THE ROLE OF SPECIAL

MANAGEMENT AND DEVELOPMENT

S TA F F I N
INTERNAL INITIATIVE
CONTROL SYSTEMS SECRETARAIT
AND MANAGEMENT

Isaac Adjin BONNEY, CA CPFA CFIP

Chief Internal Auditor
Ministry of Food & Agriculture, Ghana
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INTERNAL CONTROL SYSTEMS

AND MANAGEMENT

THOUGHTS
Initial thoughts on what controls are.
EXAMPLES OF Segregation of Physical

INTERNAL
Duty Control

CONTROLS Authorization
and Approval
Management
Control

Arithmetic and Humane

accounting Resource
controls Control

Data Backup Reconciliation

IN TERN AL CO N TRO L SYSTEMS AN D MAN AG EMEN T 3

INTERNAL CONTROL CAN BE SEEN BY THE DAY-TO-DAY
ACTIVITIES IN SPECIAL DEVELOPMENT INITIATIVES
AGENCY SUCH AS:

Use fingerprint
Use password to lock Lock the office door
clocking system to
into the computer at the end of the day
take attendance

Any request on
Have your work purchase or payment
Verify or review the
verified or reviewed on certain expenses
work of others
by other requires approval
etc.

IN TERN AL CO N TRO L SYSTEMS AN D MAN AG EMEN T 4

 5

SYSTEMS AND MANAGEMENT

AGENDA
INTERNAL CONTROL

Introduction

The Internal Control System

What is the role of Management Control System in Organization

Common Controls Which Are Essential In Each Organization

What Is the Role of an Internal Control Manager?

Key Takeaways
 INTERNAL CONTROL SYSTEMS AND MANAGEMENT

Introduction
Control is one of the managerial functions
like planning, organizing, staffing and directing.
It is an important function because it helps to
check the errors and to take the corrective action
so that divergence from standards are minimized
and stated goals of the organization are achieved
in desired manner. An effective organization is
one where managers understand how to manage
and control. The objective of control as a concept
and process is to help motivate and direct
employees in their roles. Understanding
management control system and process is
essential for the long- term effectiveness of an
organization.
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Management • Simply management
put,
control is the process of
Control assigning, evaluating, and
regulating resources on an
ongoing basis to accomplish
an organization’s goals. To
successfully control an
organization, managers need
to not only know what the
performance standards are,
but also figure out how to
share that information with
employees.
IN TERN AL CO N TRO L SYSTEMS AN D MAN AG EMEN T 7
Internal Control INTERNAL CONTROL SYSTEMS
AND MANAGEMENT

The Committee of Sponsoring Organizations of the Treadway

Commission (COSO), the reference body on the subject, defines
internal control as “a process effected by an organization’s
management body, board of directors, officers and employees
designed to provide reasonable assurance regarding the achievement
of the following objectives:

– Strategic: alignment of missions with corporate objectives ;

– Operational: effective and efficient use of resources;
– Financial reporting: reliability of financial information ;
– Compliance: compliance with laws and regulations. »

Thus, the objective of internal control is to provide the keys to better

control processes in order to achieve the company’s objectives,
regardless of its size. It must be totally independent of General
Management.
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 THE
INTERNAL
CONTROL
SYSTEM
There are five components of an
organization's internal control system.
PREVENTIVE CONTROLS Internal Control Systems and Management

• Preventive controls are designed to keep errors or

irregularities from occurring. Many of these controls are
based on the concept of segregation of duties. No
employee should be in a position to both perpetrate and
conceal errors or fraud in the normal course of their
duties. An employee who is responsible for approving
transactions should not be the one who also records the
transaction or maintains the custody of the asset.

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DETECTIVE CONTROLS Internal Control Systems and Management

• Detective controls are designed to identify errors or

irregularities that already exist. They are implemented to
ensure that the preventive controls are working
effectively. Examples include monthly reconciliations of
bank accounts, conducting physical inventory counts and
internal or external audits.

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MONITORING CONTROLS Internal Control Systems and Management

• Monitoring controls ensure that internal controls

continue to operate effectively over time. When
implemented, a company will be able to identify and
correct problems on a timely basis and produce more
accurate financial information and timely financial
statements. Examples of monitoring procedures include
periodic evaluation of internal controls, follow-up on
anomalies identified in operating reports or metrics and
supervisory reviews of reconciliations.

