Internal Control Report Template1

Gentlemen of the Board of Directors of the company______________

Prepared by the Audit

_____ XX of 201X

In response to the organizational requirement for periodic evaluation of the

economic, operational, and projection situation of the company _________, it
present the internal control report for the period from January 1 to
December 31 of the year 20XX.

Justification

Los informes de final del período sirven a la alta dirección no solo para evaluar el
work executed but to determine if what was done corresponds to the
company requirements.

The framework for the internationalization of companies requires that the future vision be

approach towards the evaluation of the requirements specific to such purpose in all
the areas of the company; for this reason, in addition to the reports required by law,
like the certification of financial statements, the report on them, the
management report and the internal control report; it was requested once again that for

1
This model will serve as a basic guide for accountants, auditors, and tax reviewers on what
It can be a type of Internal Control report; its use does not hold us responsible for what is written.
based on it.
This report will contain multiple considerations, recommendations, guidelines, and evaluations that
may arise in a potential internal control audit process. What is presented here should not
neither definitive nor binding on the audit process that will take place and must be analyzed
la luz de este, que, de lo aquí contenido, puede ser utilizado; De igual forma se deben agregar
all considerations or recommendations that arise from the analysis.
the management report prepared reports by areas, such as those of resources
humans, production, marketing, finance, and quality control.

Conceptual Framework

Internal control is a process carried out by the board of directors and senior management.
from the company, with the constant support of the internal control department, to
the administration of the entity, specifically designed to provide you
reasonable security of achieving effectiveness and efficiency in operations,
sufficiency of financial information and compliance with laws and regulations
applicable.

Legal framework

The Internal Control report constitutes a basic element that allows

determine whether legal and regulatory frameworks are being complied with; whether the regulations

Corporates are taken into account; if the applied procedures correspond.

to those proposed by senior management and if the established control guidelines
internal corresponds to the dynamics and development of the company.

The Audit was conducted in compliance with the __________(mention if by will...

or explicit regulatory indication, the review has been conducted in response to the
Generally Accepted Auditing Standards (GAAS) or to the new Standards of
Information Assurance - NAI - including International Standards
Audit - ISA -.

Internal Control Approach

The Internal Control evaluated by the Audit is based on _______ (reiterate

the regulatory framework that was applied in the review) and statements from the Council
Accounting Technician as well as those from the Superintendency of _______
(indicate the supervisory agency that oversees the company's activity), which
Although they do not have the quality of mandatory, they do correspond to a process.

investigative that can very well be considered as a basic premise for development
this approach to control in the process of universalization.

Theoretical framework of the components of internal control in the company

The components of internal control are interrelated; they derive from the vision of
the company, and are integrated into the administrative processes. These are:

Control environment: To which elements such as integrity are associated,

ethical values, and the competence or knowledge as well as skills
what people possess to adequately fulfill their functions.

Risk assessment: It is the identification and analysis of risks.

relevant to the achievement of the objectives, which represent the
basic orientation of resources and efforts, and they become the way
to identify critical success factors. The risks include factors
externals and internals.

Control activities: These are carried out by management and others.

company personnel, to directly fulfill the activities
assigned, which are represented in policies, systems and
procedures and these include controls related to
the information systems.

Information and communication: To achieve the objectives it is necessary

to have appropriate and timely information.
Monitoring and supervision

These can be carried out by the personnel in charge of the controls themselves.
(self-assessment) and is applied through questionnaires or interviews communicating
the weaknesses or opportunities for improvement.

Objectives of the internal control report

To disclose the situation of the internal control of the company.

2. Fulfill the obligation to provide timely and written account of the

irregularities or deviations incurred in the achievement of the objective
social

3. Inform the senior management that the operations being held comply.
with the statutes and the decisions of the partners.

4. Inform the senior management of the compliance with the assigned responsibilities
what they are like:

Ensure that accounting is regularly maintained in compliance with

accounting and tax regulation.
Inspect the assets of the company regularly and ensure that they are
take appropriate conservation and safety measures.
Provide instructions, practice inspections, and request reports that are
necessary to establish permanent and necessary controls.
Authorize with the signature the financial statements duly accompanied.
of the ruling and the notes that together form an indivisible whole.
Topics to be addressed in this report

The topics that are considered important and require to be selected have been chosen.
taken into account at the time of decisions.

