Section: Financing Subsystem Subsection No: 070-02

Subsection: Internal Control Page 1 of 3

INTERNAL CONTROL

Control Objectives

1. To ensure that all and only valid and authorized borrowings and equity issuance are

recorded and processed;

2. To ensure that all financing transactions are properly valued and classified and

appropriately posted in their transaction and master files;

3. To ensure that dividends recorded are declared;

4. To ensure that accruing interest from borrowings are properly recognized;

5. To ensure that all borrowings and equity issuance are properly presented and fully

disclosed in accordance to law and standards;

6. To ensure that transactions are fully disclosed and properly presented in accordance

to law and accounting standards;

7. To ensure that incompatible duties of authorization, custody, and recording are

properly segregated.

Control Activities

General Controls

Segregation of Duties

 Authorization is made by the Board of Directors, processing of the loan is done by

the Finance Manager, recording of the transaction is done by the Controller, and

the custody of cash received from the loan is by the Treasurer.

Authorization, Approval and Verification

 Only borrowings and dividend declarations with resolution of 2/3 of the Board are

processed;
Section: Financing Subsystem Subsection No: 070-02
Subsection: Internal Control Page 2 of 3

 Only Request for Additional Financing reviewed and endorsed by the General

Manager are processed and submitted to the Board for resolution;

 Only approved and verified Requests for Payment are processed by the system.

Documentation

 Rules, regulations, policies, and operating procedures are documented to guide

system users;

 System generated reports and documents are pre-numbered;

 Approvals are encoded but endorsements and resolutions of the BOD are

obtained to document that proper authorization was sought.

Reconciliation

 Treasurer reconciles proceeds from loan with Loan Contract and Bank Notification

before update of Cash Receipts Transaction File and Cash and Cash Equivalents

Master File is initiated;

 Controller reviews supporting documents with recorded liability recognized and

recorded.

Access Control

 Unique user ID and password is required upon log-in to prevent unauthorized

access;

 Log-in requests are compared with the system’s database that has an access

control list integrated into its employee master file allowing employees to access

part of the system he/she is only authorized to have access to.

Compliance Review
Section: Financing Subsystem Subsection No: 070-02
Subsection: Internal Control Page 3 of 3

 Audit Committee composed of non-executive Board of Committee review

periodic reports submitted by the management for compliance to company-

imposed rules, industry and accounting standards of reporting and disclosure.

Application Controls

Input Controls

 Missing data checks disables the system to proceed processing transactions with

fields left blank;

 The system performs numeric-alphabetic data checks on inputs to ensure

processing of correct form of data;

 System performs authorization tests for financing transactions. Authentication

code from approval authorities must be encoded for processing to continue.

Processing Controls

 System performs posting and several reconciliations as part of run-to-run control

of data processing and operator intervention control.

Output Controls

 Supporting documents such as board resolutions are chronologically filed;

 Listings of access and report printing initiation are produced to provide audit trail

for review and check compliance to confidentiality;

 Reports and documents that have passed their storage life are appropriately

disposed.