Knowledge Check - Internal Controls
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1. All of the following are basic elements of an internal control system EXCEPT:
A. Organizational budget detailing all of the expenditures for the year.
B. Hiring policies to ensure that financial staff qualifications align with job responsibilities.
C. Written position descriptions describing the responsibilities of those employees who have a relationship to the financial and accounting issues.
D. Accounting manual and a chart of accounts that includes a list of account names and the numbers assigned to each of the accounts.
‘A’ is correct. An organizational budget detailing all of the expenditures for the year is not one of the basic elements of an internal control system.
2. What element of internal controls is meant to make sure that no single person can defraud the organization?
A. Policies and procedures
B. Segregation of duties
C. Controlled access to records
D. Reconciliation of budgets and records
E. Cash Controls
‘B’ is correct. Segregation of duties ensures that no single staff member can defraud an organization.
3. How often do you think you should update your organizational chart?
A. Every six (6) months
B. Once a year
C. As often as changes are made
D. When the executive leadership of your organization changes
‘C’ is correct. Organizational charts should be updated as often as changes are made.
4. Internal controls are to your organization as:
A. Checks and balances are to the three branches of government
B. Policies about asking the front desk of the hotel for an extended check-out time are to a hotel guest
C. Getting permission from Mom and Dad and a friend’s parents before going out with friends on a Friday night are to a teenager who is living at home
D. A and C
E. None of the above
‘D’ is correct. Internal controls are like the federal government’s system of check and balances, or a family’s requirement that a teenager obtain permission from both parents and their friend’s parents before spending the night at a friend’s house.
5. One difference between internal controls and accounting controls is that internal controls:
A. Pertain to the budget; accounting controls identify the source and application of Federal funds.
B. Outline procurement procedures; accounting controls allow an organization to maintain oversight and control of assets.
C. Verify that the organization is functioning properly; accounting controls track Federal funds.
D. Allow oversight and control of cash, property, and assets; accounting controls identify the source and application of Federal funds.
‘D’ is correct.
6. Tony, an Accounts Payable Clerk with a State Housing Authority, received an invoice from a sub-recipient organization working on the State’s rental housing program. Tony looked up the sub-recipient in the chart of accounts and confirmed that they had indeed been asked to do the work reflected on the invoice. He proceeded to cut and sign a check and mail to the sub-recipient organization.
Tony followed good internal control practices.
The correct answer is ‘False.’ Good internal controls require that all financial transactions include more than one staff person and that records be duplicated and stored securely.
7. Procedures for storing source documentation, such as financial records of rental assistance, in locked file cabinets with limited access are part of internal controls that implement client confidentiality requirements.
The correct answer is ‘True.’ Internal control policies and procedures would typically include guidelines for maintaining the confidentiality of clients’ personal information.