1. Considerations related to general aspects of operations

a. The hiring processes have been implemented within the ISO Standard.
XXXX (quality control standard applicable in operations) in form
broad and detailed.

Management ofproduct and/or service and the contracts with the clients.

It is necessary to better sectorize cost controls and indicators.

management per project.

The trend of Management should be to maximize generation of

future value, based on excellent management in all areas of the
company through value addition.

It is important regarding the operations to take into account the

current regulations.

It is necessary to adapt in practice when applying the rules.

variables related to the legal frameworks of the recipient countries
product and/or service (operations abroad).
2. Review by areas of operation

Income including investments and client management

The corresponding reviews of the area were carried out determining that
There are records managed by the sales area and records made by the area.
accountable that often turn out to be incompatible. Many times we
they annul invoices due to lack of planning of the same or agreements with
companies to avoid tax effects.

The value of the balances of advances received from contracts as of 31

December of the year is $XXXXXXXX and the balance on the same date of
the previous year was $XXXXXXXX. In smaller contracts, it was not applied the

procedure for the anticipated payment provided as a means of financing.

In the previous year, losses were recorded due to revaluation/devaluation.

of the peso against the dollar. These values are affecting the results of the
company. (for income-generating activities/activities of
financing

Evaluation of Internal Control

The income received as a result of investments is entered

and controlled with a monthly inventory of both physical documents negotiated,
to determine the correctness of the record and its correspondence by causation.

2. The income from customer deposits as well as advances, are

prepared by the Portfolio Department and controlled by the financial area
accountant.
3. The committees formed by the Finance and Sales areas allow for the
Follow-up on the achievement of the goals. However, if one analyzes the
the budget concludes that despite the monitoring, the results are not
always the expected.

4. In the ISOXXXX quality assurance process, the following have been established
procedures for the preparation and documentation of national contracts
international

Recommendations for improving internal control:

1. Unify the portfolio and accounting records, and once it is established the
better procedure that the registration is only in the hands of the accounting area.

2. Regarding investments, we have requested the preparation of a manual for

risk control procedure for investments as they do
companies with which such operations are negotiated. It should also be anticipated
A control that prevents only one person from having access to it.
management.

3. Given that the company has a lawyer for debt collection management.
For overdue invoices, it is necessary to maintain constant follow-up on their work.

4. The control of difficult-to-collect debts must continue until the achievement of the
cancellation.

5. It has been determined that to facilitate bank reconciliations, the

the differences of the month will be recorded in the following month, but it is required that in

in no case shall there be a delay in the application of this procedure.

6. Since the registration of the company was deemed not advisable as
self-restraining, due to financial effects, all must be adjusted
administrative controls that facilitate the process of obtaining certificates of
withholding at source corresponding.

Expenses and behavior with liabilities

Evaluations are conducted permanently during the review.

advance documentation of withholdings at source and of Tax on
sales based on the guidelines established in the tax regulations and the
purchase process according to the established in the ISOXXXX standard
when it has been relevant, observations related to have been made
possible deviations.

2. Purchases have been supported with three quotes. However, when

it concerns travel expenses where cases have been found in which the
documents are not reported in a timely manner.

3. The documents related to costs and expenses that are generated in the
exteriors are being monitored to make them deductible, having
such characteristics include its proportionality, causal relationship, and necessity.
In addition, the payment is evaluated from the tax perspective to determine if it is
deductible.

4. During the year, equipment purchases were significantly reduced.

processing, given that there are leasing contracts with computers up to date
whose installments have been paid on time.

5. A License Inventory was established that could not be completed by the end of the year.

fully verify, as it is being finalized with the accounting;

In addition, policies and procedures have been established for their control. In the year
the legality of the licenses was fully identified, as well as those that
are installed on each computer.

