Benefits Of The Internal Control System In Every Organization
Internal control, commonly referred as the management control is a tool to assess the working of the management towards its mission, vision and the goal. The Internal control system is overviewed by the department called the internal audit department that audits and checks whether the business runs smoothly with internal controls in place. They serve as the first line of defense in error, fraud, violation of any regulatory compliance, legal aspects and other factors that create a huge impact on the business.
The responsibilities of setting up a proper internal control always vest with the management. The internal control system is established based on the type of business transaction, business organization, organization structure, departments etc. Management must take this control seriously and review them periodically to eliminate any business loss. Below are the benefits of establishing a proper internal control system
1) Reduction of error/fraud: Having appropriate controls such as fraud detection software, the tool for reminding regulatory compliances, detecting accounting errors etc., eliminates the possibility of fraud and error in the business. Proper control ensures reliability and utmost legal compliance.
2) Improving business efficiencies: Periodical review and audit of controls enhance business efficiencies as there is less or no scope for fraud and error. Further, all the employees work consciously and carefully as the internal controls system detects the errors committed by them. If the error committed is substantial, it may be reported to the management and there are chances of losing a job. Hence, proper internal controls make every employee work efficiently without any intention to fraud the organization.
3) Increase in financial reliability: Period check of accounting transactions, records, assets decreases the scope of error and increases financial reliability. This also helps the statutory auditors to complete their audit easily and quickly.
4) Compliance with laws and statutory regulations: Internal control systems not only check the validity of accounting transactions and entries but also ensure whether the company is in compliance with relevant laws and statutory procedures. There are tools to help the organization in timely filing of forms, returns, statements with the regulatory authorities within the stipulated time. Thus, the internal control system helps the organization away from penalties or fines as it ensures timely compliances to all rules and regulations.
5) Monitoring procedures: Continuous check on the functionality of each department helps the management to evaluate if the existing controls are properly in place or if there is any need to amend or add further control systems to improve the efficiency. Monitoring the control system and implementing the action based on the result is the primary function of the internal audit department. Read here to know how top trading bots are monitored and controlled to execute the trade without any fraud and error.
Hope the above information gives an insight into the need for internal control and the privileges every company benefits when internal controls are in place.