FIRST YEAR COLLEGE

INTERNAL CONTROL SYSTEM

QUARTER 1 – WEEK 1:

NAME: ________________________________________

YEAR & SECTION: ______________________________

1|Page
 Lesson 1

Internal Control Fundamentals

Objectives:
1. Define internal control
2. Describe the five components of internal control
3. Enumerate and describe the roles and responsibilities of those who are involved in internal
control
4. Enumerate and describe internal control principles
5. Cite the importance of internal control

Pre-Test
1. The Chief Executive Officer of the organization has overall responsibility for designing
and implementing effective internal control
a. Management c. Auditor
b. Board Director d. Operating Staff
2. This are processes used to assess the quality of internal control performance over time.
a. Risk assessment c. control environment
b. Control activities d. Monitoring
3. are the policies and procedures that help ensure management directives are carried out.
a. Risk assessment c. control environment
b. Control activities d. Monitoring
4. This is the process of identification and analysis of relevant risks to the achievement of
objectives.
a. Risk assessment c. control environment
b. Control activities d. Monitoring
5. Which is Not the role and responsibilities of the personnel benefits.
a. Review and approve specific compensation matters
b. Approve and oversee administration of the Company's Compensation Program
c. Support management in resolving conflicts of interest
d. Review, as appropriate, any changes to compensation matters
6. Which are Not the role and responsibility of the audit committee in the group?
a. Discuss with management Internal and external auditors and major stakeholders the
quality and of the organization
b. Review and approve specific compensation matters
c. Support management in resolving conflicts of interest
d. Review and discuss with management the types of information to bed is closed and
the types of presentations to be made with respect to the Company's earnings.

2|Page
 (7-10). Write an essay. Give your own idea why internal control is important in Business
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

Internal Control Fundamentals

Internal control, as defined in accounting and auditing, is a process for assuring achievement of
an organization's objectives in operational effectiveness and efficiency, reliable financial
reporting, and compliance with laws, regulations and policies. A broad concept, internal control
involves everything that controls risks to an organization.

It is a means by which an organization's resources are directed, monitored, and measured. It

plays an important role in detecting and preventing fraud and protecting the organization's
resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or
intellectual property such as trademarks)

At the organizational level, internal control objectives relate to the liability of financial reporting,
timely feedback on the achievement of operational or strategic goals, and compliance with
laws and regulations. At the specific transaction level, internal control refers to the actions taken
to achieve a specific objective. Internal control procedures reduce process variation, leading to
more predictable outcomes.

Five Components of Internal Control

1. Control Environment
Sets the tone for the organization, influencing the control
consciousness of its people. It is the foundation for all other
components of internal control.

3|Page
 2. Risk Assessment
Is the identification and analysis of relevant risks to the achievement of objectives,
forming a basis for how the risks should be manage.
3. Information and Communication System
or processes that support the identification, capture, and exchange of information
in a form and time frame that enables people to carry out their responsibilities
4. Control Activities
are the policies and procedures that help ensure management directives are carried
out.
5. Monitoring
are processes used to assess the quality of internal control performance over time.

Roles and Responsibilities in Internal Control

According to the Committee of Sponsoring Organizations (COSO) Framework, Virtually all

employees produce information used in the internal control system or take other actions needed
to affect control. Also, all personnel should be responsible for communicating upward problems
in operations, noncompliance with the code of conduct, or other policy violations or illegal
actions.

Each major entity in corporate governance has a particular role to play:

1. Management

The Chief Executive Officer (the top manager) of the

organization has overall responsibility for designing and
implementing effective internal control. More than any other
individual, the chief executive sets the "tone at the top" that
affects integrity and ethics and other factors of a positive
control environment.

2. Board Directors

Management is accountable to the board of directors, which

provides governance, guidance and oversight. Effective board
members are objective, capable and inquisitive. They also have
knowledge of the entity's activities and environment, and
commit the time necessary to fulfil their board responsibilities.

4|Page
3. Auditors

The internal auditors and external auditors

of the organization also measure the effectiveness of internal
control through their efforts. They assess whether the controls
are properly designed, implemented and working effectively,
and make recommendations on how to improve internal
control.