6. Regarding payroll, it is being managed by a contract of

Outsourcing that we have evaluated and considered appropriate.

The company complies with payment to social security entities and the contributions.
parafiscal contributions according to the established percentages and taking into account the

assigned deadlines.

8. Colombian regulations apply in relation to aspects of

responsibility, deadlines and corresponding payments for the following taxes.

Rent
Wealth
Withholding tax
Sales tax
Sales tax withholding
Retention of the industry and commerce tax
Industry and commerce
Stamp duty

9. The lease contracts are duly signed and in effect.

10. The company purchases insurance at a fair value for the assets.
that it possesses and for the contracts with third parties that it signs, in accordance with the

clauses established therein.

11. The expenses are divided into cost of sales, administrative expenses, expenses
from sales and other expenses.
12. Regarding the payment of fees to the Board of Directors, we believe that it is
high if we compare it to the payments made in the market.

13. Food vouchers are used in accordance with the agreements of

flexibility achieved with employees and whether to exceed the legal framework.

14. The expenses in general meet the requirements to be deductible, meaning that they are
provided, reasonable, adequately supported and are related to
causality with income with the exception of those mentioned earlier
paid by the Board of Directors.

15. The exchange difference resulting from advances received from clients was a
important value in the year.

16. Withholdings were assumed at source due to accounting errors not

justified.

17. The tax levied on financial transactions that constitutes an expense

not partially deductible, reduced significantly compared to the previous year.

18. The applied cost of sales corresponds to those values that can
activate as Inventories and will be applied as they are produced
sales. However, in the company, the cost system works by applying all
the elements such as expense (cost) due to the absence of an Inventory system
properly established.

December 31st the final adjustments were made to the process of

update of the records in the Fixed Assets software. It was also carried out
partial physics test of this inventory which allowed to determine a reality of
the fixed assets that are still being controlled according to instructions from
general management based on policies and procedures that are being
implemented.

20. Depreciation it is applied in a straight line but using software

properly validated.

21. The technical appraisals were adjusted to December 31, leaving the difference.
both in valuations and in provisions according to the circumstances.

22. Errors were corrected that were causing discrepancies in the information.
of fixed assets.

Recommendations

1. Regarding the expenses, we consider rationalization necessary, since

that the monthly accounting average of the year was higher than that of the previous year

which represents an increase of XX%. The most significant increase is

presents in the area of_____________. Risks must be taken into account.
current operations.

2. A proper balance between resources must continue to be maintained.

placed in dollars that generate income from exchange rate differences and those
external resources that generate expenses for the same concept.

3. It is necessary to find the best solution to ensure that the officials who
They will report in a timely manner the use of the funds that have been given to them.
delivered.

4. When the transfer of the right over the property is documented

leased computing equipment; it is necessary to establish the procedure that
allow for continuous control over them.
5. Regarding the use of licensed software in the company, it is required
establish greater control over employees' use of pirated software
to prevent him from having to assume the General Management responsibilities
sanctionable under the law.

6. Payroll control must guarantee the company that the decisions of

Flexibility should be framed within the legal guidelines of the labor code.

7. Accounting software must permanently have an adequate

maintenance.

It is necessary to consider the need to establish a process in control of

production that allows managing the Licenses sold within the sector of
Work in progress and finished goods inventory.

9. It is necessary to establish a control over services in the production area.

provided by third parties, to avoid late billing, as well as collections
that are not fully justified

10. It is necessary to determine how to achieve the nationalization of the Equipment that
they are now registered in transit.

11. Define what will be done with the computer equipment that is located in
different sites of the company.

The fixed asset control program must be used appropriately.

asignando si es necesario una persona que se responsabilice de las diversas
information generated especially about fixed assets.
Human Resources Area

This area is developing in addition to its function, the corresponding to

management of quality assurance; being the company also receptive to
the results of the quality audits.

It is observed from the low turnover of personnel that the selection process,
training and induction are adequate.

This department also intervenes in the processes of organization of

events, staff visits, public attention.

It is also organizing training activities.

