Question

Attached is a Payroll Flowchart Payroll Flowchart.pdf from your SUA booklet. Identify 3 internal controls from the attached Flowchart and fully explain them in terms of objectives, activities, functions, segregation of duties (if applicable) and how they work. You will need to write about 6 to 10 COMPLETE sentences for each internal control.

Answer 1

Three basic types of control systems are available to executives:

(1) output control,

(2) behavioural control, and

(3) clan control.

Different organizations emphasize different types of control, but most organizations use a mix of all three types.

Internal Control Objectives:

• Authorization - The objective is to ensure that all transactions are approved by responsible personnel in accordance with specific or general authority before the transaction is recorded.
• Completeness - The objective is to ensure that no valid transactions have been omitted from the accounting records.
• Accuracy - The objective is to ensure that all valid transactions are accurate, consistent with the originating transaction data and information is recorded in a timely manner.
• Validity - The objective is to ensure that all recorded transactions fairly represent the economic events that actually occurred, are lawful in nature, and have been executed in accordance with management's general authorization.
• Physical Safeguards & Security - The objective is to ensure that access to physical assets and information systems are controlled and properly restricted to authorized personnel.
• Error handling - The objective is to ensure that errors detected at any stage of processing receive prompt corrective action and are reported to the appropriate level of management.
• Segregation of Duties - The objective is to ensure that duties are assigned to individuals in a manner that ensures that no one individual can control both the recording function and the procedures relative to processing the transaction.

Internal Control Activities

• Segregation of Duties

Duties are divided among different employees to reduce the risk of error or inappropriate actions. For example, responsibilities for receiving cash or checks, preparing the deposit, and reconciling the deposit should be separated.

• Authorization and Approval

Transactions should be authorized and approved to help ensure the activity is consistent with departmental or institutional goals and objectives. For example, a department may have a policy that all purchase requisitions and invoice vouchers must be approved by the director. It is important that the person who approves transactions have the authority to do so and the necessary knowledge to make informed decisions.

• Reconciliation and Review

Performance reviews of specific functions or activities may focus on compliance, financial, or operational issues. Reconciliation involves cross-checking transactions or records of activity to ensure that the information reported is accurate. For example, revenue and expense activity recorded on accounting reports should be reconciled or compared to supporting documents to ensure that the transactions are recorded in the correct account and for the right amount.

• Physical Security

Equipment, inventories, cash, checks, and other assets should be physically secured and periodically counted and compared with amounts shown on control records. For example, the periodic confirmation of equipment by individual departments is a physical security control.

INTERNAL CONTROL FUNCTIONS

• Risk Management
• Compliance
• Actuarial function
• Internal Audit