INTERNAL CONTROL MANUAL FOR STOCKBROKING FIRMS

INTRODUCTION.

Internal control is defined as the whole system of controls, financial or otherwise, established by the management in order to carry on the business of the organization in an orderly and efficient manner, ensure adherence to management’s policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

The main aims and objectives of a documented control process manuals is to prevent fraud from occurring right from initiation and would save the company management a whole lot of resources in trying to detect and/ or effect corrective actions which normally cost a sizeable fortune.

We wish to emphasize also that the company management should not under any circumstances override laid down controls because it will undermine and make nonsense the whole essence of control procedure.

In a capital market oriented organization such as yours and with the division of functional units as follows:

1. Finance, Accounts and Administration.2. Stock broking

3. Capital Market4. Marketing5. Branch Operation6. Internal Audit

We have recommended a well fashioned internal control process for each of the functions of these functional units.

Moreover, these recommendations have been classified into two namely general and specific recommendations.

We hereby recommend that all officers of the company be acquainted with this manual to remove all bottlenecks encountered during the performance of their work and place the company in good stead.

This could be done through the convening of a mini Management retreat that will involve all staff.

GENERAL RECOMMENDATIONS.

Each unit should be headed by fully qualified professionals with requisite experience.

The Internal Audit/ Control unit should be strengthened with at least one more staff.

The Internal Control unit should be given free hand and necessary moral support to carry out its oversight functions.

The Internal Control unit should send a control staff to audit branches at intervals of three months.

All visitors must sign the movement register at the reception indicating clearly officer being sought for.

The company filling system should be centralized. All transaction files should be kept in securely locked

cabinets and controlled by the Internal Audit department. Access to these files should be signed for on collection and

inspected when returning by control. All incoming mails must pass through the office of the

Managing Director’s Secretary. All incoming mails must be serially recorded in a register

meant for such purpose daily.

Such mails must be passed to the Managing Director within 24 hours of receipt.

The Managing Director would in turn minutes on the mails to the relevant in house officer for prompt actions.

The Managing Director’s Secretary must ensure that all minuted mails get to the relevant officer within 24 hours.

All visitors to the Managing Director must fill the visitor form at the reception.

The receptionist must pass properly completed forms to the Managing director’s Secretary at intervals of 5 minutes.

The Managing Director’s Secretary should in turn pass the visitors’ forms to the MD also at interval of 5 minutes.

All company visitors and clients should not be kept more than 30 minutes in the company premises.

All MD’s incoming calls through the company land line should be screened by the Secretary before been passed to the MD.

The MD’s office should be securely locked whenever he is not in the company premises.

The MD’s Secretary should monitor movement to / fro MD office during work hours.

SPECIFIC RECOMMENDATIONS.

1. FINANCE , ACCOUNTs AND ADMIN

CASH AND CHEQUE SYSTEM.

A. All cash and cheques must be recorded and properly accounted for.

B. Receipt must be issued for all cash and cheque collection.

C. Cash and cheques received should be banked with minimum delay.

D. All unbanked cash and cheques due to late receipt must be kept in a safe, securely locked in the company premises.

E. There should be weekly reconciliation of bank accounts, which must be signed by the head of finance and passed to the Internal Control Department for scrutiny.

F. Internet banking facility should be subscribed for all bank accounts to verify all cheque lodgments.

G. All vouchers must be verified by the Internal Audit Department before being keyed in to the system.

H. All transaction vouchers must be validated and keyed in to the system within 48 hours of conclusion of transaction.

I. An approved voucher, passed by the Internal Control Department, must support all cheque payments.

J. All cash and cheques payment vouchers must be stamped ‘PAID’. Evidence of which must be shown to the Internal Control Department.

K. Cash payments can be made up to N50, 000=but anything higher must be paid by cheque.

L. All company’s payments should be centralized.

M. Cheque payments of N250, 000 and above should be accompanied by confirmation letter.

N. On no accounts must cash received be spent before being banked.

O. Payments above N 10,000=must secure the prior approval of the Group Managing Director.

P. Petty cash float should be handled by an account officer and controlled by the Head of Finance.

Q. All payment and receipt vouchers must be properly filled serially, updated and passed to the Internal Audit Department weekly to confirm compliance.