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 EXAMPLES OF INTERNAL Internal Control Systems and Management

CONTROLS
• Manual preventative control – hiring security guards, identification
verification procedures, etc.
• Automated preventive control – having firewalls, system backup
features, etc.
• Manual detective control – carrying out audits, inspections, etc.
• Automated detective control – reconciling information from one
system to another, etc.
• Manual corrective control – disciplinary actions, refined policies, etc.
• Automated corrective control – installing software patches,
maintaining password secrecy, etc.

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 CONTROL ENVIRONMENT: -

This is the attitude of the organization's executive management

and staff regarding internal controls. A sound control
environment is the foundation for all other components of
internal control, providing discipline and structure. The basic
elements of the control environment include -
The manner in
which management
Leadership assigns authority
Integrity and ethical The commitment to
philosophy and and responsibility,
values competence
operating cycle organization and
development of its
employees

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 RISK ASSESSMENT: -

This involves
management's
identification of areas • Unrecorded revenue or
at most risk and expense transactions
implementation of
controls to detect • Ghost employees on payroll
errors or fraud that
potentially result in • Payments to fictitious vendors
material • Confirmation of inventory
misstatements.
Examples include -

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 • Control activities occur within the
internal control system. Internal controls
are developed and implemented to
prevent or to mitigate any risks
CONTROL identified. These are actually the
specific policies, procedures and
processes that are designed to meet the
ACTIVITIES: business objectives. There are a range of
controls, which include -
- 1. Segregation of duties
2. Reconciliation
3. Physical security of assets
4. Electronic data security

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INFORMATION AND
COMMUNICATION: -
• This area focuses on the systems and
reports that help ensure that management
directives to employees are carried out
effectively.
• We see that information and
communication element represents a link
that connects the internal control system in
all sections, activities and processes in the
company. The efficiency, effectiveness and
quality of the internal control system in
achieving its objectives depend on the
quality and effectiveness of the information
system available in the company.

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MONITORING: -

This involves assessing the quality and

effectiveness of the organization's
internal control over time. Monitoring
can be an internal or external activity
by management, employees or outside
parties. Monitoring can involve the
following -

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 INTERNAL CONTROL SYSTEMS
AND MANAGEMENT
The way to get
started is to quit
talking and begin
doing.
Walt Disney

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WHAT IS THE ROLE OF MANAGEMENT CONTROL
SYSTEM IN ORGANIZATION

INTERNAL CONTROL SYSTEMS

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AND MANAGEMENT
 ROLE 1
• Management Control is a primary goal-
oriented function of management in an
organisation. It is a process of comparing
the actual performance with the laid down
standards of the company to ensure that
activities are performed according to the
plans. If not, then taking corrective action.
Management controls are used daily by
managers and employees to achieve the
identified objectives of an organization. In
simple words, management controls are
the operational methods that enable work
to proceed as expected. Most controls can
be classified as preventive or detective.
Some simple controls which we use daily
in our lives are when we boot our
computer or our mobile phone it asks for a
password which prevents unauthorized
access to information. 23
 ROLE 2
• A standard operating procedure (SOP) is a
set of step-by-step instructions compiled
by an organization to help workers carry
out complex routine operations. SOPs aim
to achieve efficiency, quality output and
uniformity of performance, while reducing
miscommunication and failure to comply
with industry regulations. SOP is a
documented control.
• How do you write a standard operating
procedure document? Step 1: Begin with
the end in mind. Step 2: Choose a format.
Step 3: Ask for input. Step 4: Define the
scope. Step 5: Identify your audience. Step
6: Write the SOP. Step 7: Review, test,
edit, repeat.
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 ROLE 3
• Often, management controls are
documented in terms of policies and
procedures.
• However, sometimes as an organization
undergoes structural and functional
changes, people within the organization
create or adopt ways of ensuring that
work proceeds normally. Many times,
these methods (controls) are not
documented.
• The purpose of a Management Control
Review (MCR) is to evaluate the entire
system or management controls to help a
business unit to operate more efficiently
and effectively, and to provide a
reasonable level of assurance that the
process and products for which you are
responsible are adequately protected.
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 ROLE 4
• Every manager needs to monitor and evaluate
the activities of his subordinates. It helps in
taking corrective actions by the manager in the
given timeline to avoid eventuality or
company’s loss. Controlling is performed at
the lower, middle and upper levels of the
management.
• Some features of controlling are:
• It helps in achieving organizational goals.
• Facilitates optimum utilization of
resources.
• It evaluates the accuracy of the standard.
• It also sets discipline and order.
• Motivates the employees and enhances
employee morale.
• Ensures future planning by revising
standards.
• Improves overall performance of a firm.
• It also minimises errors.
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 INTERNAL CONTROL SYSTEMS
AND MANAGEMENT
Key Point to Note
Controlling and planning are
interconnected for controlling
gives an important input into
the next planning cycle.
Controlling is a backwards-
looking function which brings
the management cycle back to
the planning function. Planning
is a forward-looking process as
it deals with the forecasts about
the future conditions.
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 COMMON CONTROLS
WHICH ARE ESSENTIAL IN
EACH ORGANIZATION
 • The three most important financial

