Kentucky State University Business Policies and Procedures Manual

parts of an organization. Accounting controls increase the reliability of the financial statements and the supporting accounting records. The guidelines in this manual deal with the organization's accounting controls.

Accounting Controls

Ideally, accounting controls maintain a plan under which employees' duties are arranged, and records and procedures are designed to make it possible to apply valid accounting control over assets, liabilities, revenues, and expenditures. Maintaining strong internal control also assures your independent auditors of the reliability of the accounting records. To form their opinion, auditors must evaluate any weaknesses in the accounting system and the effect this may have on the dependability of the organization's financial statements and supporting records.

The optimum internal accounting control process consists of:

• Division of responsibilities among different employees for a sequence of related functions.
• Clear establishment of each employees' responsibilities and duties.
• Separation of responsibilities for operation, acquisition, and custody of assets, and
• Use of proofs, checks, and other security measures.

Subdivision of duties within an organization should be designed so that no person handles a transaction completely from beginning to end. When duties are divided in this matter, the work of one employee serves to verify that of another and any errors which occur tend to be detected promptly. If one employee is permitted to handle all aspects of a transaction, the danger of error or fraud is increased. To the extent practicable, rotation of employees from one job assignment to another may strengthen internal control.

This process is intended to protect the currency and other assets of the University against employee error or dishonesty. Although it may be proper to assume that all employees are honest, it is nevertheless essential to avoid any weakness or gap in accounting controls. These guidelines will establish internal controls that will help prevent illegal or unauthorized transactions or acts, provide proper accounting data and information with a minimum of human error, and protect the staff from unwarranted allegations by fixing responsibility and by removing sources for potential employee abuse.

Adequate internal control includes the involvement of management in the accounting process and through measures such as:

• Management level review and approval of bank reconciliations and monthly financial reports,
• Management level verification of invoices prior to payment.
• Prenumbered checks to ensure that no document is misplaced or forgotten, and
• Documentary evidence to verify an expense before it is paid.