Internal control


All organizations, public or private, which represent large amounts of public money and interests, should be governed by very strict checks and balances and be subjected to close scrutiny. Not having such controls in place only opens the way to mismanagement and misconduct, deliberate or not.
Now, not at all in any way in comparison with the amounts of money involved in for example some of the real estate businesses operating in the country, my own auditor’s report landed on my desk the other day. While no major financial management issues were noted, my attention was drawn to remarks made in relation to separation of power. It appeared that on some occasions a document or agreement was signed by a person who in fact did not have the authority to do so. Something like this typically happens when the person with the right authority is not around and the assistant signs “for” while trying to be helpful and not delay the process of a purchase for example any longer. While the initiative of the assistant may be appreciated, the auditor was quite adamant and described the practice as a high risk for the organization. Only the person who has been given the authority to do so should sign certain documents as the organization otherwise risks making major errors and costs made becoming ineligible. It is an issue of separation of powers and having the right checks and balances in place.
In an organization, checks and balances refer to internal control mechanisms that guards against fraud and errors due to omission. In a system with checks and balances, the authority to make a decision and the associated responsibility to verify its proper execution, is distributed among different departments. These departments are kept logically and physically apart, and no one department can complete a transaction all on its own. For example, the purchasing department orders goods, the stores-department receives and compares them with the respective purchase orders, the quality assurance department inspects and verifies their quality, the accounts department verifies the invoice amount, and only then the comptroller authorizes the payment for the purchase. This process emphasizes interdependence without interference, and creates a data trail or paper trail for auditing.
Now, the development of controls is perhaps the most difficult part of management to get employees motivated. After all, rules and procedures seem a long way from producing, marketing and selling. But having controls is responsible management and taking the time to develop and keep up to date good controls is a key part of good management. To check whether you have sufficient and effective checks and balances in your company I suggest you try and answer the following questions:
Do you have the following policies, and have they been updated within the past 24 months?
Financial policy
Personnel policy
Quality assurance policy
Do you train staff and management annually on key policies?
Do you enforce your policies consistently?
If not, it is time to deal with it and to begin developing the most important controls: finance and personnel.
All of us need limits. Set them with your controls and then enforce them. If you are not willing to enforce a certain part of a policy, don’t put it in writing. Make sure your policies, rules and procedures are up to date and enforceable.

Ton Haverkort
Sources: Managing Organizational Behavior by Schermerhorn/Hunt/Osborn
Mission Based Management by Peter C. Brinckerhoff