Frequently Asked Questions
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.
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:
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?
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:
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:
If fraud is suspected you should immediately notify the local governing body and request direction on how to deal with the issue.
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.
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