|
|
|
Financial
Management
|
| Internal
Control |
|
Contents
Introduction
Frequently Asked Questions
Narrative
Additional Resources
Applicable Laws
|
|
| Introduction Back
to Top |
| Internal
control is a process used to protect assets and ensure that
record keeping and tracking of assets is accurate. This is done
through a system of checks and balances that verify or check
the accuracy of information and by assigning individual responsibility
for oversight of these safeguards. Examples of things that might
need to be protected through a system of internal controls are
land and other real property interests, equipment, accounts
receivable, cash, bank accounts, etc. In a municipality it is
the responsibility of elected officials to ensure internal control
policies and procedures are in place and are being used by administrative
staff. |
|
|
| Frequently
Asked
Questions Back
to
Top |
|
How is internal control established?
Usually internal control is
established by assigning more than one person responsibility
for financial transactions and ensuring responsibility is
assigned for control of property and/or other assets. Making
sure one person approves and another checks financial transactions
reduces the chance of error or unauthorized use of resources.
To establish good internal
controls you need to:
- Identify what you are controlling
(e.g. money, land use, equipment, services);
- Identify the compliance goals
(e.g. how much money and its intended use; what land, equipment,
service and their intended use);
- Identify and evaluate the
risks and conflicts with your goals;
- Establish written policies
and procedures that address the risks and conflicts through
use of key internal controls;
- Make sure everyone that might
be affected by them understands the policies and procedures,
such as staff, governing body, interested members of the
public;
- Authorize only certain people
to carry out or approve transactions. This authorization
could be limited by type of transaction or amount;
- Ensure that one employee
does not have the responsibility for all phases of a transaction
by separating duties;
- Physically secure assets
in a safe or under lock and key;
- Reconcile accounting records
regularly and if there are differences, find out why immediately;
- Inventory physical assets
(equipment, furniture, office supplies, etc) and reconcile
with existing records; and
- Properly document transactions
and keep the records organized.
The Department of Community and Economic
Development's (Commerce's) "Local Government Handbook"
section on "Managing
City Finances" contains a detailed discussion
of internal control and the types of internal controls a local
government might want to have in place.
What are the benefits of
internal controls?
Internal controls help avoid
the risk of misuse of public funds and other resources and
to ensure resources are used for their intended purpose. They
also help to ensure effective operations that accomplish the
goals of the community and governing body.
What are some of the risks
of failing to have proper controls in place?
- Revenues may not be received
by the appropriate entity, or, if received, they may not
be recorded properly;
- Assets (financial, personnel,
space, personal property) may not be used efficiently;
- Assets may not be used to
accomplish goals and objectives;
- Assets may be diverted to
personal use;
- Information used for decision
making is not reliable, timely, or available; and
- Last, but not least, there
may be theft of public funds.
How can you ensure that your
internal control system is working?
Keep an eye on things -- monitor.
Monitoring ensures that the system is operating as expected.
Monitoring activities include:
- Spot checks of transactions
to ensure compliance with policies and procedures;
- Review of financial reports;
- Reviews of ledgers and related
reconciliations;
- Review of outstanding money
owed;
- Review of high risk accounts
or records (money market and CD accounts);
- Evaluating trends;
- Review supporting documents;
- Inventory land, buildings,
vehicles, identifying where they are located, and what condition
they are in;
- Investigating and following
up on complaints, rumors or allegations.
What are some symptoms of
misuse of funds and what should you do if you suspect this
is happening?
Symptoms of misuse of funds
include:
- Missing or altered documents
to support transactions;
- Excessive voided documents
or transactions without supervisory approval;
- Transactions with inappropriate
authorizations;
- Excessive complaints from
customers or other employees;
- Unusual billing addresses
or arrangements;
- Payments based on photocopied
invoices or fabricated invoices;
- Vendor payments sent to an
employee's address.
If fraud is suspected you should
immediately notify the local governing body and request direction
on how to deal with the issue. |
|
|
| Narrative Back
to Top |
| Internal
controls should be proactive - meaning they should be in place
from the beginning before an incident occurs, rather than after -
and they should be cost effective. A good system of internal
controls will lessen the chance of misuse of funds and resources,
through appropriate documentation and procedures, and will help identify
the cause of a problem. |
|
|
| Additional
Resources Back
to
Top |
|
Publications
- Commerce, "Local Government Handbook,"
Administration - Administrative Procedures
- Commerce, "Local Government Handbook," Financial
Management -Managing
City Finances
- Commerce, "Model Financial Record
Keeping System" - Appendix B, Inventory and Property Control
Sample Documents
Internet links
|
|
|
| Applicable
Laws Back
to
Top |
- AS
29.20.390 - itemized account of money received and spent, treasurer
- AS
29.20.500 - preparation
and submittal of an annual budget, custody of real and personal
property, monthly financial records
- AS
29.20.640- reports
required to be filed with Commerce, maps, submittal of an annual
audit or certified financial statement, tax information, and
an annual budget to Commerce in order to receive shared revenues
- AS
29.35.100- procedure
for preparation and submittal of the budget and capital program
- AS
29.35.120- annual
audit or certified financial statement
Revised 10/8/02
|
|
|
| Back
to Top
|
|
|
PRINTING
NOTE TO
USER:
Some
printers
do
not
capture
the
full
page
when
printing.
To
adjust
for
this,
select "Landscape" in
the print
properties
window when
printing
one
of
the
LOGON
chapters. |
|
| |
|
|
|
