INTERNAL CONTROL SYSTEMS

Definition
ICS is the whole system of internal controls financial or otherwise established by the
management of an entity to enable them:-
- Operate business in an orderly and efficient manner
- Ensure adherence to management policies
- Safeguard the co. assets.
- Detect and prevent frauds and errors
- Achieve accurate and complete a/c records
The above definition can be analyzed as follows:-
1. Orderly and efficient conduct of b/s
A b/s that operates in an orderly and efficient manner will display the following
characteristics:-
a) There is free flow of information, documents, goods and services across the
department.
b) The system produces timely information for decision making
c) There is coordination between departments and outside departments.
d) The organization meets the needs of stakeholders
e) There is less waste due to high level of efficiency
2. Adherence to management polices
Every organization has got its own goals, aims and objectives therefore it is important to
ensure that controls exist to ensure enforce such adherence.
3. Safeguard the company’s assets.
Assets of the company must be safeguarded against misuse and damage therefore controls
are necessary to ensure that such assets are well safeguarded
4. Detect and prevent frauds and errors
Frauds and errors if not detected and prevented on time may result to misstatement in the F.S.
misstatements cause wrong decisions to be made about the company and therefore its
necessary to have control that will ensure that frauds and errors are detected and prevented
on time.
5. Achieve accurate and complete records
Management requires accurate and complete records for the following purposes:-
(i) To prepare financial statements
(ii) To fulfill their stewardship role
(iii) To safeguard assets.
(iv) To manage the debtors and creditors a/cs
Therefore controls are necessary to ensure that records and maintained such controls
include:-
 - Hiring competent staff
- Internal check system
- Establishing internal audit department
- Use of pre-numbered document.
- Us of computing machines etc.
OBJECTIVE OF I.C.S
A good system of controls will enable an organization to achieve the following controls:-
1. To operate business in an orderly and efficient manner
2. To ensure adherence to management policies
3. To safeguard the co. assets.
4. To detect and prevent frauds and errors
5. To achieve accurate and complete a/c records
6. To achieve overall organizations objectives.
ELEMENTS OF THE ICS
A good system of controls must have the following elements.
- Control environment
- Risk assessment process
- Information system
- Control activities
- Monitory of controls
CONTROL ENVIRONMENT
Refers to the overall attitude awareness and actions of those charged with the responsibility of
management and governance in an entity.
A good control environment provides a basis upon which all other controls can be established.
It encompasses the following:-
1. The management philosophy and leadership style.
2. The organizations culture
3. The human resource practices etc.

RISK ASSESSMENT PROCESS.

This focuses on how well the management identifies and responds to the risks identified. A good
system of controls should incorporate a comprehensive risk assessment process that will be able
to address the risks that threatens the achievement of organizations objectives

INFORMATION SYSTEM
It incorporates the hardware, software, the people and the communication channels within the
enterprises. A good system of controls must incorporate an information system that will ensure
there is free flow of information within and outside the entity.
CONTROL SYSTEM
These are policies and procedures adopted around the control environment so as to achieve
control objectives.
Examples
- Supervision
- Segregation of duties
- Internal check system
- Rotation of duties.
MONITORING OF CONTROLS
There are polices and procedures adopted around the control to ensure that they are operating as
intended. Monitoring evolves assessing the quality and effectiveness of the control to ensure they
are operating as intended.
IMPORTANCE OF ICS TO AN ORGANIZATION
1. It will enable the management to operate business in an orderly and efficient manner
2. It will ensure the laid down polices are well adhered to
3. Enable the organization to safeguard their assets against theft, misuse and damage this is
because some controls are specifically designed to ensure that the assets are well
safeguarded.
4. Ensure the organization to have accurate and complete records essential for day to day
running of the organization.
5. Ensure that the organization complies with the, laid down rules and regulation.
6. Helps the organization achieves the overall objectives.
7. Encourages specialization through segregation of duties which enhances efficiency.
8. Ensure that the organization achieves the overall objectives.
9. Ensure that the organization has up to date information for effective decision making.

SIGNIFICANCE OF A STRONG ICS TO THE AUDITOR

It will minimize the no. of tests and procedures to be carried out by auditors
Reduce the sample size to be tested.
Minimize the no. of staff to be hired for the assignment.
Minimize auditor’s exposure to risks and liabilities.
Reduces the amount of evidence to be collected by auditors.
Minimizes timings of the field visit.
LIMITATIONS OF ICS/ disadvantages
1. Some controls are expensive to implement and maintained.
2. If not well implemented it can lower staff morale e.g. too much supervision
 3. Some controls are unrealistic to achieve which may frustrate the staff.
4. Management may over rely on the controls and stop supervises leaving frauds and
error’s to be perpetrated.
5. Rigid segregation of duties may result to bureaucracy.