controls are:

• the balance sheet,

Financial • the income statement

(sometimes called a profit and
Controls: loss statement), and

• the cash flow statement.

• And another most important is

financial budgeting.

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Operational Controls:

There are three major groups of

activities performed by operations
management, deriving from its
planning or designing, organizing,
and supervising functions. All
activities involve considering assets,
costs, and human resources, and
are preceded by a thorough analysis
of processes.
Some common operational controls
are (1) inventory stock taking, (2)
route tracking, (3) goods in process,
(4) production line control and (6)
quality controls.

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 31

Human resource management function

involves the recruitment, placement,
evaluation, compensation, and

Human development of the employees in an

organization.

Resource Some common HR controls are (1)

Controls: Performance Appraisals (2) Disciplinary

policies such as timing maintenance,
behavioural code of conduct etc. (3)
Training & Development control (whether
training has been absorbed and after
training job appraisal) etc.
 • IT general controls (ITGC)
are controls that apply to all
systems, components,
processes, and data for a
given organization
Information or information
technology (IT) environment.
Technology • (1) System and data
backup and
Controls: recovery controls,
• (2) Computer
operation controls
• (3) Data governance &
audit are some of the
common IT controls in
organizations.
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Marketing Controls:
Some sales analysis,
most
common quality controls,
marketing
controls marketing budget,
are ratio analysis,
marketing research, sales forecasting and
customer feedback.
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WHAT IS THE ROLE OF AN
INTERNAL CONTROL
MANAGER?
An internal control manager is essentially a policeman or watchdog in a
company, unit, directorate, division or department.
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An internal control manager is essentially a

policeman or watchdog in a company, division or
department.

Internal His/Her basic responsibilities are to develop policies

and procedures, ensure their implementation and

Control
monitor compliance. In essence, the internal control
manager helps keep a company from engaging in
potentially illegal or unethical activities that could
get it into hot water.

Manager An internal control manager typically has

experience in one or more of the following:
management, legal compliance, accounting and
auditing.
 • A primary duty of the internal control
manager is to review existing
accounting and financial controls and
other legal compliance processes in
place and make any necessary
revisions or additions. In doing so,
He/she communicates urgent changes
Internal immediately with department
managers and staff. He/She also
Control works with human resources to
update policy manuals and other
documentation to ensure immediate
Framework compliance by all staff involved.
• In financial services, for instance,
many companies rushed to develop
social media compliance policies to
prevent brokers and serve reps from
unwittingly providing financial
advice through their accounts.
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 • The internal control manager also
conducts regular internal audits and
reviews to assess the compliance of

Internal departments and individual

employees. In accounting, for
instance, the internal control manager
Audits reviews processes and records to see
that accountants are operating in line
with generally accepted accounting
and principles, laws, industry and
company standards.
Reviews • The results of the reviews are shared
with managers to aid in feedback,
training and development to ensure
greater overall compliance.
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Training and Development
• Another role of the control manager is to address specific training and
development needs to fill compliance gaps, reports and appraisals. As a
result of comparing department and employee activities to prescribed
standards, the officer identifies specific gaps. He then meets or
communicates with the CEO, division or department managers to
advise them of necessary training to bring the company, a department
or particular employees up to speed on compliance standards. New
government regulations sometimes necessitate additional training.

