Internal Control

1
Internal Control

• Methods and measures designed to
• Safeguard the assets of a business
• From theft or unauthorized use
• Improve the accuracy and reliability of the
  accounting records
• reduce the risk of errors and irregularities

2
Principles of Internal Control (1)

• Establishment of responsibility
• Only one person is responsible for a given task
• Segregation of duties
• Responsibility for related activities is assigned
  to different individuals
• Responsibility for keeping records of an asset is
  separated from physical custody of the asset

3
Principles of Internal Control (2)

• Documentation procedures
• All documents should be pre-numbered and
  accounted for
• Physical, mechanical electronic controls
• Locks, alarms, safes, passwords

4
Principles of Internal Control (3)

• Independent internal verification
• Review, comparison reconciliation of data
  prepared by employees
• Done on a surprise basis
• Performed by an employee who is independent of
  the personnel responsible
• Other controls
• Bonding
• Rotation of duties mandatory vacations

5
Bank Reconciliation

• Use of bank account helps safeguard cash
• minimizes need to keep cash on hand
• provides for a double record of transactions
• Reconciliation of bank statement with company
  records provides check on accuracy of company
  records
• may also discourage theft

6
Bank Reconciliation Format

• Balance per bank statement
• Deposits in transit
• - Outstanding checks
• /- Bank errors
• Correct cash balance

• Balance per general ledger
• Amounts collected by bank for business
• - Bank charges
• - NSF checks returned
• /- Errors in recording
• Correct cash balance

7
Principles of Cash Management

• Increase speed of collection of receivables
• Keep inventory levels low
• Delay payment of liabilities
• Plan timing of major expenditures
• Invest idle cash

8
Cash Budgeting

• Plan for the cash needs of a business
• Projects future cash receipts and disbursements
• Predicts future cash needs so that the business
  can arrange financing

9
Cash Budget Format

• Beginning Cash Balance
• Add Expected cash receipts
• From customers, investment returns, etc
• Deduct Expected cash disbursements
• For expenses, capital expenditures, etc
• Cash excess or deficiency
• Financing Borrowing or repayments
• Ending Cash Balance