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An Internal Control Checklist: Recognizing Warning Signs and Preventing Problem Situations

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Manna Mahadi
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58 views

An Internal Control Checklist: Recognizing Warning Signs and Preventing Problem Situations

Uploaded by

Manna Mahadi
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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An Internal Control Checklist

Recognizing warning signs and preventing problem situations

I. Introduction/Concept
Why are consistent internal controls important?

1. Management decisions, financial reports, and company taxes rely on the accuracy of figures
recorded.
2. Gives owner control of dollars in and out.
3. Standardizes good management practices and procedures.

Advantages of improved internal control:

1. Can reveal errors and omissions.


2. Discourages employee theft.
3. Protects assets.

How to use the checklist:

1. Review the concept for each internal control area and answer the questions following each
section.
2. Each answer identifies an area that needs stronger internal controls.

II. Segregation of Duties


CONCEPT:

 Certain accounting/bookkeeping functions are designed to cross-reference each other for


accuracy. If the same person is responsible for multiple duties, the natural checks and
balances of the system are removed.
 Trust is not the issue; verifying business transactions is. Giving a single person unquestioned
authority of your finances is not a wise business practice.

CHECKLIST: Each “yes” answer identifies a potential problem area.

1. Is the person who handles your cash also responsible for recording the
cash?
2. Does the person who pays or orders inventory also receive the materials?
3. Are two or fewer people responsible for the accounting function?
4. Is only one person responsible for reviewing financial statements each
month?
5. Is your review of financial journals sporadic?

An Internal Control Checklist Page 1


Copyright CAMICO. All rights reserved. www.camico.com
III. Bank Reconciliations
CONCEPT:

 Bank statements can only flag discrepancies if they are reconciled on a timely basis.
Reconciliations should be done once a month. Bank adjustments need to be tracked
carefully from one month to another.
 Segregating duties is also important in this area. Reconciliations should be performed by one
person and reviewed by another. Also, the person who writes the checks should not have the
authority to sign checks.

CHECKLIST: Each “no” answer identifies a potential problem area.

1. Do you review canceled checks and endorsements on a monthly basis?


2. Do you compare payroll checks with your current employee records?
3. Do you question funds transferred between bank accounts?
4. Do you track the number of credit card bills you sign per month?
5. Are bank reconciliations performed on a timely basis?
6. Is someone responsible for reviewing the reconciliations each month?
7. Do you verify reconciled items?

IV. Supporting Documentation


CONCEPT:

 Enhances communications and serves as final checkpoint.

CHECKLIST: Each “yes” answer identifies a potential problem area.

1. Do you ever sign blank checks?


2. Do you ever sign checks without original supporting documentation?
3. Do you ever sign checks without canceling supporting documentation?
4. Have funds ever been transferred between accounts without review or
verification?
5. Do you ever sign checks for new business vendors without knowing or
verifying their name and association with your company?

V. Employees/Personnel
CONCEPT:

 Know your employees and be aware of changes in behavior.

CHECKLIST: Each “yes” answer identifies a potential problem area.

1. Are any of your employees extremely possessive of their work records and
reluctant to share their tasks?
2. Are any of your employees apprehensive about vacations and time off,
while always being the first in the office and the last out?
3. Have you noticed a substantial change of lifestyle in any of your
employees?
4. Do any of your employees have a possible substance abuse problem?
5. Are any of your employees living beyond their means?

An Internal Control Checklist Page 2


Copyright CAMICO. All rights reserved. www.camico.com
6. Have you ever hired an employee before checking references?
7. Do you permit your accounting personnel to work longer than a year without
taking a vacation?
8. Do you have any accounting staff or key personnel who have not been
secured with a fidelity bond?

VI. Safeguarding Assets


CONCEPT:

 Limit and monitor access to important documents and supplies.

CHECKLIST: Each “no” answer identifies a potential problem area.

1. Are blank check stocks and signature stamps safely secured?


2. Do you restrictively endorse all checks when received?
3. Do you deposit cash and checks daily?
4. Do you maintain a list of office furniture, equipment, and company vehicles?

VII. Other

 Adequate insurance coverage for assets.


 Off-site storage.
 Importance of backing-up information.
 Password restriction and security.

An Internal Control Checklist Page 3


Copyright CAMICO. All rights reserved. www.camico.com

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