EFFECTIVE INTERNAL CONTROL IN SACCOS

Internal control can be defined as the whole system of controls, financial and otherwise established by the management committee in order to carry on the business of the society in an orderly and efficient manner,

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ensure adherence to management and financial policies, safeguard assets and secure as far as possible the completeness and accuracy of the records.

The individual components of an internal control system are known as controls of "Internal Controls."

Internal control could be enhanced within the organization by:

• Organization structure
• Job description of
• Physical locations of departments or sections
• Information, accounting and documentation
• Authorisation and approval
• Supervision, personnel and general management
• Routine checks, verification and examination
• Scrutiny and physical checks including stock taking
• Control of documents, filing and movement of documents and files
• Vocation and rotation of duties
• Security of assets
• Ensuring efficient and effective discharge of society's goals, vision, mission and objectives

However, Sacco and business organizations need to have continuous application of accounting (records/books). This may include the following:-

• Cash journal/Petty cash journal
• General ledger
• Payment vouchers/Petty cash vouchers
• Receipt book, member statements
• Cheque book, asset register, member register, loan application forms, payroll deduction list
• Invoices, Delivery note, expenditure receipts
• Deposit slips, bank statements
• Cheque counter foils, cheque registers, etc

Other essential financial statements include:-

• Trial balances
• Income/expenditure statements or surplus and loss A/C
• Balance sheet
• Budgets

Why internal Control?

• Minimizes chances of errors and fraud
• Safeguard society's assets
• Boots efficiency in the society towards members services
• Having up-to-date data for managerial decision making
• Control of work and avoid duplication of efforts/duties
• Facilitates efficient statutory audits
• Facilitates identification of inefficiency and outdated policies
• Encourages specialization
• Allow society to grow at a reasonable rate
• Acts a motivator

ELEMENTS OF INTERNAL CONTROL

EMPLOYEES	Hire qualified people with good reference
	Require annual leave
	Bond employees in position of trust
	State conflict of interest policy
CLEAR DELEGATION AND SEPARATION OF DUTIES	Develop organization chart
	Separate record keeping from custody of assets
	Separate authorization from record keeping
	Separate purchasing from receiving
PROPER PROCEDURES FOR PROCESSING OF TRANSACTIONS	Ensure proper authorization of transactions
	Sign cheques only with proper support
	Approve all non-cash entries on returns, discounts and write offs
	Review past due and uncollectable accounts
SUITABLE DOCUMENTS AND ACCOUNTING RECORDS	Pre-number important documents
	Develop comparative financial statements
	Describe accounting methods in manuals or systems
	Prepare budget of anticipated results
CONTROL OVER ASSET RECORDS	Limit access to inventory
	Safeguard all important records
	Deposit cash receipts intact daily
	Keep all voided cheques
INDEPENDENT VERIFICATION OF PERFORMANCE	Reconcile bank statement independently
	Pre-list cash receipts
	Have an annual audit by CPA frim
	Take complete inventory regularly

DETECTION AND PREVENTION OF MISTAKES (General Control Techniques)

TECHNIQUES	REASON FOR TECHNIQUES
CASH DISBURSEMENT
Use only pre-numbered cheques for disbursement	To ensure all cheques are accounted for
Have proper support for cheques	Only pay properly authorised and justified expenditures
Cancel supporting documents when paid	To only pay once for proper expenditures
Cheque signing by management with no access to records/Alter but keep voided cheques	To ensure accounting records accurately reflect cheques written
Mail cheque directly to payee	To ensure that payee and only payee receives disbursement
Use imprest petty cash fund with one custodian	To ensure authority over petty cash and review periodically
CASH RECEIPTS
Use cash register and cheque register daily	To ensure all cash receipts are recorded
Deposit cash receipt intact	To ensure all cash receipts are deposited
Reconcile bank statements monthly	To ensure all cheques are authorised and recorded and receipts deposited
ACCOUNTING RECORDS
Use pre-numbered invoices	To ensure invoices are accounted for
List mail collections compare with journal	To ensure all mail collections are retained by Sacco
Review monthly comparative financial statements reports	Check any unusual revenue, expense or liability amounts
Approve all entries to general journals	To ensure only authorised and proper journal entries are made

INVENTORY CONTROL TECHNIQUES

1. PURCHASING

1. Centralize under responsible staff
2. Attach purchase invoices to cheques for payment
3. Cancel support documents when cheque is paid
4. Supervise all returned purchases
5. Use requisitions to initiate purchases

2. CUSTODY

1. Separate purchasing from receiving
2. Separate receiving from store keeping
3. Take physical inventory regularly
4. Use independent employees for physical inventory
5. Physically control access to inventory

3. RECORD KEEPING

1. Separate record keeping from custody
2. Require all documents to be pre-numbered e.g. ledgers, journals, passbooks, receipts, vouchers, etc
3. Use a perpetual system if possible
4. Compare results of physical inventory to records

DEFALCATION OF CASH

AREA OF DEFALCATION	HOW TO OBTAIN CASH	HOW TO COVER IN ACCOUNTING RECORDS
CASH DISBURSEMENT	-Issues cheques to others-Appropriate the cheques	Create false invoices
		Use invoices twice for supporting cheques
		‘Pad’ the payroll
		Pocket unclaimed wages and dividends
	Issue cheques to yourself	Incorrectly foot the cash disbursement journal
		Increase recorded amount of another cheque
	-Overpay vendor-appropriate refund	Allow asset or expense to remain overstated
PETTY CASH	Remove cash from petty cash fund	Increase amount on vouchers
		Create false vouchers
		Submit vouchers twice
		Allow fund to remain short
CASH RECEIPTS	Take cash from cash sales or receipts	Record no amount
		Record less than was received
	Take cash payment on account receivable	Bill for full amount but record sale at lower amount
		Record cash receipt but manipulate bank reconciliation
		Record cash receipt but incorrectly use the journal
		Do not record cash receipt but create credit memo to write off the amount
		Pocket payment on account which has been written off