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Internal Control Checklist
An effective internal control system enables you to manage significant risks and monitor the reliability and integrity of financial and operating information. It also ensures that the audit committee acts as a powerful and proactive agent for corporate self-regulation. The Committee of Sponsoring Organizations of the Treadway Commission developed the following questions to help senior executives and directors gain a better understanding of their organizations control systems.
ETHICAL ENVIRONMENT
Do
board members and senior executives set a day-in, day-out example of
high integrity and ethical behavior?
Is
there a written code of conduct for employees? Is it reinforced by
training, top-down communications and periodic written statements of
compliance from key employees?
Are
performance and incentive compensation targets reasonable and
realistic, or do they create undue pressure for short-term results?
Is it
clear that fraudulent financial reporting at any level and in any form
will not be tolerated?
Are
ethics woven into criteria used to evaluate individual and business
unit performance?
Does
management react appropriately when receiving bad news from
subordinates and business units?
Does
a process exist to resolve close ethical calls?
Are
business risks identified and candidly discussed with the board of
directors?
RISK ASSESSMENT AND CONTROL ACTIVITIES
Is
relevant, reliable internal and external information timely
identified, compiled and communicated to those positioned to act?
Are
risks identified and analyzed and actions taken to mitigate them?
Are
controls in place to ensure management decisions are properly carried
out?
Does
management routinely monitor controls in the process of running the
organizations operations?
Are
periodic, systematic evaluations of control systems conducted and
documented?
AUDIT COMMITTEE EFFECTIVENESS
Has
the board recently reviewed the audit committees written charter?
Are
audit committee members functioning independently of management?
Do
committee members possess an appropriate mix of operating and
financial control expertise?
Does
the committee understand and monitor the broad organizational control
environment?
Does
the committee oversee appropriateness, relevance and reliability of
operational and financial reporting to the board, as well as to
investors and other external users?
Does
the committee oversee existence of and compliance with ethical
standards?
Does
the committee or full board have a meaningful but challenging
relationship with independent and internal auditors, senior financial
control executives and key corporate and business unit operating
executives?
INTERNAL AUDITING FUNCTION EFFECTIVENESS
Does
internal auditing have the support of top management, the audit
committee and the board of directors?
Is
the organizational relationship between internal auditing and senior
executives appropriate?
Does
internal auditing have and use open lines of communication and private
access to all senior officers and the audit committee?
Is
there an internal audit plan (reviewed by the audit committee)
describing internal audit responsibility?
