The Internal Control System In A Business Organization

The Internal Control System In A Business Organization

Many organizations adopt an internal control system to ensure business efficiency. How does having an internal control system increase business efficiencies? Why is it necessary? Is it required for all business organization? Below are the answers to your questions.

Internal control system – a path to increase efficiency

Building an internal control system in an organization is not mandatory. However, in order to evaluate the business efficiency and get proper control over the business, every organization adopts an internal control system to overview the business operations. There are no fixed rules or procedures to adopt an internal control system. This is purely an organization’s requirement. The internal control system is built based on the type of business, the number of employees, business risk etc. This system ensures a proper check on the business operations and aids in the early deduction of fraud or business efficiencies thereby initiating necessary actions to rectify the fraud/error or take appropriate action to solve the inefficiencies. Therefore, an internal control system brings overall control over the business operation of the company and keeps management informed about the business progress and inefficiencies. Thus monitoring internal controls increases business efficiencies.

Why is it necessary?

When proper internal controls are not in place, there are high chances of error, fraud and business inefficiencies. Management will not be aware of these inefficiencies and fraud until the external reports to the management. By that time, it would be too late for the management to take action as the company would have already faced significant loss due to the fraud committed earlier. To ease this issue, every organization aims to set up an internal control department to periodically check the business operations, accounts, the control, employee actions, and so on. Proper controls in place and reviewing them at regular intervals reduces fraud and error in the company.

Is it required for all business organization?

Setting up an internal control system in an organization is purely a management decision. If your business is small or functioning with less number of employees and the business transaction is very minimal, the need for an internal control system is not required. However, it is a must for a larger organization. This is because there are high chances of committing mistakes when the transaction is huge in number. With an internal control system in place, periodical review of the performance aids in the early deduction of errors. Financial institutions, companies dealing with the trade, import/export, financial instruments are required to have an efficient control system as the chances of fraud are high in these organizations. Refer to this post if you are interested in trading and looking for some guidance in trading.