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Internal Control
The Importance of Internal Control Programs
An effective internal control program in an organization ensures the efficiency of its operations and helps a business to attain its objectives by minimizing the chances of violation of rules and regulations by the employees. It safeguards the organization's assets and promotes the reliability of the accounting and financial information. Failure to implement an effective internal control program results in a corporate culture in which employee theft and fraud and financial misreporting thrives. The importance of having an effective 'internal control program' is reflected in a 2002 Report which estimates a loss of $600 billion in 2001, or about $4,500 per employee, as a result of on-the-job fraud in the United States. (Quoted by Gibson and Thomas, 2003)
Effective Internal Control Techniques
The commitment of the senior management towards an effective Internal Control Program is crucial for its...
The management must look at internal control with a positive attitude, i.e., as a tool that would help the organization in achieving its goals, rather than as an onerous responsibility that has to be fulfilled just to meet the regulatory requirements. (Locatelli, 2002) The attitude of the top management in an organization towards internal control filters down to the employees and helps to create the appropriate company culture in which the internal control policies and procedures are given due importance.
All internal control systems and programs must consist of a written set of policies and procedures. Periodic review of the internal control system by the management is necessary to ensure its effectiveness. An effective internal control system design relies on separating the duties of individuals responsible for decision-making, custody of assets, and accounting. In such a system of checks-and-balances, a decision-maker who authorizes transactions does not have custody…
The high profile bankruptcies and management fraud in recent years at Enron and WorldCom and a host of other companies highlight the relationship between ethics and internal controls. For example, the main cause of the Enron collapse was the deliberate disregard of a code of ethics by the company's top management. When the Enron board of directors waived the company's own conflict of interest policy to allow its CFO to invest in the company's special purpose entities (SPE), it sent the wrong signals to many people in the organization. In the resulting corporate culture, adherence to ethical business practices took a back seat resulting in the mayhem that followed. The management's commitment to strict a code of ethics is, therefore, crucial to the effectiveness of the internal control system in any organization. (Locatelli, 2002)
Importance of the Sarbanes-Oxley Act
The enactment into law of the Sarbanes-Oxley Act in July, 2002 is believed to be the most significant accounting legislation since 1933. The Act contains several provisions that are aimed at strengthening internal control. For example, it provides for much longer jail terms for frauds and white collar crimes than before and makes the chief executive officers (CEOs) and chief financial officers (CFOs) personally liable for signing false accounts and financial statements. It aims to prevent conflict of interest by making it illegal for auditors of a company to provide financial consultancy. The Act provides legal protection for 'whistle blowers' -- a provision
Internal Control In the United States, all corporations planning to go public have to maintain an adequate internal control system. LJB is a small company that does local distribution and wants to go public. The president has decided to get an independent audit firm to carry out the assessment while identifying its areas of weakness. In case failure is reported by this audit firm, it could be fined or the officers
Internal Controls Organizations have the responsibility of accounting for all of their financial and operational data in an effective and efficient manner that is in compliance with all regulations as well as industry practices. Having a set of internal controls in place can help streamline an operation which provides a level of efficiency as well as offers protections again various risks. The SEC has been in an increasingly important role and
Internal controls are "methods put in place by a company to ensure the integrity of financial and accounting information," and to protect the organization's assets from misappropriation by internal sources (Investopedia, 2013). Internal controls help to prevent fraud, but they also allow the company to have reliable data on all transactions, which can be used for any number of control purposes. Further, internal controls promote operational efficiency and they encourage adherence
Internal Controls Companies need to be aware of the varying influences that are acting upon their organization. One method of examining the current situation is to divide the perception into ideas and influences that are arriving from the external environment and those that are internally controlled. Internal controls are important because they rely on leadership, courage and skill for these actions to take hold. The purpose of this essay is to
Defining internal control techniques usually need ethics as base reference. This is because the condition of employees must always be considered, whether an internal control will positively or negatively affect the people within an organization. Thus, when establishing an internal control program, the "good for all" must always be the objective. While internal control techniques define what is good for an organization, the employees who comprise an organization must therefore
As, they will quietly establish different security procedures and tools (i.e. surveillance cameras) to determine what kind of actions staff members are engaging in. This will help EP, to see where are: the biggest weaknesses inside the organization. At which point, they can begin to identify which employees are contributing to the problem. This is important, because one of the biggest issues facing EP is: not having any idea