There is a lot of chatter about out there about frameworks and methodologies available for compliance with various regulatory requirements. In order to be able to make use of these, there has to be a core understanding of what are basic internal control objectives and the related mitigating procedures.
Internal Control Objectives and Procedures
|Control Objective||Segregation of duties.||Pre-numbered documents that are accounted for.||Regular reconciliation with independent review.||Procedures for prompt recording of transactions.||Internal review and verification.||Specific and general authorization required a certain points in processing.||Chart of Accounts.|
|Posting and summaries||✔||✔||✔|
Relationship between Internal Controls and Regulatory Requirements
|Control Objective||Regulatory Objective||Relationship|
|Timeliness||Cut off||Timeliness ensures that transactions are recorded on a timely basis while cut-off is concerned about the transaction being included in the correct accounting period.|
|Authorization||Authorization Ownership||Same Authorization ensures that there is an appropriate level of approval for the transaction while ownership relates to who has the rights attached to it.|
|Classification||Classification||Same but in relation to the classification of the specific regulation.|
|Posting and summaries||Accuracy Disclosure||Same There is little control ability over whether appropriate disclosure is made beyond absolute minimum requirements and relies on management judgement and the control environment.|
Factors affecting the Control Environment
The organization’s level of commitment to integrity and ethical behaviour as well as competency sets the “tone at the top” and it is management’s philosophy and style which filters throughout the organization. An active and skilled board of directors who mandate senior management with the appropriate authority and responsibility is also a major factor. Furthermore, how this authority is delegated and monitored pertains to the organizational structure and its related human resource policies. And finally a strong and consistent communication strategy is needed to ensure all members of the organization are hearing the same message.