Internal Control Three categories of objectives

• Internal control is what we do to see that

the things we want to happen will Operations Objectives — effectiveness and
happen efficiency of the entity’s operations, including
operational and financial performance goals,
• And the things we don’t want to happen and safeguarding assets against loss.
won’t happen.
Reporting Objectives — internal and
external financial and non-financial reporting
and may encompass reliability, timeliness,
transparency, or other terms as set forth by
regulators, recognized standard setters, or
the entity’s policies.

Compliance Objectives — adherence to

laws and regulations to which the entity is
subject.

Responsibility for Internal Control

“Section 124. Installation. It shall be the
direct responsibility of the agency head to
Primary Objectives install, implement and monitor a sound
⚫ Accurate Financial Information system of internal control.” (PD 1445,
⚫ Compliance with Policies and “Government Auditing Code of the Philippines”, as
Procedures amended, 11 June 1978)

Safeguarding Assets
Management is responsible for
⚫

⚫ Efficient Use of Resources establishing and maintaining the

⚫ Accomplishment of Objectives control environment.
and Goals
⚫ Every employee plays a role in
either strengthening or weakening
Internal Control Defined as the Institution’s internal control
- Process, effected by an system.
organization’s people, designed to
provide reasonable assurance ⚫ Auditors play a role in a system of
regarding the achievement of internal controls by performing
objectives in the following evaluations and making
categories: recommendations for improved
controls.
- Effectiveness and efficiency of
operations

- Reliability of financial
reporting

- Compliance with applicable

laws and regulations
 NATIONAL GUIDELINES ON • Better systems of responding to the
INTERNAL CONTROL SYSTEM needs of citizens; and
(NGICS) • Quality outputs and outcomes and
effective governance.
• An initiative taken by the national Definition of Internal Control
government to affirm its commitment
to the citizenry towards: Internal control refers to the
✔ Accountability • plan of organization and
✔ Effective Operations • all the coordinated methods and measures
adopted within an organization or agency
✔ Prudence in finances That aims to:
✔ Quality service • safeguard its assets,
•It unifies in one document existing • check the accuracy and reliability of its
Philippine laws, rules, and accounting data, and
regulations on internal controls to • encourage adherence to prescribed managerial
serve as a benchmark for designing, policies
installing, implementing, and
(Section 123 of Presidential Decree
monitoring internal controls in the
No. 1445, as amended)
public service
• Contains the fundamental principles, Internal Control comprises the
policies, and general standards that ● plan of organization and
will guide each government agency in ● all the methods and measures adopted
developing its detailed and within an agency
comprehensive system of internal
controls To ensure that
● resources are used consistent
Importance of NGICS with laws, regulations, and
A strong and responsive internal control policies;
● resources are safeguarded
system (ICS) is an essential component
against loss, wastage, and misuse;
of an organization’s internal and ● financial and non-financial
external processes. information is reliable, accurate,
and timely; and
It can significantly enhance the integrity ● operations are economical,
of operations and improve efficient, and effective
(Section 32, Title 2, Volume III of the
organizational outcomes and results to
GAAM)
achieve sectoral goals. • Internal Control is an integral process
that is effected by an entity’s
Benefits of NGICS management and personnel, and is
designed to address risks...”.
• Stronger accountability; • It provides reasonable assurance that in
• Ethical, economical, efficient and pursuit of the entity's mission, the
effective operations; following general objectives are
• Improved ability to address risks to achieved:
achieve general control objectives;
 Internal Controls aim to
• Internal Control is an integral process
that is effected by an entity’s Safeguard Assets
management and personnel, and is • Judicious use of government funds, facilities,
designed to address risks...”. including documents, records, and human
• It provides reasonable assurance that in resources in the delivery of public services
pursuit of the entity's mission, the
following general objectives are ✔ Proper documentation and recording are
achieved: appropriate controls that eliminate the
vulnerability of assets to misuse, loss,
✔ executing orderly, ethical, economical, efficient, destruction, and other hazards
and effective operations; ✔ Proper procurement and use of PHILGEPS
✔ fulfilling accountability obligations;
✔ Policies and procedures designed to prevent
✔ complying with applicable laws and regulations;
or detect loss of assets and records on a
✔ safeguarding resources against loss, misuse, timely basis
and damage.
Check Accuracy and Reliability of Accounting Data
(International Organization of - Essential to control and decision-making is the
Supreme Audit Institutions) generation of correct and credible financial
information which can be achieved through
government accounting that will:
Elements of Internal Control
Plan of Organization: ● Produce information concerning past
• Organizational structure operations and present conditions
● Provide a basis for guidance for future
• Staffing complement that enables an operations
organization to carry out its functions ● Provide for control of the acts of public bodies
• Distribution of powers, functions, and and officers in the receipt, disposition, and
responsibilities to various units and personnel utilization of funds and property
● Report on the financial position and results of
operations of government agencies for the
Coordinated Methods and Measures information of all persons concerned
● Systems of authorization, policies, standards
● Accounting systems and procedures Ensure Economical, Efficient, and Effective
● Reports used by the agency to control its Operations
operations and resources - Agency outputs and outcomes are measured
● Systems and work processes integral to the in terms of how these directly affect the quality
operations of an agency and consistently of public service delivery through economical,
applied by all units in the public service efficient, and effective operations
Comply with Laws, Rules, and Regulations Administrative Supervision
• Government operations conform to the basic (relationship of a department with regulatory agencies under
tenet that powers and authorities of a it)
government office/ agency are usually • Departments or their equivalents are authorized to
generally oversee the operations of such agencies
prescribed in the law creating such
and ensure that they are managed effectively,
office/agency efficiently, and economically without interference
• Powers of administrative agencies depend with day-to-day activities and to review and pass
largely, if not wholly, on the provisions of the upon the budget of such agencies under its
statute creating or empowering such agency administrative supervision but it may not increase
• Management and operational compliance are or add to it
among the things evaluated to assess
conformity with laws and other regulatory • The department can require the submission of
requirements reports and cause the conduct of management
• In government, organizations, programs, audit, performance evaluation, and inspection to
determine compliance with policies, standards, and
activities, and functions are usually created by
guidelines; and take action as may be necessary
law and are subject to specific rules and for the proper performance of official functions,
regulations including rectification of violations, abuses and
other forms of maladministration
Adhere to Managerial Policies
• Managerial policies are directives and courses of Attachment
action given by the agency head or management
committee toward achieving defined objectives. This refers to the lateral relationship between
• They provide guidance to personnel in the proper a department or its equivalent and the
execution of the work of their unit and individual attached agency for purposes of policy and
tasks that collectively contribute to the attainment program coordination.
of organizational goals.
Supervision and Control Coordination
(usually the relationship between a department and
its bureaus)
⮚ Representation in the governing board
The department has the authority to act directly
whenever a specific function is entrusted by law or of the attached agency or corporation,
regulation to a subordinate which includes if it is permitted by the charter
⮚ Having the attached
● Direct the performance of duty
● Restrain the commission of acts agency/corporation comply with a
● Review, approve, reverse, or modify acts and system of periodic reporting which
decisions of subordinate officials or units shall reflect the progress of programs
● Determine priorities in the execution of plans and projects
and programs ⮚ Provide general policies through its
● Prescribe standards, guidelines, plans, and
representative on the board, which
programs
shall serve as the framework for the
internal policies of the attached
agency
 IT Internal Controls
• General Controls (relate to the overall
information-processing environment)
✔ Physical security
✔ Hardware controls
✔ Segregation of IT duties
✔ Documentation
✔ Back-up procedures
Internal Control Procedures • Application Controls (ensure the completeness
• Alignment of objectives, risks, and and accuracy of transaction processing,
controls to the agency’s authorization, and validity)
mandate/overall objectives
✔ Input controls
• Personnel
✔ Processing controls
• Proper procedures for authorization
✔ Output controls
• Adequate separation of duties
• Adequate documents and records
Characteristics of an
• Physical control over assets and Effective Control
records • Addresses root cause
• Independent checks on • Considers cost
performances
• Simple
• Consistency of policy compliance
• Leaves tracks
• Coordination in a decentralized
environment • Embedded
• Flow of financial information • Combination of “soft” and “hard” controls
• Linkages between technology, • Covers adequately the Internal Control
process and organizational structure components and objectives
• Completeness and relevancy of
policies
• Issue escalation and resolution
process
• Accountability
• Early warning systems
• Training and other HR mechanisms
• Tools and techniques for monitoring
 Administrative Controls
Benefits of IC - Primarily established to create a sound environment
Help prevent errors and irregularities within which accounting controls may efficiently
⚫