4. Audit Committee

The role and responsibility of the audit committee are to:

Discuss with management Internal and external auditors and major stakeholders the
quality and of the organization internal controls system and risk management process.
Review and discuss with management and the external auditors and
approve the audited financial statements of the organization and make
a recommendation regarding inclusion of those financial statements in
any public filing.
Review and discuss with management the types of information to bed
is closed and the types of presentations to be made with respect to the
Company's earnings.
Confirm the scope of audits to be performed by the external and
internal auditors.
Manage complaints concerning accounting, internal accounting
controls or auditing matters.
Receive regular reports from the regarding deficiencies in the designor operation of
internal controls and any fraud that involves management or other employees with a
significant role in internal controls.
Support management in resolving conflicts of interest

5. Personnel Benefits Committee

The role and responsibilities of the personnel benefits are to:
Approve and oversee administration of the Company's Compensation
Program;
Review and approve specific compensation matters
Review, as appropriate, any changes to compensation matters
Review and monitor all human-resource related performance and
compliance activities and reports.

5|Page
6. Operating Staff

All staff members should be responsible for reporting problems of

operations, monitoring and improving their performance, and
monitoring non-compliance with the corporate policies and various
professional codes, or violations of policies, standards, practices and
procedures.

Activity # 1
Explained the Duties and Responsibilities of an Auditor in an Organizations. Write your answer
on the space provided below. Explain briefly your answer.
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________

ASSESSMENT

MULTIPLE CHOICES:

Direction: Choose the best answer. Encircle the letter of the correct answer.

1. Sets the tone for the organization, influencing the control consciousness of its people.
A. Control environment
B. Risk assessment
C. Monitoring
D. Control activities
2.Responsible for reporting problems of operations, monitoring and improving their
performance, and monitoring non-compliance with the corporate policies and various
professional codes, or violations of policies, standards, practices and procedures.
A. Auditors
B. Audit Committee
C. Board of Directors
D. Operating staff

6|Page
3. Process for assuring achievement of an organization's objectives in operational effectiveness
and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
A. Risk assessment
B. Monitoring
C. Internal control
D. Control activities
4. Discuss with management, internal and external auditors and major stakeholders the quality
and adequacy of the organization’s internal controls system and risk management process.
A. Auditors
B. Personnel benefits committee
C. Audit committee
D. Managers
5. Review and monitor all human-resource related performance and compliance activities and
reports.
A. Board of directors
B. Managers
C. Auditors
D. Personnel benefits committee

TRUE OR FALSE

Direction: Write your Name if the statement the role and responsibility of the audit Committee
and F if the statement is Not. Write your answer on the space in each number.

____________6. Support management in resolving conflicts of interest

____________7. Discuss with management and major stakeholders the quality and
of the organization internal controls system and risk management process.
____________8. Management is accountable to the board of directors, which provides
governance, guidance and oversight.
____________9. Review and discuss with management the types of information to bed is closed
and the types of presentations to be made with respect to the Company's earnings.
___________10. Manage complaints concerning accounting, internal accounting controls or
auditing matters.

7|Page
 FIRST YEAR COLLEGE

INTERNAL CONTROL SYSTEM

QUARTER 1 – WEEK 2:

NAME: ________________________________________

YEAR & SECTION: ______________________________

8|Page
 Lesson 2:
Principles of Internal Control

Objectives

1. Enumerate the contents of an internal control procedures manual.

2. Check effectiveness of an internal control system
3. State the limitations of internal control
4. Explained the principles of internal control
5. Enumerate Steps in Writing Internal Control Procedures Manual
6. Identify the Steps in Checking the Effective of an Internal Control Process System

Pre-Test

Direction: Encircle the letter of the correct answer.

1. Internal control plays an important role in the prevention and detection of ______?
a. Spam c. Phishing
b. Fraud d. Trolls
2. This provides assurance on financial information flowing through the business
processes.
a. Fraud detection c. Controls Monitoring
b. Process improvement d. Limitation Internal Control
3. Assigning specific responsibilities to individuals ensures they understand what their
part is in maintaining internal control.
a. Establish Responsibilities c. Insure and assets and bond employees
b. Maintain adequate records d. Apply Technological Control
4. Having correct record-keeping procedures will enable companies to have an accurate
history of transactions on hand.
a. Establish Responsibilities c. Insure and assets and bond employees
b. Maintain adequate records d. Apply Technological Control
5. This is electronic keypads and other technology-based security features can help
organizations to protect assets.
a. Establish Responsibilities c. Insure and assets and bond employees
b. Maintain adequate records d. Apply Technological Control

Direction: Write your Name if the words are the Limitations of Internal Control and F if not.

