Internal control checklist

An internal control checklist is intended to give an organization a tool for evaluating the state of its system of internal controls. By periodically comparing the checklist to actual systems, one can spot control breakdowns that should be remedied. When followed regularly, a checklist has the following benefits:

  • There are fewer audit comments about internal control weaknesses
  • Management can gain assurance that reported financial results are accurate
  • There is a reduced risk of asset losses due to fraud
  • There is less chance that the organization is not complying with any applicable regulatory requirements

Internal controls are a system of policies, procedures, reviews, segregation of duties, and other activities that are used to minimize the risk of asset loss, produce accurate financial statements, and conduct operations in an efficient and orderly manner.

When going through an internal control checklist, the intent is to spot any controls that are missing or weak. Such a finding does not automatically indicate the presence of a control problem that requires remediation. If there are offsetting controls elsewhere in the system, a weak control could be considered acceptable. For example, if a signature plate is used to sign checks, this could be considered a control weakness, except that a formal approval is required upstream for every purchase order issued. This offsetting control ensures that purchases are still approved somewhere in the purchasing system.

The internal control checklist can be massive, and is tailored to the needs of the individual business. For example, the controls used for a casino (with its heavy use of cash) are quite different from the controls used in a software development company (which may never use cash at all). Here is a selection of the controls that might be found in a typical business:

Payables control checklist:

  • All invoices greater than $50 are approved by a manager
  • A three-way match of the purchase order, receiving document, and supplier invoice is conducted
  • Blank checks are stored in a locked location
  • The sequence of check numbers is tracked
  • Checks are manually signed
  • Invoices are stamped "paid" when they have been paid

Customer billing control checklist:

  • All discounts and special prices are confirmed
  • Invoices are checked for errors
  • Unmatched bills of lading are reviewed
  • The sales order total is compared to the invoice total
  • Statements of unpaid amounts are issued to customers

Payroll control checklist:

  • Time sheets are matched to a list of current employees
  • The hours stated on time sheets are approved by supervisors
  • The totals entered into the payroll system are matched to time sheet totals
  • The preliminary payroll register is reviewed and approved by the payroll manager
  • All payroll checks are manually distributed to the people named on the checks