Internal control checklist definition
/What is an Internal Control Checklist?
An internal control checklist is intended to give an organization a tool for evaluating the state of its system of internal controls. By periodically comparing the checklist to actual systems, you can spot control breakdowns that should be remedied. When followed regularly, a checklist has the following benefits:
There are fewer audit comments about internal control weaknesses
Management can gain assurance that reported financial results are accurate
There is a reduced risk of asset losses due to fraud
There is less chance that the organization is not complying with any applicable regulatory requirements
Internal controls are a system of policies, procedures, reviews, segregation of duties, and other activities that are used to minimize the risk of asset loss, produce accurate financial statements, and conduct operations in an efficient and orderly manner.
When going through an internal control checklist, the intent is to spot any controls that are missing or weak. Such a finding does not automatically indicate the presence of a control problem that requires remediation. If there are offsetting controls elsewhere in the system, a weak control could be considered acceptable. For example, if a signature plate is used to sign checks, this could be considered a control weakness, except that a formal approval is required upstream for every purchase order issued. This offsetting control ensures that purchases are still approved somewhere in the purchasing system.
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The internal control checklist can be massive, and is tailored to the needs of the individual business. For example, the controls used for a casino (with its heavy use of cash) are quite different from the controls used in a software development company (which may never use cash at all). Here is a selection of the controls that might be found in a typical business:
Purchasing Control Checklist
All purchases are initiated by an authorized purchase requisition
All prospective purchases must be verified against the budget to ensure that funds are available
All purchases above $25,000 must be acquired through a formal bidding process
All purchases over $1,000 require the issuance of an authorizing purchase order
Match purchase orders to purchase requisitions to ensure that the correct items were ordered
All procurement card monthly statements are reviewed and approved by the purchasing manager
Payables Control Checklist
All invoices greater than $50 are approved by a manager
A three-way match of the purchase order, receiving document, and supplier invoice is conducted
Blank checks are stored in a locked location
The sequence of check numbers is tracked
Checks are manually signed
Invoices are stamped "paid" when they have been paid
Customer Billing Control Checklist
All discounts and special prices are confirmed
Invoices are checked for errors
Unmatched bills of lading are reviewed
The sales order total is compared to the invoice total
Statements of unpaid amounts are issued to customers
Payroll Control Checklist
Time sheets are matched to a list of current employees
The hours stated on time sheets are approved by supervisors
The totals entered into the payroll system are matched to time sheet totals
The preliminary payroll register is reviewed and approved by the payroll manager
All payroll checks are manually distributed to the people named on the checks
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