Fiscally Ready Communities Best Practices
Internal Controls Policy Guide

The Fiscally Ready Communities Internal Controls Policy Guide supplements the local government’s process of establishing internal controls. Internal control policies are written guidelines, allowances, and restrictions that aid in ensuring efficient and effective operation of a local government. It is the responsibility of appropriate elected officials to ensure that the managers who report to them fulfill their responsibilities in implementing and maintaining a sound and comprehensive framework of internal control (Government Finance Officers Association, 2008).

Internal Controls protect resources against waste, misappropriation, and inefficiency.  Additionally, internal controls enable a local government to sustain and improve their performance by adapting to changing environments, mitigate risk to acceptable levels, and support sound decision making. Moreover, internal controls ensure accuracy, timeliness, and reliability in accounting and operating data.

Fiscally Ready Communities recommended policies

Every local unit of government should evaluate the cost versus benefit of adhering to the polices listed below. At a minimum, it is recommended to have the following policy:

• Attempt to segregate duties of custody via segregation policies (Department of Treasury, 2007).

Fiscally Ready Communities required policies

At a minimum, the internal control policies shall include the following:

• A policy about the job descriptions of all key personnel.
  • For example, the treasurer must do the following:
    • Maintain control of all bank accounts.
    • Keep track of the total cash and investments allocable to each fund.
    • Reconcile these amounts to each month’s bank statements in a timely manner.
• A policy that states who is authorized to approve transactions (Department of Treasury, 2007).
  • This includes ensuring transactions are authorized by a person with delegated approval authority.
  • Transactions shall require two signatures on each check, which designates approval for disbursement of funds (Department of Treasury, 2007).
    • The signatures should be the treasurer and clerk or their deputies.
      • If the treasurer and clerk are the same person, then the controller or finance director should be the second signature.
      • If the treasurer, clerk, and finance director are the same person than the CEO or Manager should be the second signature.
    • Some municipalities may also be required to have two signatures on each check by charter.
• A policy that forbids signing blank checks (Department of Treasury, 2007).
• A policy that outlines the appropriate documentation that must be attached to support invoices and disbursements (Department of Treasury, 2007).
  • Original bills should be used for documentation when applicable.
  • It is important to have a separate staff member be responsible for the recordkeeping of transactions.
• The governing body should approve all internal control policies and disbursements (Department of Treasury, 2007).
• A policy that ensures checks are not returned to the originating office for distribution (Department of Treasury, 2007).
• The local unit of government shall review the Department of Treasury’s Accounting Procedures Manual.
  • Public Act 2 of 1968, as amended, requires each local unit to adhere to the Department of Treasury’s Accounting Procedures Manual.

Samples of Internal Control policies can be found on GFOA’s website.

Internal Controls Policy Review Table

Please use the table below to consider whether your internal controls policies needs an overhaul or refresh. This document has been built so you can track where you are in the process.