Internal Controls Companies Need to Be Aware

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 prepare a comprehensive checklist for evaluating controls. The essay will use Louwers et al. (2007) basic five tiered framework to create this checklist and ensure that it can indeed be used for practical and pragmatic purposes at the internal business strategic level.

The checklist is divided into 5 distinct sections: Control Environment, Risk Assessment, Control Activities, Information and Communication, and finally, Monitoring. Each component of this checklist plays an important role in ensuring that a company or organization is on the right track in controlling their internal environment.

Part 1: Control Environment

The first part of internally controlling an organization is to get a firm grip on the business' environment. This would include such things as the ethics, integrity, leadership philosophy and human resources plan . Knauss (2010) suggested that "whatever a management team can do to engender that trust with customers, with suppliers or with whichever constituency it's dealing with -- consistent with a set of values and principles that it just will not violate -- is only to its long-term benefit." Establishing core principles and following them provides a sense of honesty and consistency that customer, vendors and others certainly can appreciate and will draw them closer to the organization.

Structuring the organization in the right fashion must be done correctly as well or much energy and time may be wasted. It is important to evaluate the processes with an honest approach and keep the emotional temptations at bay. This preliminary step will ensure that the rest of the internal control checklist is in correct accordance with the objectives, goals and intentions of the leadership of the organization and can provide the ability to establish or maintain a competitive advantage within the chosen industry.

Part 2: Risk Assessment

Risk assessment and risk management are integral parts of any internal control checklist. Threats to the security and well-being of the institution all can be effectively managed with a health risk assessment. Culp (2013) agreed with this notion when wrote " Risk management can, in fact, add a level of discipline and transparency to the innovation process, while supporting desired risk culture and appetite. Marrying risk management and innovation can boost innovation efforts by creating confidence that innovation bets are well-placed and that innovation risks are well-managed." Risk assessment requires the leadership branch of the organization to effectively and efficiently prioritize the risks that are present internally within the company. These risks assessments should precisely align themselves with company objectives and goals and reflect the strategic output of the company.

Part 3: Control Activities

This part of the checklist requires the inquirer or inspector to investigate the policies and procedures that ultimately guide the company's operations. The operations are more or less the results of the planning and strategic portion of any company's makeup. The control activities is where the rubber meets the road in the internal workings of a company and need to be addressed as such. This checklist should include looking into standard operating procedures and ritual behaviors that are not explicitly written in any manual to get a fuller picture of what the operational content of the company.