INHERENT LIMITATION OF THE ICS.

It refers to the unavoidable risk / damages of relying on internal controls.
They arise because there is no single system of controls that can guarantee 100% efficiency in
operations and that every system has got its own weakness.
Examples
(i) The fact that internal controls are only designed for routine activities. This leaves the
non-routine activities to frauds and errors.
(ii) The fact that controls can be rendered inadequate by changes in technology.
(iii) The fact that controls like authorization can be abused by those who have the authority
(iv) Controls like segregation of duties can be colluded.
(v) Controls are implemented on cost effective basis only those affordable controls are
accepted which are not necessary the best.’
(vi) The management can override the controls
(vii) Potential human errors may also frustrate the effectiveness of controls

INDICATORS OF WEAKNESS OF INTERNAL CONTROLS

1. Matters with respect to integrity of management :-
a. A business operated by a small group of people without an oversight board.
b. A business where sensitive areas are operated by friends and relatives.
c. A business where the management is reluctant to implement the external auditor’s
recommendations.
2. Unusual pressure within the entity.
a. Where employees are working under tight deadline
b. Where there is too much supervision
c. Where targets are not being achieved but there is pressure on the staff to achieve them
3. Unusual transactions within the entity
a. Presence of contingences within the entity eg pending court cases
b. Suspense accounts that can’t be explained
c. Evidence of related parties transactions
d. Post balance sheet events.
4. Problem of obtaining audit evidence
a. Lack of co-operation from client management
b. Technicalities in the accounting systems
c. Inadequate manpower facing the entity
5. A complex structure not warranted by the size of the company i.e. a small company with a
very complex structure
6. Problems in the computerized environment
 a. In complete programs
b. Inadequate backups
c. Computer viruses
d. Loss of audit trail

AUDITORS ACTION WHERE THE ICS IS WEAK

• Alert the management immediately

• Point out the weak areas so a to concentrate on such areas
• Change the audit approach from system based to substantive
• Increase the sample size so as to test more items
• Change the timings of the audit visit to commence the work earlier
• Summaries all the weaknesses in a management letter, if the weakness persist quality
the audit report

MANAGEMENT LETTER (LETTER OF INTERNAL WEAKNESS)

This is a letter written by the auditor upon completion of audit to bring to the attention to
management the weaknesses identified in the internal controls
Puposes/ importances
(i) To report to the management the shortcomings of the ICS
(ii) To provide advice to the management on how to achieve accurate and reliable records
by establishing effective controls
(iii) To bring to the attention of the management weakness on matters that may have an
impact on the future audit.
(iv) To enable auditors communicate to management to on matters that may have an impact
on the future audit.
(v) To enable the management put right matters that would have led to a qualified report.
(vi) To provide a basis of future audit.
(vii) To provide suggested recommendations on how the weakness can be corrected

CONTENTS OF MANAGEMENT LETTER

(i) A description of the clients ICS
(ii) Weakness in the ICS
(iii) Areas in the business where controls are lacking
(iv) Areas in the business here control are not followed
(v) Implications of the weakness on the FS
(vi) Shortcomings of the weakness in the future audit.
(vii) Auditors suggested recommendations on how to correct the weakness.
(viii) Consequences if the weaknesses are not correct
Type of internal control procedure found in entity
1. Organization Plan
 There should be a good organization chart clearly showing the flow of duties authority and
responsibilities. This ensures there is transparency and accountability.
2. Segregation of duties.
This is the separation of duties and responsibilities in such an away that no one is allowed to
carry out a complete task or transaction without being checked by someone else. This helps
reduce collusion and incidental frauds and errors
Examples of activities to be segregated
a. Receipts and recording of cash.
b. Purchasing of raw materials
c. Authorization and approval
d. Recording and processing transactions
e. Duties of payroll preparation
f. Duties of cheese writing, signing and issuing cheese
g. System development process. Etc.

Importance of segregation of duties as a control procedure.

