Department of Internal Audit and Compliance

Internal Controls

Internal Control Definition:  A process providing reasonable assurance toward:

·   Efficiency and Effectiveness of Operations.   A control is considered efficient when executed with minimal resources, timely, and accurately.  A control is considered effective when it helps support the objectives and goals of the business. 
·    Reliability of Financial Reporting. Accuracy, integrity, and reliability of financial statements and accounting data.
·   Compliance with Laws and Regulations  


Controls can be either manual or automated

·    Manual Controls–Executed by hand without a computer or other mechanization
        Example: Management approval of an expense report
·    Automated Controls – Embedded into the processing logic of a computerized application 
        Example: Dollar approval limits in the ERP system for purchasing a capital item 


Controls can be either detective or preventive

·   Detective Controls – Actions taken to search for and correct undesirable outcomes.
       Example: Monthly bank account reconciliation
       Example: Computer operations log of programmed “jobs” that abnormally ended
·   Preventive Controls – Actions that function in a precautionary or deterring manner.
       Example: Access Controls - - The computer will only log you on with a correct ID and password 


Controls satisfy the following business objectives:

      Completeness    All Transactions are processed only once
      Accuracy            All Transactions are processed correctly
      Validity               All Transactions are approved or authorized by appropriate person
      Restrictiveness   Access to certain functions is limited to authorized people


CAVR and the Payroll Register

     Completeness    No employees are missing from the payroll roster
     Accuracy            All employees are paid the right amounts
     Validity               Additional pay was approved by appropriate person
     Restrictiveness   Person reconciling payroll register cannot process changes in pay

For example, these types of controls can be illustrated through the check writing process you employ at home: 

Manual/
Auto
Preventive/
Detective
CAVR
Use pre-numbered checks, in sequence

M

P

C

Keep carbon copy of each check written

M

D

A

Personally sign each check

M

P/D

V

Lock up checkbook, telling only a spouse where it is

M

P

R

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Last Updated: 6/26/15