Internal Control Accounting

Internal Control

Internal control are the business measures that ensure efficient management of business and assist in achieving their goals or objectives

Purpose of Internal Control

- Protect the assets of business

- Ensure the business is operating efficiently

- Check accuracy of accounting data

- Encourage employees to follow procedures

Principles of Internal Control

- Segregation of duties

- Security of assets and records

- Verification and checking processes

- Authorisation (all payments approved by senior employee)

-Reporting and documentation (payments made thru ETF)

- Training and Staff (police check etc)

Limitations of internal control

- Impossible to overcome all human error

- Needs to be cost-effective

- Employees can conspire to commit fraud

- Smaller business's may not have enough staff to segregate duties

Internal control of cash

- Segregation of duties

- Appropriate security of cash

- Recording of cash and documentation of cash

- Employment of competent staff

Internal control of accounts receivable

- Customer has satisfactory credit rating

- Aging schedule of customers accounts prepared monthly

- Monthly statements for outstanding balances

- Goods cannot be dispatched without authorised sales order

Internal control of accounts payable

- Communicate to creditors if difficulty in making payments

- Supplier invoices must be matched with applicable purchasing order

- Written evidence that invoices have been properly processed before payment

Internal control of inventory

- Purchasing of inventory is not done by person in charge of inventory

- All inventory is scanned in and out of store

- Perpetual inventory system is used to maximise efficiency

- Stocktakes are completed regularly

Internal control of non-current assets

-Adequate insurance over non-current assets

- All NCA is tagged, barcoded with business name

- Purchasing of NCA is approved by authorised employee

- Regular physical checking of all NCA