INTERNAL CONTROL

INTERNAL CONTROL
CONCEPTS ADFAP-

DAVAO
SYSTEM

INTERNAL CONTROL
SYSTEM
CHURCHS CONCERN?

Blessed is that faithful and prudent servant

Whom his master on his arrival
finds doing so.
Amen, I say to you,
He will put him in charge
of all his property.
Matt 24: 46-47

(Reference: Cf. Canon 1254 par.

2 CIC)
The proper objectives of the Church in the
acquisition and retention, administration &
alienation of temporal goods are principally the
following:
- the sustained regulation of divine worship;
- the funding of the apostolates & works of charity;
- the adequate support of clergy & other lay
ministers.

lHAVING THIS IN MIND THE

MANAGEMENT OF THE CHURCH,
THEREFORE, SHOULD ESTABLISH ITS
SYSTEM FOR CONTROLS.

THESE INTERNAL
CONTROL STRUCTURE
HAVE THE FOLLOWING
FUNCTIONS:

1. TO CHECK THE
ACCURACY AND
RELIABILITY OF
ACCOUNTING DATA;

2. TO SAFEGUARD ASSETS AND

RECORDS;

3. TO ENCOURAGE
ADHERANCE TO POLICY;

l4. TO PROMOTE OPERATIONAL

EFFICIENCY.

COMPONENTS OF THE
INTERNAL CONTROL
STRUCTURE

COMPONENTS OF THE INTERNAL CONTROL STRUCTURE

lINTEGRITY AND ETHICAL VALUES;

lCOMMITMENT TO COMPETENCE;

COMPONENTS OF THE INTERNAL CONTROL

STRUCTURE

l PHILOSOPHY AND OPERATING

STYLE;
lORGANIZATIONAL STRUCTURE;

COMPONENTS OF THE INTERNAL CONTROL

STRUCTURE

lBOARD OF DIRECTORS OR AUDIT

COMMITTEE;
lASSIGNMENT OF AUTHORITY AND
RESPONSIBILITY.

CARDINAL PRINCIPLES OF
SOUND AND EFFECTIVE
INTERNAL CONTROL:
lEMPLOY QUALIFIED AND TRAINED
PERSONNEL;
lEMPLOYEES OCCUPYING POSITION
OF TRUST SHOULD BE BONDED;
lUNBONDED EMPLOYEES SHOULD
BE FORCED TO OBSERVE
VACATION LEAVES AND ROTATED
ON THE JOB;

lDUTIES AND RESPONSIBILITIES

SHOULD BE FIXED;
lACCOUNTING AND FINANCIAL
OPERATIONS SHOULD BE
SEPARATED;
lPROOFS OF ACCURACY SHOULD BE
UTILIZED IN ORDER TO ASSURE
CORRECTNESS OF OPERATION
AND ACCOUNTING;
lCONTROLLING ACCOUNTS SHOULD
BE USED IF FEASIBLE;

lTHE DOUBLE PROTECTIVE

ADVANTAGES OF DOUBLE ENTRY
BOOKKEEPING SHOULD NOT BE
EXAGERATED;
lOPERATING INSTRUCTION FOR
EACH POSITION SHOULD BE
REDUCED TO WRITING;
lNO ONE PERSON SHOULD BE IN
COMPLETE CHARGE OF A
BUSINESS TRANSCATION;

lMECHANICAL AND OR ELECTRONIC

EQUIPMENT SHOULD BE USED IF
FEASIBLE;
lTHERE SHOULD BE ADEQUATE
INSURANCE COVERAGE ON FIRE,
LIABILITY AND OTHER LOSSES;
lPERIODIC CHECK WITH THE
ELEMENT OF SURPRISE SHOULD BE
MADE BY AUTHORIZED UNIT.

SPECIFIC INTERNAL
CONTROL MEASURES
ACCOUNTING PROCEDURES AND
INTERNAL CONTROL GUIDELINES
FOR CASH

IMPREST CASH SYSTEM

lCASH RECEIPTS SYSTEM

Imprest Cash System

lAll cash
received are
deposited in the
bank intact
(same amount
deposited).

lCash
disbursements
are made by
means of
checks.

lPetty cash are

established to take
care of daily expenses
in small amounts;

The following procedures and

guidelines will help in the systematic,
prompt and accurate recording of
transactions

and provide an adequate

system for internal control over
the resources of the Arch/
Diocese.

CASH RECEIPTS
lAll collections should be received by the
CASHIER, or in his/her absence, the
duly designated employee.
lA pre-numbered Official Receipt should
be signed and issued by the CASHIER
to acknowledge receipt of cash from all
sources.
lAll Cash receipts should be deposited
intact at the end of the day or on the first
banking opportunity.

lThe CASHIER should prepare a Daily

Collection Report (DCR) in triplicate.
The validated deposit slips should be
attached on the report when forwarding
it to the Accounting Manager who in
turn shall check the accuracy of the
report.
lFor better control of CASH, a CASH
RECEIPTS JOURNAL (CRJ) should be
used.

FLOW CHART ON CASH RECEIPTS

CASH

OFFICIAL
RECEIPTS

CASH RECEIPTS
JOURNAL

DEPOSITED
TO THE
BANK

With validated
deposit slips
DAILY
COLLECTION
REPORT

THEFTS OF CASH BY FAILURE TO

ACCOUNT CASH RECEIPTS

lTheft of collection without issuing official

receipt. Similar to this is the case
where only part of the collection is
entered in the Cash Receipts Journal
(CRJ) and the other part is pocketed.

THEFTS OF CASH BY EXECUTION

OF FRAUDULENT
DISBURSEMENTS

lTheft of money from petty and other cash

funds - to cover amounts stolen, vouchers
having forged approvals, incorrectly
prepared vouchers with correct approvals,
and used vouchers with altered dates
placed in the fund.
lForging checks and cashing them and
destroying them when returned by bank.

It involves using checks from different banks in different

(savings or current) accounts as props to create a float
(free money). Funds are drawn on one bank, deposited
in another, drawn down again to a third bank, and on
and on. Check Kiting creates a balloon effect too. When
it bursts, millions of pesos have been stolen, wasted, or
shipped to unknown accounts.

FLOW CHART ON PETTY CASH

Petty Cash
Vouchers

Replenishment
Summary

CHECK
VOUCHER

CHECK
Verified and
approved by the
Department head or
authorized signatory

CHECK
DISBURSEMENT
JOURNAL

While the existence of an effective

system of internal control reduces the
probability of misstatement of financial
information resulting from fraud or
error, there will always be some risk of
internal controls failing to operate as
designed.

Strong internal control

generally has lesser fraud
and/or error.

But having a strong internal control

does not insure that there is no fraud
or error. Sometimes, such internal
controls will not work as intended.

Fraud may not be discovered

through the internal control
system especially when
management commits the
fraud or there is a collusion
among employees.

Certain levels of management may

be in a position to overrule such
controls that may prevent similar
frauds by other employees, for
example. . . . . . .

by directing subordinates to
record transactions incorrectly
or to conceal them, or by
suppressing information
relating to transactions

THANK YOU!!