Academic journal article The Journal of Government Financial Management

One Easy (but Long) Step to More Effective Internal Controls or, What Are the Consequences of Considering Internal Controls as Consequences?

Academic journal article The Journal of Government Financial Management

One Easy (but Long) Step to More Effective Internal Controls or, What Are the Consequences of Considering Internal Controls as Consequences?

Article excerpt

Every one talks about improving internal controls. Auditors focus on the controls during audits. Auditing standards require extensive review of the controls and testing of the effectiveness of the controls in many cases. Single Audits raise the bar even higher with regard to evaluating controls over major federal financial assistance. Even management, when pressed, will say that effective internal controls are important. So, why don't we do a better job of instituting effective internal controls?

This article explores practical approaches to establishing and implementing more effective internal controls.The points raised in the article are relevant to management and to auditors. After all, we are in this together, whether we like it or not.


View internal controls as conseauences.

Just what are internal controls? The very phrase can turn off many people. It sounds so technical and foreign. When discussing internal controls with auditees we sometimes see expressions on their faces that reflect thoughts like, "Whatever they are, I can't understand them," or "After all, I am not an accountant," or "Even if I am, I am not an auditor. Besides, even though I am an accountant, I am not in an accounting position at my office. I don't deal with money, so there can't be any real applicability to me."

Are internal controls the forms we use (hopefully pre-numbered and controlled, if significant to operations), the processes that we execute, the check we write, the reconcillations we perform? An what about that segregation of duteis thing? How do you really see and evaluate something like that? Are internal controls people or things? No wonder this is such a tricky area. As noted in the Yellow Book sections on Performance Auditing, internal controls are not limited to financial controls. Still, it seems that the difficulties of understanding internal controls are even greater when we move away form financial operations.

To me, internal controls are consequences.

How does a person frequently learn that they can circumvent the controls? Most of the perpetrators we deal with are not accountants. They don't know the theory behind internal controls. In fact, for them the whole idea of internal controls and debits and credits is a very confusing and complex area. Yet it is these relatively uninformed people who often run right through our controls like they don't exist. Frequently at trial the prosecutor and the jury marvel at the cleverness, if not pure genius, of these folks. After all, how could they have been so intelligent as to outsmart all of the educated and sophisticated forces arrayed against them?


Remember when you started a new job? Things were very confusing at first. So many new things to remember and do. There was a learning curve, until you got it all under your belt. But even then, you made mistakes. You might have forgotten to do something. Over the years I have discovered through many investigations that this is how fraud often begins.

Let's imagine for a moment that you are a new employee in an office that collects money and makes deposits. And let's say that you are given the task of making deposits. Of course, this is just one of your tasks each day. So one day you forget to make the deposit. In fact, it totally slips your mind. That is, until about 3 the next morning. That is when you wake up, bolt upright in your bed and recall that you left the bank deposit bag in your unlocked desk. At least that is where you think you left it. Gosh, you're not exactly sure where you left it. Oh no! Now what is going to happen to you? Man, are you ever in trouble! What if someone else found it and stole it? Oh, great. You willbe the primary suspect. You really need this job, and you certainly don't need this kind of hassle.

So the next morning you race into the office and ran up to your supervisor and tell her that you are so sorry you forgot to make the deposit. …

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