1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT
Module 2.4: Internal Control

2. Module outline
Framework of Internal Control
Basic Internal Controls

3. 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.

4. 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

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

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

7. Framework of Internal Control
COSO Framework
Committee of sponsoring Organizations
COSO Cube Edition

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

9. 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.

10. 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.

11. Module outline
Framework of Internal Control
Basic Internal Controls

12. 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.

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

14. 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

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

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

17. 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).

18. 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.