Internal controls are those policies and procedures which increase the accuracy and reliability of the company’s system. In the absence of controls, there would be no records. Without accurate accounting records in place, management do not have data to to take fully informed financial decisions. We have discussed the top 5 compliance issues faced by a business in a previous article. Good governance is a culmination of robust internal controls.
An entire system of internal control helps the organizations establish an environment which does not encourage corruptibility as well as fraudulent activities. Regular audits are conducted to calculate the risks arising out of lack of internal controls. Following are the basic features required for a robust internal control system :
Once the leaders encourage integrity through their actions, employees automatically follow them. It sets the overall value system of the organization. It can be continuously imbibed in the minds of the employee through written materials like handbooks and manuals. However, management should also follow the policies to ensure successful implementation of the policies and procedures.
An organization’s ability to recruit and retain competent personnel indicates management’s intent to properly record accounting transactions. In addition, the retention of employees increases the comparability of financial records from year to year. Furthermore, an auditor’s confidence in the underlying accounting records increases as he observes the reliability of the organization’s personnel. This in turn reduces an auditor’s assessment of the risk of a material misstatement in the entity’s financial statements.
Segregation of Duties
One can bifurcate a task into a series of small tasks by segregating it between various individuals. Segregation of duties is an internal control intended to prevent unwarranted fraud and error. It is important to have an effective SOD policy to ensure the efficiency of the relevant internal control. This reduces the risk of errors, mistakes and misappropriations. It helps the company separate various related functions to ensure that a single individual is not in charge of an important task.
Documentation is an important component of any internal control. Maintaining appropriate records enables management of records like storing, safeguarding and destroying tangible or electronic records. VComply is a tool on the cloud which lets you store unlimited data on the platform in an electronic mode. One can also seamlessly integrate various applications like Google Drive with the platform. A backup of all the data ensures there is no data loss in case of power failure or there are no employee creates fake transactions. It also acts a legal proof during litigation.
Many safeguards prevent unauthorized access of company assets. They can be physical e.g. locks or intangible e.g. – passwords and pins . Irrespective of the methods, they are an important feature of the company’s internal control plan. Documents such as blank checks, company letterhead and signature stamps are items that require safeguarding. One may commonly overlook this.
Thus, to ensure good governance and compliance, a company should have effective internal controls in place. To read more about Internal Control Standards, refer this link.Add to favorites