(i) It ensures that no single person carries out a complete transaction without being
checked by someone else.
(ii) It minimizes collusion among workers.
(iii) It makes it difficult to carry out a fraud
(iv) It serves as a measure of detecting frauds & errors
(v) It has a deterred / discouraging effect i.e. it deter the staff from perpetrating a fraud
because they know their work will be checked by someone else
(vi) Enhances efficiency due to specialization
(vii) Brings a sense of accountability
3. Authorization and approval
All transactions involving the company resources should be subjected to authorization and
approval by a responsible person.
The person authorizing should be different from one approving to safeguard misuse of
company assets.
4. Arithmetic and accounting controls
These controls are concerned with accuracy and completeness of a/c records
Such as

• Prompt recording of transactions

• Use of pre-numbered documents
• Use of computing machines etc.
5. Physical control
These are concerned with safety and custody of assets by restricting an authorized access e.g.
a. Use of lockage key
b. Watchmen and security guards
 c. Use of warnings and posters
d. Fencing
e. Use of CCTV cameras
6. Supervision
There should be adequate supervision of work done by staff at all levels to ensure that staff is
following the laid down procedures
7. Management control
It refers to all those duties carried out by management besides their day to day activities e.g.
a. Review of management accounts
b. Budgetary comparisons
c. Review of targets against estimated performance
8. Personal controls
These are controls/ polices related to human resource functions
The entity should employ qualified and competent staffs who are able to carry out the duties
assigned to them. Such controls includes:-
a. Proper recruitment
b. Competitive remuneration
c. Fair promotions
d. Career development
Others
9. Rotation of duties
These allow peoples work to be checked in their absence.
10. Routine and Automatic checks
Surprised checks on routine transactions to detect suspected fraud e.g. a surprise check
during wage payment to detect ghost workers.
11. Internal audit
Elements of the ICS established by management to monitor day to day activities and whether
they are operating in an efficient manner.
Responsibilities over the internal control directors / management responsibility
1. The management of an entity has got primary responsibility of instituting and implementing
strong internal controls
The management is charged with this because:
a. They are supposed to maintain proper books
b. Supposed to ensure compliance with co. Act requirement.
c. Supposed to safeguard company’s assets
d. They have the responsibility of monitoring the internal controls effectiveness
2. The responsibility of monitoring
3. Duty to implement external auditors recommendations so as to correct the weakness of the
internal controls
External auditor’s responsibility over ics
1. To Ascertain and record the ICS
This involves determining the control that exists in the entity so as to be able to design the
appropriate tests and procedures to be carried out.
2. To evaluate the ICS i.e. to determine weakness and strengths of ICS so as to determine the
extent of reliance to such controls.
3. To report about the controls through a management letter and highlight the weakness can be
corrected.

Internal auditor’s responsibility over the ics

1. Institute and implement internal controls on behalf of the management
2. To advise the management from time to time about the weakness in the internal control
3. To implement the elements of the internal controls and the external auditors
recommendations on behalf of management.

INTERNAL CONTROLS IN PRACTICE; SPECIFIC CONTROLS

1. Controls during ordering
2. Controls during receipts
3. Controls during accounting for purchases
4. Controls during payment for outstanding purchases

Other Controls

• Control over sales and trade debtors

• Control over purchase and trade creditors
• Control over wages and salaries
• Control over cash sales
• Control over cash collected by salesmen
• Control over procurement
• Control over cheque payment & bank reconciliation
• Control over petty cash
• Control over stocks and work – in progress
• Control over Payments to the bank / banking
• Control over non current asset
• Control over cheques and cash received through post.
• Control over cash and bank balances.
• Control over tendering and procurement

1. CONTROLS OVER PURCHASES AND TRADE CREDITORS

Objectives
 To ensure that:
• All orders for goods and services are properly authorized and they are for the goods
used by the company
• All orders are made to authorized suppliers
• Goods and services are only accepted if they have been ordered for and the order has
been accepted by the suppliers
• All expenditure incurred by the company is recorded directly in the general and
purchase ledgers
• Ensure that the goods received are inspected and acceptable items are purchased
• Ensure all invoices are checked against authorized orders and delivery notes before
payments are made

Specific controls
1. CONTROL DURING ORDERING
1. These should be a separate department responsible for
• Placing ordered
• Receiving requisitions for depts.
2. Orders should be made by use of LPOs (Local purchase Orders)
3. LPO should be pre-numbered for accountability
4. Unused LPO should be kept under lock and key
5. All purchases requisitions should be authorized by a responsible person.
6. Orders should be made against authorized by a responsible person.
7. Orders should be recorded on official document showing suppliers name, date of delivery
quantity ordered etc.
8. procedures should exist for following up late deliveries from suppliers
9. LPO should be raised against the lowest quotation possible.

