Internal Control Programs
...ons and reduce temptation. (Noordin, 1997) Internal Control Techniques All good systems of internal control have certain features in common. These features can be termed as a checklist of internal control, which may be used to appraise any specific procedures of cash, purchases, sales, payroll, and the like. The following check list summarizes the guidance: Separate the function of handling cash from the maintenance of accounting records. Those employees that handle cash should not have access to the accounting records, and vice versa. Each department within the organization should prepare a forecast of planned cash receipts, cash payments, and cash balances on a regular schedule. Prepare a control listing of cash receipts at the time and place the money is received. Require that all cash receipts be deposited daily in the bank. Make all payments by check if possible. Use petty cash for smaller payments. Require that the validity and amount of every expenditure be verified before a check is issued in payment. Remember to separate the function of approving these expenditures from the function of signing the checks. Promptly reconcile bank statements with the accounting records. Ethics and Internal Controls It is believed that the atmosphere in which employees carry out their responsibilities influences whether employees will behave ethically (DAquila). Ethics are moral decisions people make based on what they believe is right or wrong. There are many ways to abuse or take advantage of accounting systems but by applying ethics to these techniques people can hopefully make ethical decisions. Ethics can establish questions about what is right and wrong not only for individuals, but how their actions affect the company. Individuals can use accounting systems in ways that are unethical but there are ways to avoid these unethical uses. All individuals have a concept of what is right and wrong. An important factor contributing to the integrity of the financial reporting process is the tone set by senior management. Managers of companies should try to create ethical environments by implementing a number of initiatives, including codes of conduct, ethical awareness training programs, and ethics offices (Ethics Resource Center, 1994). The Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002 is mandatory. All organizations, large and small, must comply. Named after Senator Paul Sarbanes and Representative Michael Oxley, the legislation came into force in 2002 and introduced major changes to the regulation of financial practice and corporate governance (soxlaw.com, 2004). The Sarbanes-Oxley Act is arranged into eleven titles. Some the key points of this act include: Management Assessment of Internal Controls Section 404 Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures ...