the municipal secretary desktop reference manual - Southwestern ...

NOTES
INTERNAL CONTROLS
BASIC PRINCIPLES
Internal control is the plan of organization and procedures in any agency or institution. A
sound system of internal control is very important in order to minimize the possibilities for errors
and misuse of municipal assets. Good internal control also makes the work of auditor easier and less
time-consuming, resulting in lower audit costs, and better audit reports and management letters.
Size is no barrier to good internal control, although some extra measures may need to be
taken where the municipal staff is very small.
The following principles apply to any municipality regardless of its size.
1. Appropriate division of duties.
2. Qualified personnel.
The Four Principles of Internal Control
3. Sound procedures for authorizing, recording and reporting transactions.
4. Actual performance consistent with 1, 2, and 3 above.
Appropriate Division of Duties
The following three basic functions should be performed by three different employees or
officers within the local government.
1. Authorization (approval) of transactions.
2. Recording of transactions.
3. Custody of assets (cash and other property).
For example, the purchasing office, which authorizes transactions (purchases), should not
also record the purchase in the municipality=s accounting records, or take custody (receive any) of
the purchases it makes for the other offices.
In small local governments, it is often not practical to maintain a strict separation of
duties, and other means must be used to assure reliable internal control. For example:
Rotation of duties among personnel
More strict supervision
Special double-checking of work
Enforced vacations
Additional training to improve quality of personnel
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