2. CONTROLS DURING RECEIPTS

1. Goods received should be inspected for quality and quantity
a. Inspection should be done by an independent person, not involved in
purchasing
2. A goods receipt not should be raised for recording goods received
3. The GRN should be pre-numbered for accountability
4. Unused GRN should be kept under lock and key
5. GRN should be checked against the purchase order and the delivery note.
6. A goods inwards centre should be identified to deal with all receipt of goods
7. Purchase returns should be authorized and accounted for.
8. Stock record should be updated immediately with the GRN

3. CONTROL DURING ACCOUNTING FOR PURCHASES

(i) All purchase should be posted to the purchase journals and ledgers
(ii) Invoices should be recorded in the purchased day book
 (iii) Supply statement should be reconciled with the purchases ledger for agreement
(iv) Controls a/c should be well maintained and balanced.
(v) There should be regular reconciliations between the ledges and control a/cu
(vi) Invoices should be checked for arithmetic accuracy
(vii) Paying attention to VAT computation and pricing
(viii) Invoices should be checked against the orders to confirm the validity
(ix) Invoices should be signed appraised for payment by a responsible person not involved
in ordering and receipts
(x) Invoices should be reconciled the supply statement to avoid overpayment.
4. CONTROLS DURING PAYMENTS OF OUTSTANDING PURCHASES.
(i) There should be a policy to reconcile supply statement before payment
(ii) invoices should be approved by an independent person not involved in purchasing
(iii) Duties of ordering, receipts and payment should be segregated.
(iv) Cheques should be authorized by at least 2 signatories
(v) Duties of cheque writing, signing & issuing should be segregate.
(vi) All cheques should be crosses before dispatch.
(vii) All cheques should be dispatched immediately after signing
(viii) Invoices should be canceled after payment to avoid double payment.

Other Controls
2. CONTROLS OVER SALES AND DEBTORS
Control objectives
- To ensure that customer orders are authorized and recorded in the required sequence
in order to execute them promptly
- Goods and services are only supplied to the customers with good credit ratings
- Goods returned by the customers are controlled and where liabilities have been
accepted as gods return note should be raised
- All invoices should relate to the goods and services supplied by the company
- All sales which have been invoiced are recorded in the general and sales ledger
- All postings to the sales ledger are made to the correct sales ledger accounts
Measures
a) Orders
Incoming orders should be recorded on pre-numbered forms
Customers’ orders should be checked against the customer’s account and this should
be evidenced by signature
Any new customer should be referred to the credit control department before the
order is accepted
Existing customers should be allocated the credit limits and this should be ascertained
whether it has been exceeded. If so this should be referred to the credit control
department
All orders should be authorized before any goods are dispatched
 Customer’s orders should be received on pre-numbered forms
Customer’s orders should be used to produce a dispatch note for the goods to be sent
to the customers
b) Dispatching
• Dispatching should be recorded in the goods dispatch note (GFN)
• Goods dispatch should be pre-numbered and printed name of company
• The dispatch notes should be pre-numbered and a register maintained for them which
should relate to the customer orders and sales invoices
• The goods dispatch notes should be authorized as the goods leave the premises and this
should be checked periodically to ensure that they are complete and adequately invoiced
• Dispatch should be well approved
• All dispatch should be well invoiced

