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in Plain Language

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Office of Audit and Control

Internal Controls in Plain Language

You have heard the term "internal controls", but what exactly is it? Most textbook definitions with their technical terms don't help. So let's look at it in plain terms and practical applications. Let's think of how each of us has developed what we can call our own "personal internal control system." Consider the following:

When you came to work today, did you lock the doors to your house? If you did, that's your own "internal control" to safeguard the assets you own.

Do you review your bank and credit card statements each month? (You really should, you know.) If you do, then you are ensuring the accuracy of the transactions entered on the account statement.

When you go grocery shopping, do you use a list (written or mental) or do you stroll the aisles looking for what looks good today? Most of us use a list as it promotes efficient time use and helps us stay within our budgets.

If your children are still school age, do you check on their whereabouts, school progress, friendships and habits? If you do, then you are ensuring and encouraging adherence to your policies and goals. At Lincoln University, internal controls serve the same purpose:

  • Protect the University's assets
  • Ensure records are accurate
  • Promote operational efficiency
  • Encourage adherence to policies and goals

Generally, controls are of two types:

Preventative Controls -- are designed to discourage errors or irregularities from occurring. Example: Processing vouchers only after signatures have been obtained from appropriate personnel.

Detective Controls -- are designed to find errors or irregularities after they have occurred. Example: Reviewing departmental conformance reports for unexpected or unusual charges.

Who is responsible for internal controls?

Everyone plays a part in Lincoln's internal control system. Ultimately, it is Lincoln management's responsibility to ensure that controls are in place. That responsibility is delegated to each area of operation. Every employee has some responsibility for making this internal control system function. Therefore, all Lincoln's employees need to be aware of the concept and purpose of internal controls. As a supervisor or director, you need internal controls to assure yourself that your area is performing its functions properly and achieving its goals. You must ask yourself, how do I know that things are ok? Do I sit here thinking everything is fine until I feel that my feet are wet (problems get to my level) or do I inspect the dam and river on a regular basis to see their condition (check reports and controls to know what is happening)?

Good internal controls will not prevent or solve all your problems. They will help prevent surprises and give you an early warning on problems and procedures that may need to be taken or modified in order to address the problems before they become disasters.

Where does internal auditing fit in all this?

Internal auditing is an independent appraisal function established within an organization to examine and evaluate the adequacy and effectiveness of the organization's internal control system and its overall quality of performance. Internal auditing furnishes management and the Board of Trustees with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed by the auditors.

Internal auditing reviews the reliability and integrity of information, compliance with policies and regulations, the safeguarding of assets, the economical and efficient use of resources, and established operational goals and objectives. Internal audits encompass both financial activities and operations.

Also, see the link Frequently Asked Questions and Answers for other questions on Internal Control.

 


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