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External Agency Liaison
• Given his role of ensuring internal compliance, it is natural that
the internal control manager commonly serves as the go-
between with his company and external government and
auditing agencies.
• He must stay on top of changes in accounting and external
audit procedures to ensure his company is in compliance.
• He also communicates with other governmental agencies or
legal professionals with insights into changing regulations,
standard compliance practices and other changes that may
impact the merit of current internal control policies.

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 LIMITATIONS OF INTERNAL
CONTROL
Limitations of internal control will always exist no matter what industry
the company is in or how strong the control procedures are in place.
Hence, it is important to understand those limitations of internal
control and be warned so that we can avoid them as much as possible.
 Limitations of Internal Control
Internal control can only provide reasonable assurance, not absolute assurance. It cannot ensure 100% that
Reasonable assurance
error or fraud will never occur.

Internal control will not work if it is overridden by management or personnel with high authority. It may be
Override control possible that management can override the controls with their authority, e.g. if the CD tells low-level
employees to do something, they usually will do so, even it will not comply with control policies.

Internal control will not work either if the personnel or management collude to by-pass the control. This
limitation of control is the type that overtakes the segregation of duties control procedures.
Collusion For example, segregation of duties can be extremely effective in an internal control system. However, if
people who are supposed to act independently collude among themselves, the internal control of segregation
of duties here will not work anymore.

Although the internal controls are implemented to prevent or detect errors, deliberate circumvention by
Deliberate circumvention
people in the system can still occur.
Controls are usually designed to cope with routine activities. The controls might not work against any
Events outside expectation irregular event outside the expectation. This limitation of control usually happens for the new implementation
of control procedures and requires a regular monitoring process.

Controls that cost more than the benefit they are expected to receive are not worth having. Usually, the
Cost-benefit consideration company may decide that certain controls are too costly to implement, considering the risk that can occur due
to the lack of such controls.

INTERNAL CONTROL SYSTEMS AND MANAGEMENT 41

 INTERNAL CONTROL SYSTEMS

CONCLUSION
AND MANAGEMENT

• Strong internal controls are still essential despite having those

existences of internal control limitations. This is due to internal
controls bring many benefits to the business operations of the
company. In this case, good internal controls can help the
company achieve efficient and effective business operations.
• In addition to having efficient and effective business operations,
internal controls also help the company to minimize the risk of
error and fraud, safeguard its assets, and comply with various
laws and regulations.
• In short, internal controls are the policies and procedures that the
company implements in order to minimize the risks that prevent
it from achieving its objective.
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SUMMARY INTERNAL CONTROL SYSTEMS
AND MANAGEMENT

The terms “management control” and “internal control” may be confused,

yet their implementation framework is quite different.

Management control is based primarily on accounting figures, often

derived from accounting software. Its purpose is to ensure that the
company’s financial management and sustainability are sound. Its
approach is structured by drawing up and monitoring budgets.

Although a company’s accounts must be audited by an external institution,

management control does not involve internal auditing and, by law, is not
subject to external auditing.

Internal control, on the other hand, focuses on the construction and

analysis of the operational functioning of the company. It not only uses
internal audit to verify the proper application of procedures, but may also
be audited by an external body that verifies its existence and validity,
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depending on the applicable legal requirements.
KEY TAKEAWAYS Effective Implementation of Internal Controls by Isaac
Adjin Bonney, CA CPFA CFIP

❑Internal control refers to the rules, policies, or procedures

adopted to ensure the correctness of financial information and
prevent financial and reputational damages.
❑When proper controls are in place, they lead to the smooth and
efficient working of an organization.
❑The chances of non-compliances reduce when controls are
effectively activated.
❑Every company adopts a specific set of rules, policies, or
procedures as controls, given the business’s nature, type, and
purpose
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SYSTEMS AND MANAGEMENT

INTERNAL CONTROL

THANK YOU
Isaac Adjin Bonney
Isaac.bonney@mofa.gov.gh
0242078185