c) Invoices and credit notes

• The sales invoices should be authorized by responsible officials and cross referenced to
the original customer orders and dispatch notes
• Invoicing should be done by an independent person not involved in ordering
• Invoices should be pre-numbered
• Unused invoices should be kept under lock and key
• Invoices should be checked for arithmetic accuracies
• All sales invoices and credit notes should be entered in the sales ledger and sales ledger
control account. Batch control totals should b checked to confirm the price on them
whether it is authorized price. This checking must be done by a person different from the
one who prepared the invoice.
• Credit notes should be authorized by someone not connected with the dispatch and sales
department
• The sales invoices and credit notes should be pre-numbered
• Copies of cancelled invoices should be retained
d) Returns
• any goods returned by the customers should be checked for obvious damage and where
accepted a document should be raised
• goods return note should be raised for all goods which have been returned and this will be
used to prepare appropriate credit notes
e) Debtors account
• A sales ledger control of account should be prepared regularly and this should be checked
to the individual sales ledger balances by an independent person
• Statements should be sent to the customers regularly showing their respective balances
• Formal procedures should exist for following up overdue debts
• Letters should be sent to the customers for the collection of debts
• The authority for writing off bad debts should be given in writing adjustments made in
the sales ledger
• Use of account action for the recovery of overdue debts which can be authorized by
independent person
 3. CONTROLS OVER WAGES AND SALARIES
COMMON RISKS ASSOCIATED TO PAYROLLS
1. Unauthorized payments to ghost workers resulting to financial losses
2. Unauthorized access to the payroll resulting to manipulations
3. Use of wrong rates to compute payroll
4. Paying leaves and starters for days not worked
5. Failing to pay employees on time resulting to misappropriations
6. Erroneous double payment of workers
7. Overstatement of hours and
OBJECTIVES
1. To ensure wages and salaries are authorized and paid to bonafide workers
2. To ensure employees are paid for work done.
3. To ensure gross wages is properly computed and deductions properly recorded
4. To ensure safety of the unclaimed wages
5. To ensure wages and salaries are correctly recorded in general ledgers
6. to detect dummy / ghost workers
7. To ensure statutory deductions a remitted to relevant authorities
8. To ensure correct rates a used to compute wages and salaries

Measures
i) Maintenance of personnel records showing the employees details and regular checking of
the wages and salaries to the details in the personnel records
ii) All the following need to be authorized by a responsible person
▪ Overtime payments
▪ Engagements and discharge of employees
▪ Changes in the pay rates
iii) Employees should be required to clock in and clock out at the entrance so that they can
be paid for the time they have worked
iv) Payroll – the following should be ensured:
• The payroll deductions should be recorded using the standard tables e.g. income tax
tables
• The payroll deductions should be authorized by responsible officials
• The payroll should be reviewed and approval for payment by a responsible person;
e.g. the human resource manager (HRM)
v) Payments – where the payments are made by cheque
• The payments must be signed by two signatories evidenced against the signed payroll
• Direct bank transfers should be signed and checked regularly against the details in the
personnel file
vi) Wages paid in cash – the following should be exercised
• There should be tight security over the collection of cash from the bank to the pay
point by the use of a security firm
• Cash should be locked in a safe until the pay day
• Cash should be signed for when transferred from one employee to another
 • The pay packets should be collected by the cashier who will pay the employees in the
presence of a witness and a supervisor
• Employees should be required to identify themselves at the pay out by the use of
employment card and national ID
• Unclaimed wages should be recorded in the unclaimed for a specific period of time.
• If unclaimed wages are not significant they can be kept within the premises if not
they should be banked promptly.
• Reconciliation should be done on the amount given to the cashier amount paid and
unclaimed wages and variances investigated.
vii) If wages and salaries are paid through the cheque the following are necessary.
• Pre-signing of black signs should be avoided.
• A cheque register should be maintained for all cheques issued by the company.
• Reconciliation should be done between the debit entries in the bank statement and
should be consistent with the net pay.
• Reconciliation should be done between the aggregate deductions which should be
consistent with the cheque paid for deductions.
• Cheques counterfoils should be maintained for accountability.
• Ensure all cheques are crossed as appropriate.
• All unused cheques are kept under lock and key.

viii) The payroll should be prepared by personnel who are not authorised from the wage
duties.
• The pay roll should be checked by separate person who did not prepare it.
• Wage envelopes should be prepared by persons independent of payroll preparation.
• Specific times should be laid down for distribution of packets.
• Surprise visits on the pay day should be made by senior officers.
• All deductions should be promptly remitted to relevant authority.
• There should be regular independent comparison between the wage and the personnel
records.
• Payroll for different dates should be compared and variances investigated.
• Actual wages should be compared with budgeted wages.
4. CONTROLS OVER CASH SALES
Objectives
- Ensure all the cash the enterprise is entitled to is received
- Ensure all the cash is properly accounted for and entered in the records
- Ensure that the cash is promptly deposited in the business bank account
Measures
- Cash sales should be recorded when the sales are made using the receipt books
- When the sales are made and recorded in the receipt books this should be pre-numbered
and a register maintained for the receipts issued
- Cash sales should be reconciled daily over the receipts issued
- Cash sales should be recorded daily over the cash register totals
- Reconciliations should be carried our by someone independent of those receiving cash
and recording the sales
 - There should be daily bankings of the amount received which should be checked against
cash register totals and any differences investigated
- Prescribe and limit the number of persons authorized to receive cash e.g. the sales
assistants, cashiers e.t.c
- Rotation of duties to eliminate collusion among the employees