5. Keeps the company ready to ensure quality at the national level.

international through the ongoing process of updating the processes of
documentation.

Costs
1. While there are some distributions of monthly expenses, and a segmentation
From the same, we find it necessary to establish a system that introduces changes.
fundamentals in its management.

A cost system is a basic element for assigning the selling price; without
the basis of the current embargo is to use it for budget analysis for the
what can be support. However, we believe that it does not contribute to obtaining
precisely a profit margin, or the establishment of points of
equilibria; prior to the subdivision of costs and expenses into variable and fixed for
to know the contribution margin.
3. There are currently other modern techniques for assigning costs in a
cutting-edge technology environment, when to start evaluating capital
intellectual, part of which must also be assigned to determine prices.

4. The properly implemented cost system will be a basic element for

determine a segregation of the necessary inventories according to the law
to assign them to Sales.

5. We consider that the costs assigned to the contracts are the result of some
distribution techniques, but these technical fundamentals are not being reflected
in accounting.

Production area

When talking about the production area in this type of company, a requirement is needed.
interest in segmenting their products; for which the fundamentals are required
formality within an accounting control process. We continue to recommend the
control by processes or activities.

Tax area.

The internationalization of business involves the need for strengthening

from the tax area; in addition to hiring a good consultant who
Given the legal requirements in the country, one must have knowledge.
solid in tax matters and International Financial Reporting Standards
Financial.

2. Nevertheless, despite the previous situation and with the already mentioned limitations, it has been

achieved the closest approach to a fair income tax payment, but

whose result requires the review of experts who identify the benefits
current tax regulations, greater possibilities for the company for the year that
start and the following.

3. The issue is even more complex if we take into account that taxes are not
not only the rental tax but also the sales tax, the wealth tax,
withholding taxes, as well as the industry and trade tax, and
other territorial.

Accounting information area

1. In the area of accounting information, the following situations are presented:

a. New software has been acquired with which the parameterization will be converted.

in a tool that will provide greater solidity to the information.

b. The accountant controls the key with which modifications are avoided
closed information both monthly and at the end of the period

2. One of the responsibilities assigned to this area is the review of

payroll, which had some difficulties during outsourcing this year
it worked.

A schedule was prepared for the presentation of the financial statements.

monthly, which was fulfilled until the month of November since for
In December, there were difficulties with the closing due to
______________________that presented some difficulty for their
interpretation, execution, and recording.

4. En el transcurso del año, se efectuaron varias reuniones entre contabilidad,

audit and finance, to define procedural aspects and the figures
final conclusions of the period.
5. Doubts arise about the application of the rules related to
exports and foreign investments both in withholdings in the
source like in reteiva, stamp tax and sales tax.

6. The reacquisition of contributions made was recorded during the year following the

legal guidelines. similarly, the negotiations of partners and

acquisitions of contributions by the foreign investor.

7. With the support of the audit and the financial department, notes were prepared to
the financial statements.

The accounting closing was done at the end of the first month of the following year.

9. The fiscal adjustment is applied to the fiscal cost of assets as a policy.

established by Management for the purposes of the declarations of
taxes.

10. The current regulations regarding the application of are taken into account.
the International Financial Reporting Standards have been initiated
study of the effects that the obligation may have for the company
prepare the tax information using the figures obtained as references
of the new technical regulatory frameworks.

11. Timely instructions were given verbally, in writing, or by means of the

recommendation of websites when necessary; in order to
apply changes from any new regulation in accounting aspects and
taxpayers.
Recommendations

1. Take advantage of hiring the tax and Standards consultant.

International Financial Reporting, to establish an accounting manual
and taxation that is known by the officials in this area.

2. Ensure that when making the monthly cuts, the balances are fully reviewed.
in such a way that there are no delays in the following months.

3. If a license inventory control is established, it is necessary for this area

receive all the necessary instruction to achieve the best results.

Prepare at least the income statement and the statement of financial position.
financially monthly.

5. Preparar un juego completo de estados financieros intermedios al 30 de junio

with their corresponding grades and certificates.

