or inconsistent application or circumvention of any procedures and controls that may be in place. This makes it particularly important for assessors to establish whether or not effective controls exist.
Evidence of the effectiveness of the internal control system could come from discussions with government financial controllers and other senior managers, or from reports prepared by the external and internal audit or the minutes of audit committee meetings (where such a committee exists). Minutes of management meetings and regular financial reports prepared for management may also be useful in establishing the extent to which nonsalary expenditure is controlled. Where specific reviews or surveys relating to procurement and accounting systems have been prepared at the request of management, these can provide a useful source of information as well.
The existence of procedure manuals, instructions, etc. should also be verified wherever possible. Routine and one-off accounting reports – e.g. reports of invoices paid and outstanding, reports of error and rejection rates for financial procedures such as invoice payments, inventory checks etc.—may also assist in rating this dimension, as may meetings held with managers and staff to demonstrate the level of awareness and understanding of internal control. Organizations in which employees understand what controls are and why they are needed are more likely to have better, more effective systems of internal control in place.
Repeated policy exceptions or overrides may indicate potential fraudulent activity or a need to reassess current policies and procedures. Any unusual situations identified should be investigated by the appropriate party and should include corrective action if necessary.
Dimension 25.1 assesses the existence of the segregation of duties, which is a fundamental element of internal control to prevent an employee or group of employees from being in a position both to perpetrate and to conceal errors or fraud in the normal course of their duties. The main incompatible responsibilities to be segregated are: (a) authorization; (b) recording; (c) custody of assets; and (d) reconciliation or audit.
Dimension 25.2 assesses the effectiveness of expenditure commitment controls. This process is singled out as a separate dimension of this indicator due the importance of such controls for ensuring that the government’s payment obligations remain within the limits of annual budget allocations (as revised) and within projected cash availability, thereby avoiding creation of expenditure arrears (refer to PI-22). Governments with comprehensive fiscal rules and access to well-developed debt markets may face no constraints in financing cash flow fluctuations and so may limit commitments only in relation to annual budget appropriations, whereas governments operating in different environments may need to issue commitment limits to spending agencies for much shorter periods, based on actual cash available and robust short term forecasts.
Dimension 25.3 assesses the extent of compliance with the payment control rules and procedures based on available evidence. To evaluate this dimension, the assessors should refer to the information management system, the Treasury Department records, or any other records of the MOF or line ministries. A sampling approach can be applied, using the five major budgetary units as measured by gross expenditure in the last completed fiscal year. If the data is not available or is decentralized, assessors could rely on internal or external audit reports or any other studies which could provide the best available estimates.
