Successful companies spend a great deal of time and effort to create, distribute and manage company information. Through stringent business and ethical practices, company leaders ensure that internal controls govern and define responsibilities. These business systems define the operating environment, risk-management strategies, policies and procedures, communication plans and performance monitoring. Without internal controls, a business operates inefficiently, in an unreliable manner and out of compliance with applicable laws and regulations.
Signs
The American Institute of Accountants first defined the concept of internal controls in 1949. Internal controls ensure that authorized transactions get executed, recorded, accessed and analyzed. When a company operates without an effective system of internal controls, employees complete job tasks in an environment without the assurance of personal safety. This leads to high rates of employee dissatisfaction, absenteeism and low rates of employee retention. Employers then spend unnecessary time and effort recruiting, interviewing, hiring and training new employees on a regular basis. The integrity of financial records and managerial reports tends to be questioned by business partners and stakeholders, such as investors. The company’s reputation suffers when it experiences non-compliance with laws, regulations and other requirements occurs and may even lead to legal action.
Symptoms
Customers notice when a company seems to be run without regard for internal controls. High rates of customer dissatisfaction, poor sales and lack of lucrative business partnerships reflect a company that lacks direction and focus. Waste, inefficient use of resources, poor management decisions, high rates of product errors, loss of records, carelessness and mistakes generally demonstrate poor business practices and ineffective management.
Results
Lack of internal controls typically results in the lack of ability to track performance against budgets, forecasts and schedules. Additionally, lack of attention to information security leads to privacy concerns. Unauthorized access to financial data and customer records, including sensitive information, results in security breaches and compromised accounts. Illegal transactions include theft or misappropriation of assets by employees, which may include falsification of records. Employees may also take bribes to conceal theft.
Remedies
By instituting a comprehensive set of policies and procedures, a company can mitigate the problems associated with past lack of internal control. Making each employee accountable for ethical behavior, high standards for business conduct and adherence to laws ensures that transactions occur in a reliable way. Ensuring that only trained, trustworthy, knowledgeable and competent personnel perform tasks prevents errors, irregularities and fraud. Internal control systems must be monitored and maintained. Independent audits ensure compliance with internal and government regulations.
Week 6: ReflectionJulie WilliamsInternal control procedures are important in every business. Companies use an internal controlsystem to monitor and control business activities and delegate responsibilities. Reflect on thisweek’s lecture and assignments. In your own words, answer the following:Explain at least one issue that an internal control procedure would prevent in a workplace.
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Asked by ConstableThunderSwan6 Explain at least one issue that an internal control procedures would prevent in a workplace.
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