Defining internal control.

• Author: Kinney, Anne Spray
• Position: From the editors

The corporate accounting scandals of the last several years exposed serious weaknesses in the internal control systems of some American companies. Congress responded by passing the Sarbanes-Oxley Act of 2002, which, among other things, requires auditors of publicly traded companies to give an opinion on the adequacy of internal controls. Companies have since spent millions of dollars to comply with the new regulations.

While Sarbanes-Oxley does not directly affect governments, the increased scrutiny of and renewed interest in internal control has spilled over to the public sector. Still, there is much confusion, even among government finance professionals, over the nature and purpose of internal control. This issue of Government Finance Review seeks to bring clarity to this important area.

Stephen Gauthier's article, "Understanding Internal Control," addresses head on the misunderstandings about internal control. He defines internal control as "the sum of the tools and techniques used by management to ensure that it achieves its objectives." This definition implies that internal control is the responsibility of management--a fact Gauthier confirms while emphasizing that the governing body retains ultimate responsibility. He goes on to describe the holistic approach to internal control envisioned by the Committee of Sponsoring Organizations.

An essential component of an internal control framework is the internal auditor. Here, too, there is much confusion, especially among top management. As Glen McKay explains in "Overcoming the Obstacles to an Effective Internal Audit Function," because management typically values the...