Running a large business requires a large pool of resources and human skills. However, just investing in these assets don’t give the best results. Businesses must organize a reporting system in sync with IT systems and communication between the employees. More strong the systems, more positive impact on business finances. Setting up internal controls and its parameters allow businesses to structure its operations, monitor growth and reduce uncertainties.
The goal of internal control should be to improve operational efficiency, accountability, transparency, and regulatory compliances. It is important to keep the focus on these goals when assessing the organization’s internal controls.
Assess the Business Environment
A strong business environment places a strong foundation for strong internal control systems. Understanding the business objectives and how their role is instrumental in achieving the overall objective will help to synchronize the business activities. Getting the top management to clearly state the ethics and values of the organization would help in building effective internal controls. For example, for a company working toward lean manufacturing, workshop employees cannot have a casual attitude towards any wastage. Assess the employee’s credentials involved in performing controls. Assess the level of training and external support provided to the employees on how to comply with internal controls.
Investigate Control Measures
Internal control measures are effective if it easily translates into easily implemented policies and processes. Performance assessment, physical records, information collection and processing, the relevant KPIs and benchmark data and a detailed role description would help implement the internal control activities. Clear communication of KPIs and their benchmarks would help keep control on the business processes. The detailed job description would help bring clarity to the roles and help define the accessibility to organization data. The biggest risk is from an employee who has access to classified information and is capable to record the information on external devices. Performance assessment is one way of controlling business processes along with an evaluation of individual performances.
Assess the Accounting System
The accounting system plays a big part in accuracy and efficiency. Check the relevancy of the KPI, how the KPI data is recorded, who has access to these data, the process adopted for accounting and analytical methods applied to the data. Even the efficiency of the person handling the internal control data matters as it would define how easily the data is accessed and processed by the individual. Setup a verification process for data as wrong data make the wrong decision.
Constant Evaluation of Internal Controls
Is the management constantly monitoring the internal control measures? Are the internal control measures evolving with time? Setting up internal controls is a one-time task but constant monitoring and re-designing are required so that the internal controls are capable of capturing the data relevant with time. Monitoring an obsolete Internal Control would increase the risk associated with the business. For a technology-based business, data privacy internal controls are of high importance. Due to high technological advancement, in the case of non-evolution of internal controls, data security risk will increase. Constantly monitor and evolve your internal controls to provide with real-time scenario and growth of the business. Tools like VComply help businesses to manage their internal controls in an easy way so as to reduce any risk of losses.
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