Reduce risks and prevent fraud
All entities should implement an adequate Internal Control System, the most appropriate way of not exposing themselves to the risk of fraud; and of protecting and securing the assets and interests of the company. The Internal Control System is also an accurate mechanism for evaluating the efficiency of the company’s operation.
The control environment sets the pace for the company’s operation and increases employee awareness of the importance of control. It is the basis of all the components of an organization as it brings discipline and structure. Among others, these include key elements such as integrity, values, and the abilities and capabilities of the employees.
The best Internal Control System is one that does not harm the relations between the company and its clients. In addition, it encourages human dignity in the relations between the directors and their subordinates. A good Internal Control System can be applied in all operational areas. Its effectiveness will rely mostly on the key information that allows for the selection of the alternatives that best fit the interests of the entity.
What are control procedures?
Control procedures are those additional practices and policies that complement both the control environment and the accounting system established by management. These provide security and help achieve the specific objectives of the entity. However, their mere presence does not guarantee that they run efficiently.
Control activities are present and work for a company throughout all of its operations, on all levels and tasks. These include basic tasks such as approvals, authorizations, verifications, conciliations, analysis of the operational effectiveness, the safety of the assets, and segregation of tasks.
Control activities can be classified as follow:
- Preventive controls
- Detection controls
- Corrective controls
- Manual or user controls
- Computer or information technology controls
- Directives controls
Risk evaluation processes must be geared to the short and long term so that management can foresee what is to come and take measures to minimize or arrest their impact so as to transform them into opportunities.
What is the need for continuous supervision?
Internal control procedures are dynamic and change constantly. Thus, continuous supervision is imperative. This way management can assure that the process continues to work as planned even if the internal and external elements that were once suitable and effective are no longer adequate.
The reach and frequency of supervision activities rely on the risks to be controlled and the trust level that the control process generates.
The supervision of the internal control system can be made through activities to be added to the management processes. They can also be carried out through separate evaluations, internal audits, or by independent external entities. These supervision activities must prove that the internal controls are working effectively. They can include regular supervision activities, comparisons, conciliations, and other routine actions.
Therefore, we affirm that the implementation of an Internal Control System is essential for all companies, no matter their size, structure, or nature of operations. The design of the rules of internal control provides reasonable security that safeguards the effectiveness and efficiency of the operations. It creates trust in financial information and compliance with the laws and rulings that apply.
An administrative and accounting evaluation of all the tasks of the company is highly recommended. It is also essential that the staff accepts and participates in the process to achieve its goals.
All businesses must recognize the importance of defining policies, methods, and procedures to encourage actions that allow for the creation of the mechanisms needed for the prevention and early detection of fraud. The end result is continuous improvement in areas such as management and accounting and obtaining true and trustworthy information.
An Internal Control System can be the difference between the success or failure of any company.