Every business, regardless of size, comes with its risk package, and for it to succeed, an internal control system must be set up to check or eliminate those risks.
The first sign of your business being overdue for internal control intervention is when you can’t take a break from it without the lingering fear of your staff running it down before your return. Consider this exchange between Nigerian billionaire Femi Otedola and a random Twitter, for instance:
Internal Control is a system adopted by a company to secure its finances, uphold its reputation, and protect it from strategic risks. Although internal control is essentially a security system — very much like the immune system — it also ensures the efficient operation of the company. Some of its key components include:
1, Control environment
Having a well-structured work environment is the first and most important step in setting up an internal control system. The scope of internal control, as earlier stated, is not limited to reliable financial reporting; it also seeks to sustain the company's integrity and ensure that employees comply with its set policies. But leadership, they say, must be by example. If the management upholds strong and transparent business policies, the employees would come to terms with its importance. Aside from possessing good business philosophies, a controlled work environment also includes a clear chain of command.
2. Risk assessment
Every business has its peculiar risks. It is, therefore, important that the management, after spelling out its objectives, proceeds to identify risks that could hinder its attainment. For instance, if an average African-based company decides to move its operations online, it must factor in power failure or hacking which could result in privacy breaches and data loss. Risks should be assessed regularly as the organisation changes — and these changes could be as minor as new staff or as major as moving the business to a new location.
3. Control activities
These are procedures by which companies ensure that risks are kept minimal. One of the most common and effective templates is the separation of duties. Another is ensuring that payments and purchases are approved by more than one department. These procedures create a multilayered security level and lessen the chances of collusion and fraud. Control activities also allow companies determine their approach to creating internal control. They can choose to adopt a preventive or detective system to forestall risks or correct them once they happen.
4. Information and Communication
Internal control allows for regular assessment of finances. The constant transfer of information between departments allows the management to shape the company to match its current situation. It also allows them to detect and rectify irregularities as soon as they occur.
5. Monitoring
After the system has been set and implemented, the management has to oversee the procedures to ascertain if the controls are working according to plan. If the controls are not operating effectively, then it is their responsibility to modify them.
An internal control system is usually considered the preserve of large organisations. However, despite the complexity of their internal control framework, smaller organisations can still find a good use for it.
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