5. CONTROLS OVER CASH COLLECTED BY SALESMEN

• Authority to collect cash should be clearly defined
• Salesmen should be required to remit cash and report their sales at regular intervals
• A responsible official should follow up the salesmen who do not want to remit returns
as required
• Salesmen should be given receipt books to record the sales they have made promptly
• Salesmen should be accompanied by security to avoid theft of the goods and cash
• The cash received by the salesmen should be reconciled over the bankings made
• Where the salesmen hold stock of goods an independent reconciliation should be
made over the sales and cash received.
-

6. CONTROL OVER PROCUREMENT

Procurement is the process of purchasing goods and services in an organization.
Organizations spend significant amounts of money on the goods and services and this needs
to be effectively controlled to minimize the risk of financial loss, fraud or damage to the
company’s reputation.
Main risks associated with procurement
- Fraudulent payments to the suppliers for goods that were never received or supplied to the
organization
- Excessive payments for the goods and services which are above the market rates
- Inaccurate payments for the goods and services
- Delays in paying for the purchases resulting in damage of the company’s reputation
- Breach of procurement rules leading to the fines and penalties
- Conflicts of interest
Measures
- There should be laid down policies and procedures on tendering and should be consistently
followed
- The business should always invite tenders for the goods and services (advertise tender)
- Research should be conducted on potential suppliers before they are invited to tender
- There should be a tendering committee to oversee
- Requisitions for the goods and services should be put in writing
- No transactions should be carried out with employees or connected persons – these should be
an opening and closing date for all
- There should be an approved list of suppliers with no purchases being made outside the list
without prior authorization
- There should be a tender box for suppliers to submit their bids
- There should be effective payment procedures established in the organization
- There should be a tendering committee to oversee the process
- There should be opening and closing date of tender
Test of the Controls
a) Review the central data base of the suppliers to ensure that there are no connected parties
b) A sample of the contracts entered into should be review to confirm the research and tendered
process
c) Race the orders for the goods and services through the system confirming the use of
authorized suppliers ad that accurate amounts have been invoiced for all goods and services
received
d) Review a sample of purchasing transaction to ensure that they are correctly authorized and
are within the parameters of the organization

7. CONTROLS OVER CHEQUE PAYMENTS

• Un-used cheques should be kept in a safe (lock and key)
• Cheques should only be signed when there is evidence of a properly approved
transaction. Such evidence may include approved payroll, approved invoices e.t.c
• Signing of blank cheques should be avoided
• At least two signatories should be required to sign cheques of small amounts
• Cheque signatories should be restricted to the minimum practical number
• Cheques should be crossed before they are signed
• Supporting documents should be cancelled as paid to prevent them from being used again
in claiming for further cheque payments
• Signing of the blank cheques should be prohibited
• Cheques should be preferably dispatched immediately they are signed
• Signing cheques in favour of the signatories should be prohibited
• There should be regular bank reconciliation made at specific intervals
• Dishonored cheques should be obtained from the bank and checked against the cash book
and supporting documentation

8. CONTROLS OVER STOCKS AND WIP

Objectives
- Ensure that all the stock movements is authorized and recorded
- Ensure stock records include only items that belong to the client
- Ensure stock records include the stocks that exist and held by the client
- Ensure stock is safeguarded against loss or damage and misappropriation
- Allowance is made for the slow moving, obsolete and damaged stocks
- The stock levels held are reasonable when compared to the needs of the enterprise
Measures
a) The issues from the stores should be recorded on properly authorized requisition forms
b) A review of the damaged, obsolete and slow moving stocks should be carried out and any
write off should be authorized
c) All receipts and issues should be recorded on the stock cards and cross-referenced to the
original received notes and requisition forms
d) The stock levels should be periodically checked against the records by a person independent
of the stores personnel and any material differences investigated
e) Where continuous stock records are not adequately kept then a full stock take should be
carried out on annual basis
f) The maximum and minimum stock levels should be pre-determined and regularly reviewed
for adequacy
g) Delivery of the goods from the suppliers should pass through the goods inward section of the
stores and recorded as having been received
h) The stocks should be held in proper locations to prevent them from being damaged or stolen
i) All the stock item which are used for the similar purpose should be kept in the same location
with information concerning their size, origin, costs, manufacturing and expiry dates
j) Documentation should be controlled by the use of pre-numbered forms subject to regular
checks
k) The WIP and finished goods should be subject to the recording by value including the
charging of material, labour and overhead cost.

