The need to review your Internal Controls

December 7, 2016

Introduction

Organisations of all sizes need to both implement strong internal controls and monitor these controls to safeguard their assets, operate efficiently & effectively and in compliance with applicable laws and regulations. Without strong internal controls organisations open themselves up to a number of serious issues which can have very adverse effects.  At Nexia our audit team can work with you to develop and/or enhance your organisations internal controls which can assist greatly in the on-going success of your business.

 

Internal Controls Procedures 

All organisations should put in place a number of key procedures which are simple to follow for employees but also effective in maintaining the integrity of the business. Some common procedures that we look to put in place for organisations include:

-           Separation of duties of key accounting functions

-              Access controls over various accounting systems

-              Regular reconciliations

-              Physical audits (e.g. stock, cash, etc.)

-              Approval authority to authorise transactions

-              Monitoring of actual performance against budget

We know for smaller organisations controls such as separation of duties or access to various parts of an accounting system are not possible or feasible. In these situations we will implement systems whereby senior management or people in governance perform appropriate checks and reviews.

 

Setting & Maintaining of Controls

Management play an integral part in developing the ethical values of an organisation which assists in shaping the control environment. They also have an important role in delivering the overall objectives of an organisation and strong internal controls will greatly assist in this. However, all staff in an organisation play a vital role in setting up and maintaining the control function.

We are able to perform internal control reviews where we look to set-up systems with the input staff members. This way we ensure that we not only have strong controls but they are workable at all levels.

 

Types of Internal Control Systems

There are many systems within an organisation that management need to have internal controls over with the following financial systems being critical: 

-              Bank receipting and debtors

-              Bank payments and creditors

-              Stock

-              Payroll

Organisations also need to consider controls over non-financial systems that include the following:

-              Human resources

-              Internet usage

-              Continuing Education & Training of staff

-              Health & Safety

Our staff at Nexia will not only provide you with a comprehensive review of your internal control systems but we will also offer you proactive recommendations to enhance these systems. The stronger the internal control systems the more effective your organisation will be able to function.

 

What Can Happen With Weak Internal Controls

There is a five letter word called “fraud” that is disastrous for any organisation. Fraud has more chance of success in an environment where internal controls are weak. A draft 2014 SFO report noted that the New Zealand economy is losing up to $9.4 billion a year. There is a misconception that fraud is limited to large organisations but this is not the case at all. A common theme in fraud are the words from management after it is discovered stating “I never suspected them at all” and this is exactly the reason fraud exists.

Another serious issue is that the data within the financial systems of an organisation can become unreliable if there are weak internal controls. When this occurs management cannot rely on the information provided to be accurate and hence cannot make informed financial decisions to lead an organisation effectively.

Furthermore, organisations with weak internal control systems run the risk of falling outside legislation and regulations. Organisations need to consider legislation around Health & Safety, Employment, etc. and also regulations effecting their business.

 The publicity when there is fraud or a breach of legislation can have an extremely adverse effect on any organisation. There is also the possibility of criminal proceedings in some instances (such as Health & Safety law breaches) which may have been avoidable if strong control systems were in place.

 

Summary

Organisations of all sizes need to have strong internal control systems to ensure that management can operate the business optimally and within applicable laws and regulations. Our staff can review your systems which will further enhance the safety and ongoing viability of your organisation. Please do not hesitate to call Andrew Hastie to discuss the need to review your internal control systems.

 

Article Author:

Andrew Hastie
Principal

ahastie@nexiachch.co.nz

 

 

 

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