Internal Controls

Revised March 31, 2014

Introduction

Municipalities have a responsibility to manage their public funds and resources effectively and efficiently. Complying with state and federal requirements for budgeting and financial reporting helps identify whether or not public resources are used for the purposes intended, but does not always prevent inefficient or inappropriate use of those resources. It is not uncommon to see municipalities in which funds were used wastefully or even embezzled by staff. One way to promote efficient use of public resources and to prevent or reduce the risk of error and theft is to implement a system of internal controls.

Narrative

Internal controls are methods – usually in the form of policies and procedures – for protecting cash, bank accounts, inventory, property and other assets. They typically include:

  • procedures for reviewing the status of financial resources and other assets (E.g. perform cash reconciliation at the end of each day;  inventory equipment, fuel, supplies, and tools on a regular basis)
  • controlling access to funds and other assets (E.g. Keep undeposited funds in locked safe;  keep extra vehicle and building keys in locked drawer or cabinet; require employees to  sign for tools assigned to them)
  • a system of checks and balance to assure that no one person has total control over all phases of an activity or transaction. Often, this is accomplished by separating duties of staff members (E.g. assign task of reconciling bank statements to someone other than - or in addition to - the person who writes checks and deposits funds.)
  • appropriate authorization.(E.g. require signature of employee’s supervisor on time sheet before processing payroll check; use purchase orders ; require manager’s approval for any  purchase over a specified amount)
Frequently Asked Questions

Additional Resources

Publications

Applicable Laws

  • AS 29.20.390 (a) itemized account of money received and spent, treasurer
  • AS 29.20.500 (3) prepare and submit annual budget
  • AS 29.20.500 (4) make monthly financial reports and other reports
  • AS 29.20.500 (5) exercise custody over real and personal property of the municipality
  • AS 29.20.640 - reports required
  • AS 29.35.100 - Budget and capital program
  • AS 29.35.120 - Annual audit