Importance of Internal Control for growing companies
Maintaining the momentum is the key challenge for growing companies in todays’ dynamic business world. For most of successful companies “internal control” became the key to ensure continuous growth and steady revenue generation.
Internal control main five pillars are: Control environment, Risk assessment, Control activities, Information and communication, and Monitoring. Control environment usually involves an organization’s attitude about control. It steams out of the company’s values and vision. Risk assessment is identifying and analyzing the organization’s risks and vulnerable areas. Control activities represent the policies and procedures that help to ensure that the top management’s directives and strategies are being carried out. Information and communication involves identifying, capturing and exchanging information within the organization. Finally monitoring is the self-assessment that evaluates the effectiveness of controls over a certain period of time.
Internal control plays an integral role in ensuring reliable financial reporting, effective and efficient operations, detecting and preventing fraud and complying with applicable laws and regulations. system benefits are extended to setting policies and procedures designed to provide reasonable assurance to safeguard the company assets and ensure reliability of financial records. The size and complexity of the business transactions are the most important parameters to determine the extent of the internal control system.
Among the most common control activities are Segregation of duties which is separating authorization, custody, and record keeping roles to prevent fraud or error by one person. Authorization of transactions which is the review of particular transactions by an appropriate person. Retention of records which is maintaining documentation to substantiate transactions. Supervision or monitoring of operations. Physical safeguarding which is the usage of cameras, locks, physical barriers, access limitation,etc. to protect the company’s assets against theft, loss and damage. Top-level reviews which is analyzing actual results versus the organizational goals or plans on a periodic basis. IT general controls is becoming a vital part of the automated business environment Controls.
The IC is the buzz word for now day’s corporate world. Professionals should continuously strive to maintain an efficient and effective internal control environment.
Wael M. Wahba, CPA, MBA
Finance Manager at the Oil & Gas services industry