BY CURTIS H. CADENHEAD, JR. Principal, Houston Office
Presented before branch accountants of the Southern Division of The Borden Company, Houston — July 1960
INTERNAL CONTROL is thought of most frequently as internal accounting
control, the subject of our discussion. However, contemporary thinking about internal control is considerably broader and extends beyond matters relating directly to accounting. It comprehends activities
in other fields as, for example, time and motion studies, which are of an engineering nature, and use of quality controls through a system of inspection or laboratory testing, which fundamentally is a production
A special report on internal control issued by the auditing procedures
committee of the then American Institute of Accountants defined internal control as comprising "the plan of organization and all of the co-ordinate methods and measures adopted within a business
to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence
to prescribed managerial policies."
SYSTEM OF INTERNAL CONTROL
Internal control is a tool that enables management to obtain reliable information, control, and reasonable protection against error, waste, and inefficiency. The increased significance of internal control
is attributable primarily to the increased size and complexity of business organizations. Corporate management is usually not able to be personally familiar with or to control all operations of a business,
but must rely on reports to keep informed about finances and operations. Most of this information comes from accounting records. The information must be adequate to supply answers to questions such as: What is the present inventory position by classes? How much is on order? Will it be necessary to borrow money to pay present obligations? How much will be required? The reliability of the information supplied can be reasonably assured through a satisfactory system of internal control.
Control is obtained through accounting and clerical procedures in various ways. Budgets, standards, and objective planning are good