INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 2.4: Internal Control

Module outline Framework of Internal Control Basic Internal Controls

Framework of Internal Control Definition: Internal control is a process, effected by management, designed to provide assurances on: Effectiveness and efficiency of operations; Reliability of financial reporting; Compliance with laws and regulations; Safeguarding against loss, misuse and damage.

Framework of Internal Control Internal Control and Corruption Can help prevent corruption at officer/internal level Can help reduce a culture of corruption Has limited ability to detect corruption at political level Is part of the armoury against corruption

Framework of Internal Control Limitations… Human error Resource constraints Change Management attitude

Framework of Internal Control Internal control consists of five interrelated components: Control environment Risk assessment Control activities Information and communication Monitoring

Framework of Internal Control COSO Framework Committee of sponsoring Organizations COSO Cube - 2013 Edition

Framework of Internal Control higher level/strategic aspects of the framework basics of implementing internal controls COSO Cube - 2013 Edition

Framework of Internal Control Control Environment Demonstrates commitment to integrity and ethical values; Exercises oversight responsibility; Establishes structure, authority and responsibility; Demonstrates commitment to competence; Enforces accountability.

Framework of Internal Control Specifies suitable objectives suitable objectives Identifies and analyzes risk Assesses fraud risk Identifies and suitable objectives Identifies and analyzes significant change Risk Assessment Specifies suitable objectives; Identifies and analyzes risk; Assesses fraud risk; Identifies and analyzes significant change.

Module outline Framework of Internal Control Basic Internal Controls

Basic Internal Controls Control Activities Authorization and approval procedures; Segregation of duties (authorizing, processing, recording, reviewing); Physical & virtual controls over resources and records; Reconciliations – e.g. bank statement & cash book; Supervision.

Basic Internal Controls Information & Communication as part of Internal Control Financial reports – monthly budget execution statements Key personnel receive and understand reports

Basic Internal Controls Information & Communication requires that: Financial regulations are up to date Budget agreed before the start of the year Suitable financial coding structure is maintained

Basic Internal Controls Monitoring Ensures Internal Controls remain relevant Ensures findings/recommendations are acted on Covers each of the Internal Control components

Basic Internal Controls Key Internal Controls are discussed in later modules when we examine… Revenue Expenditure controls Payroll Stock and Non Current asset records

Key messages Some references… COSO (private sector) Internal Control — Integrated Framework (Revised 2013). Adapted for the Public Sector by the INTOSAI "Guidelines for Internal Control Standards for the Public Sector" (INTOSAI GOV 9100, revised 2004).

Key messages Internal Controls are an aid to management; They operate throughout all parts of the PFM system; They can not prevent errors or compensate for lax management attitudes.