Below I provide useful summary of governmental internal controls.
Why am I providing this list of useful controls? Most small governments struggle with establishing sound internal controls. So, the list provides a beginning point for preventing theft in your government. While not a comprehensive list, it will help.
Many of the internal controls listed below are also pertinent to nonprofits and small businesses as well. You will find this same checklist in The Little Book of Local Government Fraud Prevention (available on Amazon) which provides many more fraud prevention ideas.
I am providing general fraud prevention controls and then transaction-level controls for:
Cash receipts and billing
Cash payments and purchasing
General Governmental Internal Controls
Here are some general governmental internal controls.
Have bank statements mailed directly to someone outside of accounting; recipient should peruse bank statement activity before providing it to accounting
Perform surprise audits (use outside CPA if possible)
Elected officials and management should review the monthly budget to actual reports (and other pertinent financial reports)
Map internal control processes by transaction cycle (preferably done by a seasoned CPA); once complete, provide the map to all employees involved in the cycle; when control weaknesses exist, institute additional controls (see 11. below)
Use a whistleblower program (preferably use an outside whistleblower company)
Reconcile bank statements monthly (have a second person review and initial the reconciliation)
Purchase fidelity bond coverage (based on risk exposure)
Periodically request from the government’s bank a list of all bank accounts in the name of the government or with the government’s federal tax I.D. number; compare the list to bank accounts set up in the general ledger
Do not allow the electronic transmission (e.g., email) of sensitive data (e.g., social security numbers) without the use of protected transmission technology (e.g. Sharefile); create policy and train staff
Where possible, segregate who (1) authorizes transactions, (2) records transactions, (3) reconciles records, and (4) has custody of assets; when segregation of duties is not possible, require documented second-person review and/or surprise audits
Transaction Governmental Internal Controls
Here are transaction level governmental internal controls.
The Little Book of Local Government Fraud Prevention
Do you desire to increase your knowledge of fraud prevention and detection? This book will get you there quickly. Click the "buy now" button to see the book on Amazon.
About the Author
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.
He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.
Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.