Development Best Practices in Credit Union Supervision: Internal Control Requirements
This paper examines the internal control requirements of a credit union. It defines internal controls as mechanisms, policies and procedures used to minimize and monitor operational risks.
The paper states that the main objectives of internal controls are to:
- Safeguard assets and member savings;
- Verify the efficiency of operations;
- Prevent fraud and mistakes;
- Ensure compliance with applicable laws.
It identifies two categories of internal controls accounting and administrative.
Accounting controls provide assurance that staff performs transactions according to management's direction and their authorization level. They include:
- Daily posting records;
- Subsidiary records;
- Internal reports;
- Recording of transactions;
- Sequential numbering for items such as checks, etc;
- Audit trail;
- Audit program.
Administrative controls establish lines of authority and responsibility, segregate the operating and recording functions and assist in hiring qualified employees. They include:
- A good accounting system;
- Written policies and procedures;
- Board approval and monitoring of information;
- Adequate cash controls;
- Segregation of duties;
- Dual control;
- Protection of assets;
- Zero tolerance of fraud;
- Personnel policies;
- Rotation of personnel;
- Succession planning;
- Mandatory vacations;
- Quality controls.
The paper concludes by listing signs of warning that would indicate that the internal controls are not adequate to discourage dishonest or fraudulent acts.