R. All I.O.U’s must be approved by the Head of Finance.

S. All security documents such as cheque books, payment vouchers e.t.c must be kept in safe custody.

PAYROLL SYSTEM.

A. Detailed list of staff must be maintained in a register by the admin department.

B. The register must be updated periodically as the need may arise to cater for retiring and new employees.

C. All staff should open salary accounts with one of the company’s bankers.

D.On no account should salaries or wages be paid by cash except on a special circumstance(s) and must be authorized by the Head of Finance.

E. Monthly payroll should be prepared by the admin department.

F. The monthly payroll should be prepared using a customized payroll software system, unless the existing accounting software has facility for such.

G.The payroll should be crossed checked by the Internal Control Department.

H.The cross checked payroll should be countersigned by the Head of Finance and Accounts before being passed to the Managing Director for final approval.

I. Hard copies of the monthly payroll must be maintained and kept by the Internal Control Department.

PURCHASE SYSTEM.

A. All order forms must be authorized and approved before purchases are made.

B. The goods inward must be properly examined by responsible officers for quality, quantity, condition and terms of supply.

C. The goods received notes must be completed, evidence of which must be showed to the internal control department before filling.

D.There should be comparison of goods received notes with purchase orders for correctness.

E. There should be regular reconciliation of suppliers accounts with purchases ledger.

F. Statement of suppliers’ reconciliation should be scrutinized at intervals by the control department.

G.Goods received must be put into store recognized for such purpose and must be entered into the stock record.

H.The store officer and another senior officer must sign for all receipts and issuance out of store.

I. All payment vouchers must be accompanied by purchase order, supplier invoice and goods received notes.

J. All payment for purchases must be cross checked and passed by the internal control department.

THE INVESTMENTS SYSTEM

A. Acquisition of all forms of investments must be Authorized and approved by relevant persons.

B. Disposal of investments must go through the same process

C. Disposal of investments must be done at the right Value i.e, if not, close to the market value.

D.On no Account should the company investment be pledged as security without relevant authorization and approval.

E. The share certificate; property deeds and other documents of title must be kept safe custody and in the company name.

F. The head of Finance should maintain a detailed investment register.

G.There should be quarterly review of t he investment registrar by the Internal Control Department for accuracy and validity

H.There should be comparison of contract notes with purchase /sales instructions

I. There should be proper accounting for bonus and right issues, capital repayments and dividends.

J. A monthly schedule of investments should be submitted to the Internal Control Department to monitor movements.

K. There should be a periodic review of investments to adjust for any diminution in value.

FIXED ASSESTS SYSTEM.

A. Purchase of fixed assets must be authorized and approved by responsible officers.

B. All fixed assets purchase must be accompanied by sufficient supporting documents to solidify ownershipSales, scrapping and transfer of fixed assets must pass through the authorized and approval process.

C. Proper books of accounting records must be maintained for the organization fixed assets.

D.The Administrative dept should take custody of the company fixed assets.

E. The Head of Admin should take inventories of company fixed assets monthly and pass the result to the Internal Control Department.

F. All company’s utility bills should be promptly settled to avoid operation disruptions.

G.“On no account should the company fixed assets be put into un-authorized usage.

H.Correct amounts of depreciation should be charged on fixed assets.

I. Income producing assets should be properly monitored and accounted for by the Head of Finance.

J. Write down on the value of any assets should be justified, authorized and approved by the relevant officers.

K. Access to fixed assets should be by authorized officers.

MANAGEMENT ACCOUNTS.

A. Source documents must be prepared for all accounting transactions.

B. The source documents must be cross checked by a responsible officer.

C. All source documents must be validated by the internal control department before being keyed in to the system.

D. All bank accounts must be properly reconciled at the end of each month.

E. All clients’ accounts must be updated at the end of each transaction and properly reconciled.

F. Monthly financials must be prepared on or before the 10th day of the following month.

G. Relevant schedules must be prepared along the monthly financial reports.

H. The Head of Accounts must sign off on the monthly financial reports.

I. Financial reports must be checked by the internal control department for scrutiny before being passed to The Managing Director.