9. CONTROLS OVER NON-CURRENT ASSETS (FIXED ASSETS)

Controls objectives
- To ensure that the fixed assets are only acquired with proper authority
- Ensure that these fixed assets are properly maintained and used in the business purpose
- Ensure that the fixed assets are properly accounted for and recorded
- Ensure that the disposals are properly authorized and the proceeds of disposal are accounted
for and recorded
Measures
- The annual capital expenditure budget on the fixed assets should be submitted to the BOD’s
for approval. Where it is approved it should be put in the BOD’s minutes showing the
reasons for the expenditure, estimated costs and the details of the assets to be replaced
- The disposal of fixed assets should be authorized and any sales proceeds should relate to the
authority as given by the BOD’s
- A register of non-current assets should be maintained for each group of assets showing the
details of depreciation and the relevant costs
- Assets should be properly maintained and adequately insured
- Depreciation should be reviewed annually and access the need for the changes in line with
advancement in technology
- The computation of depreciation should be checked for accuracy
- Allocation of expenditure between capital and revenue should be approved

10. CONTROLS OVER CASH AND CHEQUES RECEIVED BY POST

Objectives
- To ensure that all the cash received by post is accounted for and accurately recorded in the
books
- To ensure that such receipts are promptly and instantly deposited in the bank
Measures
- The company should safeguard against the possible interception of the mail between receipt
and opening of the post by restricting access to the keys
- Appointment of an official to be responsible for the opening of the post
- Two persons should be present at the opening of posted mails
- Where the mails contain cheques and postal orders this should be crossed so that they can
only be paid into the business bank account
- The cashier should not have access to the receipts before the recording is made
- A record should be made at the time of opening of the mails concerning the total amounts of
cheques received, postal orders received and the cash received
- The mails should be date stamped to provide evidence that the money was received and this
should be periodically checked against the dates of the bankings. This prevents the cashiers
from misappropriating the cash received only to bank later

11. CONTROLS OVER PAYMENTS INTO THE BANK

Objectives
- To ensure that all the cash and cheques received are banked intently/immediately
- Ensure that all the cash and cheques received are banked without delay at prescribed intervals
- Ensure that all the cash and cheques received are accounted for and recorded accurately
Measures
- All cheques should be banked without delay preferable on daily basis
- The bank pay in slips should be prepared by an official with no access to collection points or
the sales ledgers
- Deposits should be made with the security in mind e.g. for the large amounts employ the
police guard
- There should be independent comparison of the pay in slips with the collection records or the
sales ledger records

12. CONTROLS OVER THE CASH BALANCES

Objectives
- To prevent misappropriation of the cash balances
- To prevent unauthorized cash payments
Measures
- Establish the cash floats of specified amounts and locations
- Appointment of the officials responsible for the cash balances
- Arrangement of security measures including the use of the safes and restriction of access
- Use of imprest system with the rules on reimbursements only against authorized vouchers
- Strict rules on authorizing the cash payments
- Independent cash counts on regular and suppress basis to determine consistency of recording
and its movement
- Insurance arrangements and fidelity guarantees for all cash balances should be insured

13. CONTROLS OVER THE BANK BALANCES

Objectives
- To prevent misappropriation of the bank balances
- To prevent the teeming and lading/carry over/overlapping fraud
- Ascertain the correct amount of the balances at any given date
Measures
- Reconciliations should be prepared at prescribed intervals
- Reconciliations should be prepared by independent personnel who have not received cash
- Arrangement should be made for the bank statements to be sent directly to the person
responsible for the reconciliations
- The balances at the bank should be independently verified with the bank at given intervals
- When reconciliations are carried out the following procedure should be ensured
- Comparison of the debit and credit of the cash book with the corresponding entries in the
bank statement
- Comparison of the returned cheques with the cash book entries, taking note of the dates and
the amounts
- A test of the detailed pay in slip with the cash book entries
- The dates of the credits in the bank statement should be carefully compared with the cash
book entries to determine delays
- All outstanding cheques should be traced to period and their validity verified
- Any unusual items e.g. dishonored cheques on the contras should be investigated