This document discusses internal controls and internal audit. It describes internal controls as an integral part of management that provides reasonable assurance objectives are achieved. Internal controls safeguard assets, ensure efficiency and reliability of reports. The document outlines different types of internal controls and key elements including organizational structure, clear roles and responsibilities, and monitoring performance. It defines internal audit as an independent evaluation of the internal control system that works with external audits to provide assurance on the established controls.

1. 1
INTERNAL CONTROLS
&
INTERNAL AUDIT

2. 2
Two levels of Organizational Activities
 Operational
 Financial
 Control (administrative as well as
accounting)

3. 3
Internal Controls
 Integral component of an organization’s
management
 Management tool to provide reasonable assurance
that organization objectives and goals are being
achieved
 Include programmes, plans, policies, procedures,
practices & processes to achieve those goals &
objectives
 Provide a signal of alert in cases of departure
 Disclose deviations & their cost/adverse effect
 Safeguard assets; acquisition, utilization and
accountal
 Ensure economic, efficient and effective use of
resources i.e. operational efficiency
 Ensure reliability of reports

4. 4
Fundamental Concepts
 A continuous built-in
operation/mechanism
 As good as the people who are
implementing it
 Provides a reasonable assurance and
not absolute assurance

5. 5
Types of Internal Control
 Preventive: prevent undesirable
outcomes before occurrence;
 Detective/Diagnostic: detect errors;
omissions and irregularities
 Corrective: taking remedial action
to reverse the effect of undesirable
occurrences and ensuring that
these do not recur.
 Re-engineering of controls based
on Detective / Diagnostic study.

6. 6
Elements of Internal Controls
 Management’s philosophy and operating style
 Vision, objectives, goals: clear & shared
 Assessment of risks (both internal & external).
 Clear job/task description, specification and staffing:
organizational structure
 Clear lines of authority & responsibility.
 Clear demarcation of operational, custodial and recording
functions.
 Clearly defined performance standards.
 Generation of timely, relevant and reliable information
(financial as well as operational)
 Monitoring / evaluating output against standards
 Positive control environment: carrots & sticks/Incentives &
Disincentives.
 Internal Audit

7. 7
Internal Audit
 Integral part of Internal Control System.
 Evaluates the very system of which it is a
part
 Independence within the organization
 Internal, External Audit: Relative Term
 External/Statutory Auditors to assess
internal control system: Assurance
certificate of established and operational
Internal Control System
 Internal and External Audits supplement
and compliment each other;

8. 8
Self Control
 Organization, living organism and vice
versa