It is clear that in recent years companies have given increasing attention to their internal controls, to prevent fraud and tampering in their processes, so what is internal control?
It is worth noting that, for organizations, the importance of internal controls is not only in its preventive character but also of their high effectiveness in support of business management at its various levels: strategic planning, execution and controlling processes and making critical decisions.
But after all, what is internal control correctly and what purpose does it serve?
Theoretical definition of what is internal control in organizations
As defined by the expert Francisco José de Araújo in his work ‘The structure of internal controls and the independence of internal audit’:
“Internal controls correspond with organizational plans and the coordinated set of methods and measures adopted for a particular company to safeguard its assets, check accuracy and reliability of accounting data, promote operational efficiency and encourage adherence to guidelines laid down by management.”
Internal controls represent an important and essential source for providing information and support of the most critical decisions of managers, helping them to conduct business in achieving the intended goals.
Note that both the business management style and the way of managing internal communication are factors that, company to company, can cause a variation or another on the purpose and usefulness of internal controls.
But as a rule, organizations that invest heavily in information technology and therefore have highly computerized systems, have an advantage over the competition, because their internal controls allow them the rapid detection and correction of flaws and imbalances in their various processes, which means a huge competitive advantage.
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See also a step by step guide on how to conduct a Swot analysis.
Main objectives of internal controls
Based on the theoretical concept, one can say that the main scopes of a structured internal control system are:
- To promote reliability and impartiality in the production of financial reports.
- To provide timely and easily accessible information, enabling the efficient and effective conduct of business processes.
- To ensure the compliance of internal processes and actions in general of the objectives of strategic planning, avoiding guideline deviations.
- To safeguard the company’s assets, support risk management and minimize any financial losses from mismanagement.
See: What is Total quality control?
Elementary assumptions of internal control implementation
- Allocation and clear documentation of the obligations of each employee of the company, so that in the possible case of irregularity, the appropriate person responsible can be charged.
- Standardization and documentation of standards, procedures, and internal routines.
- Roles and responsibilities related to the execution of critical processes must be well targeted and managed as a team, so no overload compromises efficiency.
- Cost-benefit analysis and prioritization of certain internal controls, so that resources consumed by running them are no larger than the gains.
After discovering the answer to what is internal control, check out how using BPM software can dramatically improve your business processes.