Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control.
The management style and the expectations of upper‐level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees, and the assignment of authority and responsibility.
Are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. A short description of each of these control activities.
Principles - Control Activities
Segregation of duties requires that different individuals be assigned responsibility for different elements of related activities, particularly those involving authorization, custody, or recordkeeping.
Proper authorization of transactions and activities helps ensure that all activities adhere to established policies and guidelines.
Adequate documents and records include adequate supporting ocumentation and timely preparation of documents.
Physical control over assets and records helps protect comapny’s assets. These control activities may include electronic or mechanical controls (such as a safe, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures.
Independent checks of performance, which are carried out by employees who did not do the work being checked, help ensure the reliability of accounting information and the efficiency of operations.
To identify and establish effective controls, Fund Managers and department heads must continually assess the risk, monitor control implementation, and modify controls as needed