__________ 1. Misunderstanding
__________ 2. Distraction
__________ 3. Changes of condition
__________ 4. Honesty
__________ 5. Human error

9|Page
Principles of Internal Control
Regardless of size, every company can benefit from an internal control system. When creating an
accounting system, businesses and non-profit organizations must establish a framework for
internal control. The internal control process helps to ensure that the system is working well and
that all of the employees involved are performing as expected. Having such an essential business
function provides reasonable assurance by decreasing the like li hood of mistakes and
safeguarding the organization's assets.

1. Establish Responsibilities
 Assigning specific responsibilities to individuals ensures they understand what their part
is in maintaining internal control.

2. Maintain adequate records

 Having correct record-keeping procedures will enable companies to have an accurate
history of transactions on hand. Such historical data allows for the company to refer to it
later, if a problem is discovered or if clarification is necessary.

3. Insure and assets and bond employees

 By insuring assets and bonding employees, an organization can rest assured that it will be
reimbursed for the value of an asset if the asset is stolen, or otherwise misappropriated.

4. Separate record keeping and custody of assets

 The people who have physical access to cash and other assets are not the same people
who keep the records relating to that asset.

10 | P a g e
5. Divide responsibility for related transactions
 It is important that different employees each perform the separate tasks making up the
transaction. This ensures that more than one person was involved in completing the task,
increasing the odds that any mistakes or fraudulent acts are discovered.

6. Apply Technological Control

 Burglar alarms, electronic keypads and other technology-based security features can help
organizations protect assets. Technology can often go where people cannot, and can be
on the job 24 hours a day without requiring extra pay or breaks

7. Perform regular and independent reviews

 Companies must review their internal control systems regularly that should be done by an
individual who did not perform any of the work being checked.

Importance of Internal Control

Fraud Detection

Internal control plays an important role in the prevention and detection of

fraud. Under the Sarbanes-Oxley Act, companies are required to perform
a fraud risk assessment and assess related controls. This typically involves
identifying scenarios in which theft or loss could occur and determining if
the existing internal controls procedures effectively manages the risk to
an acceptable level. The risk that senior management might override
important financial controls to manipulate financial reporting is also a key
area of focus in fraud risk assessment.

Process Improvement

Controls can be evaluated and improvedto make a business operation run

moreeffectively and efficiently. For example,automating controls that are
manual innature can save costs and improve transactionprocessing. If the i
nternal control systemis thought of by executives as only ameans of preve
nting fraud and complyingwith laws and regulations, animportant opportu
nity may bemissed. Internal controls can also be used to systematically
improve businesses, particularly in regard to effectiveness and efficiency

Controls Monitoring

Advances in technology and data analysis have led to the

development of numerous tools which can automatically
evaluate the effectiveness of internal controls. Used in
conjunction with continuous auditing, continuous controls
monitoring provides assurance on financial information
flowing through the business processes.

11 | P a g e
Limitations of Internal Control

Internal control can provide reasonable, not absolute, assurance that the objectives of an
organization will be met. The concept of reasonable assurance implies a high degree of
assurance, constrained by the costs and benefits of establishing incremental control procedures.
Effective internal control implies the organization generates reliable financial reporting and
substantially complies with the laws and regulations that apply to it.

Lesson 3: Checking Internal Control Policy Compliance

Effective internal control systems should not only include suitable checks and other
control procedures, but they should also include review processes to ensure that the checks and
controls are actually implemented and complied with. Managers who see internal audit's role in
compliance terms believe that they can rely on internal audit to ensure that controls are actually
reliably followed in all circumstances

How to Write Internal Control Procedures Manual

Writing an internal control procedures manual is vital
for all companies. Internal control procedures are used
to prevent fraud, and are vital to every well-run
organization. Such systems separate duties between
employees within an organization. It is important to
have internal control procedures manual on hand.
Employees use them as references when procedures or
duties are in question. Information contained in
internal control procedures manual varies from
company to company, but the procedure for writing
one is the same.

Steps in Writing Internal Control Procedures Manual

1. Write an overview and table of contents.
The overview briefly describes fiscal responsibility, which includes the concepts and
components of internal control. The table of contents begins with Segregation of
Duties. The contents that typically follow are: Reviews, Reconciliations, Approvals,
Assets, Disbursements, Human Resources, Purchasing and Contacts.

