Importance Of Internal Controls In An Organization

Internal Controls are healthy business practices for protecting organizational performance level and optimizing its resources. Good business and financial internal controls policies make workers abide by the responsibilities for fulfilling financial operations. Internal Controls, in a nutshell, poke the conscience of the work force in the organization.

Every profit earning business is directed towards establishing and fulfilling specific goals and objectives, without which the survival of the business, in this cut throat competition, is almost not possible. To accomplish business goals and objectives, effective internal controls procedures at all different levels are extremely important. Different levels of organizational efficiency are dependent on the following components.

Control Environment

Control Environment means centralizing the efforts and policies of the decentralized work departments within the organization. A proper coordination within all the departments of the organization forms a localized control environment. This system forms the basis of all other components of the internal controls. There are multiple factors which the control environment of the organization focuses on. These factors include discipline, functional integrity, moral code of conduct, competency level of the work force, management’s attitude towards workers and organization’s routines and working policies.

Risk Assessment

Internal Controls of the risk management is the prime essential component of any business organization. Since, risks and perils are inevitable factors of any flourishing business, enough emphasize is laid on controlling risk nowadays. Pre- assessment of upcoming risk, evolving sporadically as the organization strives towards its goals and objectives, is what risk control is all about. Internal controls of risk include evaluation of risk by the management based on the previous statistics and future markets.

Control Activities

Control Activities segregates a well established roles and responsibilities of the management work force. The rules of division of labor and allocation of resources apply in every business operation and the same goes here as well.
The Board of Directors oversee the internal control system within their respective sections. The managers and supervisors are in charge of proper execution of internal control policies. Finally executive assistants and administrative work force are the one to whom the control policies are defined. It is the duty of managers to make the administrative department aware of the control procedures and job responsibilities associated with it.

Information And Communication

The strategy and implications of different flow of communications – like upwards, downward, horizontal, vertical and diagonal – must be clear to every worker working in the organization. Today in the era of information technology cell phones, internet, conference media, and various modes of communication have made the communication more easy and effective. Along with effective internal communication, a proper communication with the external groups likes media, research and development, legal, customers, creditors etc. is also extremely important part of internal controls.

Monitoring

Monitoring and supervising organization’s internal controls are also extremely important. Monitoring the accounts and finance department is a recurrent process. The task includes internal auditing, addressing customers’ billing grievances, ascertaining the accuracy level of the transaction, and examining windowdressing of the balance sheet. Audit department generally is assigned monitoring task. In comparison to other internal controls components monitoring is considered more exhaustive as it watches the performance levels of other internal controls as well.

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