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Accounting Information > Public Accounting > Internal Controls
Internal Controls

Internal accounting controls are very important to a business of any size. These controls are a set of procedures that are designed to promote and protect sound management practices. The controls relate to both general and financial matters and transactions.


When internal controls are properly followed, the chance is increased that the financial information is reliable, and that management can depend on the information when making decisions. Internal controls also help to increase the likelihood that the assets and records of the organization are kept secure, reducing the possibility of theft, misuse, or accidental destruction. There is also an increased chance that the policies of the entity are followed, and that governmental regulations are met, when internal controls are in place and are strictly adhered to.

When developing a system of internal controls, the first thing to do is to identify risk areas where errors or abuses would be likely to occur. There are different objectives to be met for the various areas. Internal controls related to cash receipts are intended to make sure that all cash that belongs to the entity is received, deposited in a timely manner, recorded properly, reconciled on a regular basis, and kept in a secure location.

Internal controls related to cash disbursements are expected to ensure that cash is disbursed only with proper authorization, only for valid business purposes, and that each disbursement is recorded properly. The internal controls for petty cash are intended to ensure that petty cash is only disbursed for proper purposes, is adequately secured, and is recorded properly. Internal controls related to payroll are for the purpose of ensuring that payroll disbursements are only made when properly authorized and only to bona fide employees, are recorded properly, and that legal requirements such as payroll tax deposits are met.

The internal controls related to grants, gifts, and bequests are set up in order to ensure that all grants, gifts, and bequests are received and recorded properly, and that compliance with any restricting terms is properly monitored. Internal controls for fixed assets are intended to make sure that fixed asset acquisitions and disposals occur only when properly authorized, are adequately safeguarded, and are recorded properly. Internal controls also exist to ensure that donated materials, pledges, and other revenues are properly recorded; that financial reports and information returns are timely; and that other governmental regulations are followed.

Segregation of duties is a common internal control that is quite effective. What it means is that there is no financial transaction that is handled in its entirety by only one person. This is normally possible even in a small organization.

The board of directors often approves at least some of the internal controls for a company. It is a good idea for any organization to document their policies and procedures for handling financial transactions in an accounting procedures manual. The manual will describe the various tasks and which position is responsible for them.

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