12 | P a g e
 2. Complete the Segregation of Duties section
Outline details regarding the separation of duties for things such as employees receiving
and posting payments, as opposed to depositing payments. Another important separation
is that if one employee is a payee, another employee makes the check-out.

3. Determine procedures for the next two sections, Reviews and Reconciliations.
Reviews are procedures set up to routinely perform budget investigations, spot-check
transactions and investigate unusual activity. The Reconciliations section contains
procedures such as comparing sets of data to ensure accuracy, looking into differences
and taking action.

4. Complete the Approvals, Assets and Distributions sections

The Approvals part states which employees have authority for approving transactions.
Authority is only given to responsible employees with detailed knowledge about the
company. The Assets section lists all types of assets within the organization. Under each
asset category, specific procedures are outlined detailing how assets are handled and
monitored.

5. Complete the manual by finishing the last three sections:

Human Resources, Purchasing and Contacts. The Human Resources (HR) section details
instructions for HR employees as to how employee information is handled. The
Purchasing section explains the company's purchasing procedures. Finally, the Contacts
section lists people in the company who employees can contact when questions or
problems arise.

Steps in Checking the Effective of an Internal Control Process System

1. View the five elements of internal controls
These are control environment, risk assessment, control activities,
information and communication, and monitoring. These five elements all
work together to ensure that the internal control procedures set up are
working effectively. Each element must be present, and the procedures
around the activity must be carefully planned and monitored.

2. Choose the internal control activity you want to check

Verify that all five elements are included within the procedures of this
activity by beginning with analyzing the control environment. This refers
to the work environment within your organization, the way it is
structured and the supervision in place.

3. Assess risk
With each control activity, a risk assessment is conducted. This is done
to locate potential problems and to focus on correcting those and
reducing the risk.

13 | P a g e
4. Analyze the management control activities
This step is conducted in order to make sure that all processes used within the organization are
necessary and have a purpose. Sometimes, within an activity, a business finds that there are
several unnecessary steps being done. This costs the company extra money and could cause
additional problems because there are more opportunities for mistakes than are necessary.

5. Assess the information and communication processes used for this activity
This consists of determining if the appropriate workers are getting the information needed to
effectively do their jobs. This also includes ensuring that information is only shared with
necessary workers and that there is limited access to certain types of information.

6. Perform regular evaluations.

In order to ensure that internal control procedures are operating effectively, it is important to
check them regularly, at least once a year. It is also important to have regular audits conducted
from external auditing firms to also check how a system is functioning.

Assessment
TRUE OR FALSE
Direction: Tell whether the given statement about checking effectiveness of an internal control
system is true or false. Write (T) if the statement is True and (F) if the statement is False. Write
your answer on a separate sheet.

_________1. To ensure that the internal control procedures set up are workingeffectively, each
element of internal control must be present and the procedures around the activity must be
carefully planned and monitored.
_________2. To determine if the appropriate workers are getting the informationneeded to
effectively do their jobs by ensuring that information is shared by all workers with access to all
types of information.
_________3. To ensure that internal control procedures are operating effectively, it isimportant
to check them regularly, at least once a month. It is also important to have regular audits
conducted from external auditing firms to also check how a system is functioning.
_________4. A risk assessment is to locate potential problems and to focus on correcting those
and reducing the risk.
_________5. To make sure that all processes used within the organization arenecessary and have
a purpose, a business finds that there are several unnecessary steps being done. This costs the
company extra money and will not cause additional problems because there are more
opportunities for mistakes than are necessary.

ENUMERATION
Direction: Enumerate the Contents of Internal Control Procedures Manual below.
1. _______________________________ 6. _______________________________

2. _______________________________ 7. _______________________________

14 | P a g e
3. _______________________________ 8. _______________________________

4. _______________________________ 9. _______________________________

5. _______________________________ 10. ______________________________

Assignment
Search an example of Internal Control Procedures Manual, kindly attach the picture here.

Reflection:
On your Notebook write your personal Insight about this lesson using the prompts below.

I learned that_______________________________________________.

I understand that____________________________________________.

I realized that______________________________________________

15 | P a g e
https://www.academia.edu/39892687/REVIEWING_INTERNAL_CONTROL_SYSTEM_LO1_
CBLM

16 | P a g e