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INTERNAL ACCOUNTING CONTROLS - AN EVERYDAY FOCUS As management evaluates "corporate best practices" and discusses the contents of internal controls deficiency letters, they should remember to also communicate the importance of complying with existing controls to those outside the accounting department. Key personnel should not overlook the importance of basic procedures and controls in effect that will continue to serve as part of the foundation of the internal control system. When people first hear the words "internal accounting controls," most non-accountants think only of steps taken to prevent fraud. Prevention of fraud is important in safeguarding an organization's assets, but internal controls also help ensure that financial data is accumulated, processed, and reported accurately and completely. Financial managers need to understand the reason for having these controls and the impact failure to comply can have on the effectiveness of the control system as well as their job effectiveness. Why have internal controls, especially when the related formalities, cross-checking, and paperwork are so time consuming or burdensome? Internal controls exist for a reason -- they help prevent and detect misstatements in accounting records due to fraud or error, which, in turn, helps ensure accurate financial reporting. The circumvention of control procedures increases the risk that errors, and possibly even fraud, could occur. Although accounting department personnel have primary responsibility for executing and maintaining the internal control system, managers outside the accounting department also play important roles in ensuring controls function efficiently. The internal control system itself, and the data that is produced by the systems it governs, impacts even non-financial manager's decision making processes. Here are two examples: Example 1: You are the project manager responsible for reviewing and approving employee expense reports. You do not want to take the time to check the math and charge codes because you really need to get a performance report out to a client. So you simply sign off on the reports and forward them to the accounting department for processing. Example 2: You are responsible for reviewing direct cost reports before approving a customer invoice for mailing. It is 5:59 pm and you need to get to your son's game. You sign the invoice without looking over the cost reports and return it to accounting for mailing. Error 1: An employee incorrectly included substantial personal charges on the company card and charged them to a project in error. You did not review the expense detail prior to approving the expense report to prevent the error. The incorrect charges are now charged to your project. Error 2: The incorrect charges are now included
on your customer's ODC report and as a reimbursable direct cost
on the current month's bill. You did not review the cost reports
or reconcile them to the invoice, so you did not detect the error.
The invoice was issued for an incorrect amount. Worse yet, this
is a Federal government contract, and your company may have just
violated certain Federal statutes.
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