Justifications for an Internal Control System

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Introduction

The current development in the business industry has called for need by organizations to have superior methods of detecting and managing risks. This is to ensure that the business is continuously in operation to overcome the chances of losing customers due to diminished customer loyalty. Every business organization; regardless of whether it offers goods or services is subjected to numerous risks. Some of the factors that lead to these risks include market environment, sources of finance for the business, how the business uses its resources as well as the nature of goods or services it offers (Editorial Today, 2009, para. 1-5). There is a high need for a business to ensure that it effectively manages and coordinates all operations and resources within its disposal to ensure that it maximizes its profit. It is with this respect that this easy wish to highlight some of the benefits a business may accrue through using an internal control system in managing its resources and operations.

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Importance of internal control systems

Internal control system entails pooling together the organization’s regulations, resources, and activities as well as employees’ commitment to helping in attaining organizational goals. The main objective of establishing an internal control system in a business organization is to help in establishing cost-effective operations that are aligned with organizational goals. Internal control systems help an organization ensure that it effectively uses all its resources (Grover, 2006, para. 2-5). With other control systems, there are cases of resources mismanagement or even fraud within organizations. However, internal control system helps an organization account for how each of its resources is utilized. The system ensures that staffs work according to the established guidelines within the organization hence eliminating the chances of staff misusing the organization’s resources.

An organization using internal control system in managing its operations ad resources comes up with consistent data on how organization finance is to be utilized as well as other management information. This ensures that an organization is capable of availing funds for specific projects on time t5hus eliminating cases of delays in operations. Through the system, an organization improves its efficiency as all operations are planned for before their implementation. The internal control system also helps an organization in overseeing operations and coming up with mechanisms of solving problems whenever identified during daily operations. Employee performance is effectively reviewed through the system thus ensuring that they always use organizations’ resources based on the purpose they are intended for as well as ensuring that there is security for the organization’s assets (Jaegel, 2007, para. 3-7). Another way in which organization efficiency is improved through the use of internal control system is through duties segregation. Every staff is assigned to specific tasks thus ensuring that all activities within an organization run concurrently.

One of how an organization incurs expenses is through frauds caused by staff. Numerous resources are used by staff within organizations without being accounted for. Internal control system cuts down on the rate of fraud within an organization. This is because records of all transactions conducted within an organization are maintained. As a result, it is possible to identify whether all funds and other assets within an organization were effectively utilized when an organization conducts an internal audit. Consequently, the system guarantees that staffs shun away from fraudulent activities within the organization as they fear being caught. In return, the internal control system would help an organization improve its profitability as most frauds that lower its profits are sealed off (Sam, 2008, para. 1-3).

The current insurance and portfolio approaches used by the organization help it identify risks in advance and come up with measures to counter these risks. They have ensured the reliability of the organization since it has never experienced interruptions in its normal operations. One of the problems that the current management approaches have not been able to cater for is duties allocation and ensuring the security of organizations’ resources. This underscores the need for an internal control system as it is capable of duties delegation and ensuring that organization’s assets are used as per their purpose (Shiraz, 2009, pp. 23-46). As internal control systems ensure that records are kept on how organization resources are used, it will discourage frauds that may not be detected by the current system of management.

Conclusion

With all the benefits accrued from using the internal control system, all organizations must ensure that they have come up with a system to manage their operations. Other management approaches may be effective in ensuring that staff always work as they are expected but may not be in a position to detect some of the irregularities and errors that may occur within an organization. As a result, an organization may be caught unawares by these irregularities leading to a lot of loss. Implementation of the internal control system may help an organization overcome such incidences. In addition, the system may help an organization ensure that it uses all its available resources in a cost-effective model. This may help in cutting down on operation costs of an organization thus raising its profit margin.

Reference List

Editorial Today. (2009). Importance of internal control. Web.

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Grover, N. (2006). The importance of internal control in entity protection. Web.

Jaegel, W. (2007). The importance of corporate internal control. Web.

Sam, P. (2008). Importance of internal control systems (ICS). Web.

Shiraz, N. (2009). Importance of internal control systems. International Journal of Government Auditing, 14(3), pp. 23-46.

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BusinessEssay. (2022) 'Justifications for an Internal Control System'. 23 February.

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BusinessEssay. 2022. "Justifications for an Internal Control System." February 23, 2022. https://business-essay.com/justifications-for-an-internal-control-system/.

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