Internal Control Policies

Internal Controls are needed to protect a government's assets against the danger of loss or misuse, necessary to ensure that all transactions are properly authorized, and that the data contained in financial reports are reliable.

An Elected Officials Guide to Internal Controls and Fraud Prevention by Stephen J. Gauthier and published by the Government Financial Officers Association says:

"It is the duty of government financial managers to be good stewards of the resources committed to their care. Good stewardship requires that assets be properly safeguarded, managed and accounted for.

Safeguarding. At the most basic level, government financial managers have a duty to protect a government's assets against the danger of loss or misuse and to ensure that all transactions are properly authorized. Losses can occur for a variety of reasons besides fraud, including the following:

  • Failure to properly maintain fixed assets, thereby shortening their useful life;
  • Failure to avoid duplicative purchasing (e.g., ordering assets in one department when the same or similar assets lie idle or under used in another);
  • Failure to maintain adequate cost accounting systems to ensure that grantors reimburse the government for all appropriate costs to grants;
  • Failure to invest available cash to best advantage;
  • Failure to avoid investments with an unacceptable degree of risk; and
  • Failure to take advantage of all applicable discounts on purchases.

Government financial managers have a duty to establish policies to ensure the efficient and effective management of government's resources. They also have a duty to establish procedures to ensure that these policies and other management directives are consistently followed in practice."

The State Controller's Office continually strives to strengthen the State's control environment. Our goal is to inform State agencies of the value of strong internal controls, and to assist departments in strengthening departmental controls. The following pages provide valuable information regarding the importance of internal control and steps to take to improve the control environment.