J. All actions stated above must be concluded latest on the 15th day of the following month.

STATUTORY RETURNS TO GOVT AGENCIES.

A. Correct amount of P.A.Y.E should be deducted from employees’ monthly pay.

B. Deducted P.A.Y.E must be remitted to the Jurisdiction of the relevant State Internal Revenue Service on or before the 10th day of the following month of payment of salaries and wages.

C. P.A.Y.E computations must be crosschecked and passed by the Internal Control Department before remittance.

D. Yearly statutory returns to the relevant State Internal Revenue Service should be made on or before the 30th day of the first month of the New Year.

E. All other statutory returns to Government agencies and regulatory authorities should be done at most two days earlier to deadline.

2. STOCK BROKING.

ACCOUNT OPENING.

A. All prospective clients must fill CSCS and stock broking account opening forms.

B. The prospective clients must provide as much as possible all information required on the account opening forms.

C. All completed account opening forms must be screened and cleared by the internal control department before submission to CSCS.

D. All cleared prospective accounts must be submitted to the CSCS within 48 hours of clearance by the control department.

E. The officer in charge must do necessary follow up and get the new account details within 48 hours of submission to CSCS.

F. The responsible officer must perfect the in house entry details of the new accounts within 24 hours of collection from the CSCS.

SHARE CERTIFICATE PROCESSING.

A. All share certificate collected must be scripted and the script receipt given to the client on the spot.

B. The certificate verification fees must accompany all share certificates.

C. Cash receipt must be issued for all cash collected from clients for share verification.

D. Detailed register of share certificates received from clients must be kept and updated daily.

E. A weekly schedule of script and cash receipt should be prepared by a responsible officer and submitted to the internal control department for scrutiny.

F. Certificate Deposit Form (CDF) must be prepared and signed for all daily collection of share certificate within 24 hours of collection.

G. Share certificates collection from branches must be given same attention as that of the head office.

H. Branches clients share certificate must be serially processed branch by branch and separate schedules prepared for each branches

I. The Head of Stock broking must cross check all completed CDF.

J. All processed CDF must be submitted to the Registrar within 48 hours.

K. Follow up visits and fact finding missions should be done every fortnight on the submitted share certificates.

L. Information dissemination software should be procured to send message to clients, including branches clients.

M. Clients must be notified on any issues on their share certificates within 24 hours of the receipt of such information from the Registrar.

N.Any share certificates irregulars that concerns branch should be directed to such branch heads within 48 hours of receipt of such information from the Registrar.

BUY / SELL OF EXISTING SHARES.

A. All clients buy and sell mandates must be properly documented.

B. Clients buy instructions must be passed to the Finance and Accounts Department to indicate the credit balance on the clients accounts.

C. The clients stock broking account number must be indicated clearly on the purchase mandate form.

D.The internal control department must cross check the details above before being passed to higher authority for final approval.

E. All completed purchase mandates must be carried out within 24 hours of completion.

F. A daily schedule of completed and approved purchase mandates must be prepared before commencement of trading.

G.Such schedules must be initialed by the preparer, checked by the head of stock broking and passed to the internal control department before submission to approving authority.

H.On no accounts should shares be bought over and above the credit balance on clients account.

I. All clients’ sale mandates must be cross-checked in the CSCS for availability.

J. A daily schedule of confirmed sale mandates must be prepared before commencement of trading.

K. Such schedules must be initialed by the preparer, checked by the head of stock broking and passed to the Internal Control Department for further check before submission to approving authority.

L. All confirmed sales mandates must be jobbed and carried out within 24 hours.

M. Cheques for sales of shares must be given to clients if requested within the time limit permitted by the rules of Regulatory Authorities.

N.Other clients’ instructions other than issuance of cheque must be carried out within 48 hours of sales of shares.