operate. They encompass all those organizational

If they occur, help ensure they are detected plans, methods and procedures that help entities
achieve operational efficiency and adherence to
⚫

timely management policies.

Encourage adherence to prescribed policies They are designed to ensure that:
✔ Assets are safeguarded and access to those
⚫

and procedures assets is restricted;

Protect employees: ✔ The agency operation is conducted in an
orderly and efficient manner that includes a detailed
⚫

1) by clearly outlining tasks and organizational structure that highlights lines of

responsibilities, responsibility, or centers of responsibility;
✔ Staff and team responsibilities match their
2) by providing checks and balances, ability;
and ✔ Management has the necessary information to
make sound decisions; and
3) from being accused of ✔ Transactions and other decisions are properly
misappropriations, errors, or Irregularities. authorized.

Program Controls
Financial/Accounting Controls -Put in place to ensure that the programs/projects of the
• Methods and procedures used to produce government/agency achieve their goals and objectives.
accurate records and safeguard assets. They are designed to ensure the following:
They are designed to ensure that: ● Responsiveness of the programs/projects to
⮚ Specified individuals are held accountable for the needs of the client/beneficiaries and
transactions under their control; stakeholders;
⮚ Accounting records are accurately and reliably ● Sustainability of the program/project; and
maintained; ● Alternative courses of action have been
⮚ There is adequate segregation of records- considered in the implementation of the
keeping duties from custodianship of the agency’s program/project.
assets;
⮚ Transactions are properly authorized; Budget Controls
⮚ There is adequate segregation of incompatible
duties and; -Established to ensure that funds are properly allocated
⮚ There are adequate checking and reconciling and utilized solely for the purpose for which they have
procedures. been appropriated .

Specifically, the system of budgetary controls shall:

• Ensure that funds are used only for the

intended purpose; and
• Establish and maintain the accountability of
public officers;
• Ensure the disclosure of material errors in the
accounts and unauthorized transactions or
loss of assets.

Management Controls
-Process effected by management and other personnel
designed to provide reasonable assurance regarding the
achievement of objectives, with the following objectives:
• To keep the organization on course toward the
achievement of its mission, goals, and objectives, while
minimizing surprises along the way;
• To enable management to cope with rapidly changing
economic and political environment, shifting service
demands and priorities and the inevitable
organizational restructuring that accompanies them;
and
• To promote efficiency, reduce risk or resource loss,
increase reliability of management data, and ensure
compliance with laws and regulations.