6. Establish keys for the use of accounting software that limit access by
authorization levels once the monthly records are completed.

7. Prepare a manual that facilitates the conversion of financial statements from pesos to
dollars when these are to be sent abroad.

8. The financial statements prepared by the foreign branch must be

requested with the fulfillment of all the requirements from both the country that prepares them, as well as

its conversion to send it to the main one.

Various aspects

1. Control of operations between partners

A document was prepared that clarified:

The movements and operations carried out between partners.

The movements between partners and the company.

The payments made in shares.

The effect that loans to partners from the company have with
relation to presumptive yields.
There are no loans received from partners.

2. Compliance control.
Compliance tests are related to the monitoring and control that is
has legal and formal aspects.

The accounting books were verified for their recording and updating.
Follow-up was made on the minutes book to determine compliance
the corresponding obligations.
They are registered in the entity that mandates the law. the latest minutes

related to contribution quota negotiations.

The book of minutes is kept in the hands of the accounting assistant.
it is more appropriate to keep them in the hands of the management secretary
general.
The member registry book was observed.
The last registered deeds were observed.
 The certificate issued by the respective entity was reviewed, noting that
all the aspects mentioned there are arranged in accordance with the law and
in addition that the corresponding changes have been taken into account.
The inscription in the register established by law was observed. del
appointment of the new general manager.
The annual information is being sent to the
Corresponding superintendent, without finding any regulation of
corrections to the information sent.
The stationery used in the correspondence lacks the NIT as it
tax regulations require.
The issued invoice complies with legal requirements.
The daily billing control book has been implemented.
Purchase invoices are reviewed to ensure compliance with the requirements.
established in the law and make possible the deduction of costs and expenses
and the deductible taxes.
The tax requirements in which they request information for cross-checking
third parties have been answered in a timely manner and up to now they have not

they have not received any summons or additional requirements.

Substantive tests

They correspond to the application of auditing techniques, such as observation, analysis,

and evaluation of its environment that is done with the greatest breadth to different

operations in which monitoring is done, from the point of view of, your
documentation, its execution, causation, and its opportunity.

Substantive tests are carried out monthly on investments not

finding important observations.
Reviews of the portfolio have been carried out by executing a circularization.
The differences between portfolio reports of the commercial department and
accounting is analyzed.
 Differences in advances between commercial portfolio reports and
Accounting is corrected when there are discrepancies.
Aspects such as the following were observed:
Differences in order accounts.
Differences in changes from previous periods that affect the year
next.
oSe efectuó Auditoria de anticipos a proveedores.
An audit was conducted on travel expenses and requests for
same.
Regarding fixed assets, the administration achieved the
Arrangement of the execution of a fixed asset inventory that served
to determine balances as of December 31 and will serve as a guide for the
definition of balances and future organization of this important item.

Final comments and proposals

The working conditions that the company has for its employees are
especially interesting for both newcomers and the
ancient, observing a high degree of belonging.

Although intercommunication does not necessarily imply a need

imperativa, ésta existe dentro de las necesidades del individuo.

The management is exercised by allowing ample personal autonomy with control.

about the results.

The expectations of national or international negotiations depend

in many opportunities in the environment, which has improved in the country
ostensibly due to the security strategy implemented.
 The operations of the company, despite their importance for the
development of sector management can become more difficult in the
to the extent that the dollar continues to affect service exports; and that
do not significantly increase foreign investments.

It is also necessary to evaluate the rationalization of spending and the

outsourcable operations that represent economies of scale.

I finally consider it a priority to evaluate the hiring characteristics.

well, a salary with its benefits and parafiscal charges, although it is
guarantee for employee stability leads to limitations in the
measurement of the expected results. The alternative of a flexibilization
Regarding results-based evaluation, it would be a possibility.

It is worth analyzing whether there is a tool already technically applied and

tested, that through a daily or permanent report allow
determine if what has been produced or executed is representing a benefit
against the applied cost.

I conclude by thanking for the opportunity I have had to collaborate with the company.

Sincerely,

_________________
Internal Control Manager
The city
Marzoxxde 20xx