O.Monthly accounts and stock position should be given to clients if requested for.

P. Such statements must be cross checked by a senior officer before forwarding to clients.

Q.The internal control department should carry out monthly sampling checks on clients’ accounts for accuracy and completeness.

R. Branches buy and sell instructions must be given utmost attention as that of head office.

PUBLIC OFFERS/ PRIVATE PLACEMENTS

A. All completed offer forms must be serially and alphabetically collated.

B. A detailed schedule of all applicants must be prepared within one week of official closure of all offers.

C. A bank account should be dedicated for all public offers.D. Applications must be keyed into the system immediately

they are received.E. There should be proper applicant by applicant

reconciliation of monies received for all offers.F. The total value of units applied for must equal the credit

balance in the bank account for all offers.

G. Applications from branches must be incorporated into the head office schedule using the same template.

H. Application from branches must be received 2 days after the official closure for all offers.

I. The internal control department must ensure that detailed checks are carried out on all primary market transactions’.

J. The finance and accounts department must ensure that the company has value for all payment instruments other than cash before remittance of offer proceeds to receiving agents.

K. The offer proceeds and applicants details should be remitted to receiving agents a day before deadline.

OTHER SUNDRY ACTIVITIES.

A. Returns to regulatory authorities should not be delayed under any guise.

B. Such returns must be submitted by a responsible officer and must be properly acknowledged by recipients.

C. A well arranged and separate register must be maintained for each regulatory authority.

D. A responsible officer should be dedicated towards clients’ complaints from both head office and branch offices.

E. Clients’ complaints must be given prompt attention by dedicated officer.

F. All clients’ complaints must be addressed and resolved within 3 days of receipt of such complaints.

G. All branches complaints must be treated the same as that of the head office.

H. Branches complaints must be addressed and resolved within 5 working days.

3. CAPITAL MARKET.

PORTFOLIO MANAGEMENTS.

A. Prospective clients’ must pass through the company’s account opening procedures.

B. The management should expressly set out the minimum amounts accepted by the organization.

C. The minimum tenor should be for six months with option of rollover as the case may be.

D. A written agreement must be signed and sealed by both parties to the transaction.

E. The relevant in house section(s) must be carried along with the transaction.

F. The funds must be invested within 24 hours of completion of the above procedures.

G. Periodic statements of accounts should be rendered to portfolio management clients’.

LOANS—TERM AND MARGIN LOANS.

A. All loan requests must be made by written application.B. Loans application received must be recorded in a register

dedicated for such purpose.C. Adequate physical and verifiable collateral must be made

available by borrower before disbursement of loans other than share purchase loans.

D. The risk analysis of all loans must be carried out by the relevant in house department before approval.

E. The control department must clear all applications before approval by the approving authority.

F. Loan applicants must provide at least a guarantor in addition to collateral before disbursement.

G. The value of collateral must be at least 20% higher than the loan amounts i.e. 120%.

H. Joint custodian accounts should be opened with the CSCS for all Margin trading facilities.

I. A responsible officer should be a joint signatory together with margin trading clients to the custodian accounts.

J. Intending clients for margin trading should be required to open with at least N1, 000,000 in cash or N1, 500,000 in stocks.

K. The company should provide a maximum of 200% as additional contribution or as the Management deem fit.

L. Margin trading stocks should be systematically spread across sectors.

M. Applicants must sign and complete the offer letter and other documents before disbursement.

N.All loans should have a maximum tenor of one year including rollover.

O.Register of existing loans must be maintained and updated by a responsible officer.

P. Margin applications from branches should be forwarded to the head office with minimum delay.

Q.Processed branch margin trading should be handled as head office account.

R. Loans other than margin loan should require an equity contribution of at least 10%.

S. There should be a quarterly review of loans files by the Head of Internal control.

T. The rate of interest should be competitive while bearing in mind the opportunity cost of funds.

U.The head of units should brief clients on quarterly basis the state of their stocks.

