A process for assuring achievement of a Credit Union's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws regulations and policies.”
Our last blog focused on the benefits of internal audit. Many of these benefits focus on internal controls which is the subject of our latest blog.
Internal financial controls are designed to protect a credit union’s assets, ensure the accuracy and completeness of its financial records, and promote the efficient operation of its business.
Effective internal financial controls can help a company to:
- Prevent fraud and errors
- Detect fraud and errors early
- Comply with laws and regulations
- Improve the accuracy and completeness of financial reporting
- Reduce the risk of financial loss
- Improve the efficiency of business operations
There are three categories of internal controls: preventative (prevent fraud or error occurring), detective (identify where/how fraud or error occurred) and corrective (correct issues that have been identified). There are many different types of internal financial controls that fall within one or more of these categories. Some of the most common types of controls include:
- Segregation of duties (preventative)
- Supervision and monitoring (preventative and detective)
- Authorization and approval controls (preventative)
- Physical controls (preventative)
- Audit trails (detective)
- IT patches (corrective)
The specific controls that are implemented by a credit union will vary depending on the size, risks and complexity of the credit union.
It is important for credit unions to regularly review and update their internal financial controls to ensure that they are effective in protecting the assets, ensuring the accuracy and completeness of its financial records, and promoting the efficient operation of its business. Over time controls will become out of date as processes, risks and regulatory requirements change. It is therefore important that controls change to match.
We have seen examples of controls still taking place that were required when the organisation operated a manual systems but have no benefit in an automated system. The organisation is still spending time carrying out the controls because that is the way they have always done it.
The Credit Union’s Board cant oversee every action. They will set out within the policies and procedures the internal controls that they expect to be carried out. Compliance reports and internal audit will then provide assurance to the Board on the operation of these controls.
If you require assistance with the development of policies and procedures or internal audit then please contact the Alexander Sloan team at (0141) 204 8989 or by creditunion@alexandersloan.co.uk