reliable methods for management evaluation. Establishment of induction programs, training and updating of managers and other personnel. Simplification and updating of rules and procedures.
In summary, the control environment, the accounting system, the internal, accounting and administrative controls.
Procedures to maintain good internal control:
- Delimitation of responsibilities. Delimitation of general and specific authorizations. Segregation of incompatible functions. Healthy practices in the development of exercise. Division of the processing of each transaction. Selection of suitable, skillful, capable and moral officials. Rotation of duties. Policies. Written instructions. Control accounts. Evaluation of computerized systems. Pre-numbered documents. Avoid using cash. Minimum use of bank accounts. Immediate and intact deposits of funds. Order and cleanliness. Identification of key control points in each activity, process or cycle. Control charts. Frequent physical inspections and inventories. Updating of security measures. Adequate record of all information. Document preservation. Use of indicators.Self-control practices. Defining clear goals and objectives. Let the staff know why you do things.
Some internal control procedures in a company:
- Periodic cash checks to verify that the transactions made are correct. Control of attendance of workers. When acquiring responsibility with third parties, these are made only by authorized people also having a logical basis. Define roles and responsibilities at all levels of the entity. Make a physical count of the assets that actually exist in the company and compare them with those that are recorded in the accounting books. Analyze whether the people who do the work inside and outside the company are the right ones and are doing it effectively. Have a number of the accounting vouchers in a consecutive way and easy to use for the people in charge of obtaining information from them.Control the access of unauthorized people to the different departments of the company. Verify that all tax, fiscal and civil regulations are being complied with. Analyze if the financial returns and investments made are giving the expected results
There are many more and varied internal control procedures that can be applied to the company, since each one implements those that best suit the activity it carries out and provide it with the greatest benefit.
Limitations of the effectiveness of an internal control system:
- It never guarantees the fulfillment of its objectives. It only provides reasonable security. The cost is linked to the benefit it provides. It is directed towards non-exceptional repetitive transactions. Human error can occur due to misunderstandings, carelessness or fatigue. Collusion potential to evade controls that depend on segregation of duties. Violation or omission of the application by senior management.
At the end of the implementation of the internal control system, an analysis with continuous feedback should be carried out to find possible faults and control them as quickly as possible and thus avoid larger problems.
