The internal control that pervades the operations of an organization is one of its most essential duties. Among other things, internal control protects the integrity of the organization’s records, finances, and operations. It also helps to ensure that all employees are working toward a common end goal. Wrongful termination or reduction in benefits results in significant negative externalities. In such situations, an effective mechanism for managing these effects is exercise of internal control. In this article, we will discuss three ways that internal control can be improved within an accounting firm: (1) Implementing controls more strictly; (2) Improving auditing practices and standards; and (3) Implementing risk management measures to protect company resources from potential conflicts of interest. We encourage you to read on to the end to discover how implementing controls can improve your firm’s internal control performance and increase public confidence in its work. This article is not intended as a detailed guide on how to implement controls effectively in your business—rather, it is a list of excellent examples that show you what can easily be implemented to improve accountability and strengthen customer service.
What is Internal Control in the Accounting Environment?
Internal control is the internal control that pervades an organization’s operation—i.e., the internal control that protects the assets and the liabilities of the organization. When an organization fails to internalize its responsibility for its finances, operations, and records, it invites significant externalities. The failure to internalize internal control can lead to the following externalities: – Bad financial outcomes; – Bad customer service outcomes; – Bad employee outcomes; and – Bad reputation for the organization for a variety of reasons.
Implementing Controls More strictly
One of the most effective ways to strengthen internal control is by severely limited, but consistent, oversight. This means limiting the number of employees who have access to the same data (including data from outside contractors and third parties). This will help to prevent employees from accidentally or fraudulently accessing information that they shouldn’t.
Improving Auditing Practices and Standards
Audit procedures should be rigorous, reliable, and easy to use. Moreover, auditing standards should be well established and should be reflected in the way that audits are conducted. This will help to ensure that internal control is being effectively implemented and that any potential conflicts of interest are being minimized.
Protecting Company Resources from Potential Conflicts of Interest
It is critical that companies recognize the potential risks of significant externalities and take steps to minimize them. One way to do this is by implementing internal control mechanisms. As we’ve discussed, these can include controls on payments, hours worked, and the amount raised for campaign contributions. With the potential for potential conflicts of interest, this is likely to increase.
Conclusion
Internal control is an essential function for any organization that is engaged in the business of accounting. It is therefore crucial that organizations fulfill their responsibility to oversee internal controls and implement controls to mitigate potential externalities. This can be done by creating internal controls that give employees a level of independence and protection from potential externalities. Internal control plays an important role in any organization’s financial reporting and is therefore critically important. However, when an organization fails to internalize its responsibility for financial control, it invites significant externalities and is likely to lose customers, clients, and shareholders. The sooner an organization is able to internalize its role in financial reporting and take steps to mitigate potential conflicts of interest, the better.