V. Margin trading clients should be given at least 10 days notice when the facility is about to expire.

W. On no account should margin facility take more than 15% of the shareholder funds of the organization.

X. Accounting software to monitor all loans should be procured to enhance loan administration.

Y. The head of unit must send quarterly loans report to the control department and copy the Managing Director.

4. MARKETING.

A. All marketing staff should prepare a weekly call plan every Friday of the preceding week.

B. The weekly plan should indicate among others, daily clients to be visited, nature of business and volume expected.

C. Marketing staff should report back to the office after daily outings to process clients’ requests with minimum delay.

D. New clients’ account opening should be forwarded to the relevant in house department within 24 hours of collection.

E. The marketing department should carry out periodic review of clients’ service protocols and improve where necessary.

F. All marketing staff must ensure that their clients’ instructions are carried out by the relevant in house department.

G. The company should operate a target driven strategy for marketing staff.

H. Marketing staff with impressive performance should be encouraged with incentive e.g commission on target achieved.

I. There should be weekly tracking of marketing staff budget performance by the Internal Control Department.

5. BRANCH OPERATION.

A. Each branch should be headed by experienced and qualified personnel.

B. A well planned incentive schemes should be designed for branches.

C. There should be a documented code of conduct that clearly specifies the mode of operation for branches.

D. Branch operations must be uniform with that of the head office.

E. Head office and branch correspondences should be sent through one of the reliable courier service providers, taking into consideration the availability at branches.

F. Each branch must keep and maintain a detailed register of their clients’.

G. A quarterly database of branches clients should be sent to the head office.

H. There should be a periodic retreat and orientation for branch personnel to intimate them of any new changes in the company modus operandi.

I. The head office process manuals should be replicated in all branches.

J. Branches clients’ purchases and sales mandates must be electronically sent to the head office same day.

K. All branches client’s complaint that cannot be handled by branches must get to the head office within 24 hours.

L. There should be proper clients’ accounts reconciliation when the need arise.

M. Bank accounts maintained by branches should be monitored weekly by the heads of branches.

N.Monthly bank reconciliation statements should be sent to head office on or before the 10th day of the following month.

O.There should be a responsible officer in charge of branch operation in the head office.

P. The officer must ensure branches clients’ accounts are funded before purchases are made.

Q.The officer must ensure that branches cheques are dispatched with minimum delay.

R. Branches must send monthly return of activities to the designated officer in the head office on or before the 10th day of the following month.

S. A copy of the monthly report must be submitted to the Internal Control units for scrutiny.

T. A Control officer by rotation should pay visit to branches every quarter to verify monthly returns.

U.Head office designated officer must forward branch mails to the relevant in house department within 24 hours of the receipt of such mails.

V. Designated officer must pass the necessary feedback to the concerned branches within 72 hours of forwarding to the relevant in house department.

W. There should be a systematic succession plans for all staff branches.

X. All branches expense should be processed and paid by the head office.

Y. Branches should not under any circumstances spend out of clients’ money for branch expenses before being banked.

Z. Feedbacks on irregular certificates from branches must be dispatched to clients within 48 hours of receipt from head office.

AA.All branch staff should also open salary account as the head office staff.

5. INTERNAL AUDIT/ CONTROL.

A. The unit should be involved in the day to day running of the organization.

B. The Internal Control Department should report directly to the Managing Director and /or Board of Directors as applicable.

C. The unit must ensure that all officers adhere strictly by laid down control policies.

D. The units should carry out periodic review of general operating environment and recommend improvement where necessary to management.

E. The control unit must carry out random review of clients’ accounts at least every two months.

F. Other transaction processing files must be reviewed at random at least once a month by a control staff.

G. The head of department should carry out surprise investigation into any selected area of the company operation.

H. The head should also carry out audit investigation into any areas of activities at the prompt of the management from time to time.

I. The head of units must be involved in all investigation into past and present clients’ transaction investigation.

J. The units must ensure that all statutory returns are rendered as and when due.

K. The units must produce ad-hoc reports to Management on any exceptions noted in the course of the work.

L. A monthly/quarterly audit report should be prepared and discussed with management.