Internal Controls

What are Internal Controls

Internal controls are the policies and procedures a company puts in place to safeguard its assets, ensure accurate financial records, comply with company policies, and prevent errors or fraud.

In liquidation and accounting, internal controls help ensure that every transaction is valid, authorized, properly documented, and accurately recorded.

Why Internal Controls Are Important (4)

1. Prevent Fraud

2. Prevent Duplicate Reimbursements

3. Ensure Accountability

4. Protect Company Funds

Quick Summary

Quick Summary

Internal Control	Why It's Required
Receipts	Proof that an expense occurred
Approvals	Authorize the transaction before payment
Signatures	Show review, authorization, and accountability
Supporting Documents	Verify and support the transaction from start to finish

"Companies require receipts, approvals, signatures, and supporting documents as part of their internal controls. These documents verify that expenses are legitimate, properly authorized, and accurately recorded. They help prevent fraud and duplicate reimbursements, ensure accountability by identifying who requested and approved the transaction, and protect company funds by making sure payments are made only for valid business purposes."

Why Companies Require These Documents
1. Receipts

1. Receipts

Purpose:

• Serve as proof that an expense actually occurred.

• Verify the amount, date, and vendor.

• Support the accounting records.

• Provide evidence during audits.

Example:
An employee claims ₱2,500 for office supplies. The receipt confirms the purchase and amount.

2. Approvals

Purpose:

• Ensure expenses are authorized before payment or reimbursement.

• Confirm that the expense is necessary and business-related.

• Prevent unauthorized or unnecessary spending.

Example:
A manager approves an employee's travel expenses before reimbursement.

3. Signatures

Purpose:

• Confirm that responsible individuals reviewed and approved the transaction.

• Show accountability for approvals and payments.

• Create an audit trail showing who authorized each step.

Example:
A payment voucher may require signatures from the employee, supervisor, and accounting manager before payment is released.

4. Supporting Documents

4. Supporting Documents

These may include:

• Purchase Request (PR)

• Purchase Order (PO)

• Sales Invoice (SI)

• Official Receipt (OR)

• Delivery Receipt (DR)

• Payment Voucher

Purpose:

• Verify that the transaction is complete and legitimate.

• Support the accounting entry.

• Make audits easier by providing a complete record of the transaction.

Why Internal Controls Are Important

1. Prevent Fraud

1. Prevent Fraud

Controls help detect or prevent:

• Fake receipts

• Fictitious purchases

• Personal expenses claimed as business expenses

• Unauthorized payments

2. Prevent Duplicate Reimbursements

2. Prevent Duplicate Reimbursements

Without proper controls, the same receipt could be submitted more than once.

Example:
An employee submits the same taxi receipt for reimbursement twice. Accounting checks previous records to ensure it has not already been reimbursed.

3. Ensure Accountability

3. Ensure Accountability

Internal controls clearly identify who:

• Requested the purchase.

• Approved the expense.

• Processed the payment.

• Received the funds.

This makes it easier to trace transactions and investigate issues if they arise.

4. Protect Company Funds

4. Protect Company Funds

By requiring approvals and complete documentation, companies reduce the risk of:

• Unnecessary spending

• Incorrect payments

• Financial losses

• Accounting errors

This helps ensure company money is spent only on legitimate business activities.