Controls help businesses improve their efficiency and performance. They allow managers to check on subordinates’ progress towards goal accomplishment, uncover deviations and indicate problems. Controls in Business.
Effective business controls also provide a safety net in the event of mistakes. They ensure that money or quality doesn’t slip through the cracks. They involve employees in the process and may boost morale.
Financial Policies
Financial policies affect the fundamental manner in which an entity initiates, records, processes, and reports transactions. Whether an entity uses manual procedures and paper documents (for example, individuals record sales orders on forms or journals, authorize credit, prepare shipping reports and invoices, and maintain accounts receivable records) or information systems that use automated procedures, the controls associated with these activities must be adequate to prevent and detect errors and safeguard assets from misappropriation.
These internal control procedures may include reviewing and reconciling transactions in accounting systems, safeguarding blank checks, cash, and credit card and debit account numbers, and requiring signed authorization for all disbursements. Despite the efforts of entities to establish and implement sound control procedures, they cannot eliminate all fraud risk. Custom, culture, and the corporate governance system may inhibit fraudulent behavior, but they are not absolute deterrents. Moreover, the design and operation of internal control can limit its effectiveness. This is especially true for automated controls.
Internal Audit
Internal audit is a critical process that confirms controls are in place and addresses any issues. It provides peace of mind to business owners and ensures compliance with regulatory benchmarks.
Internal control includes practices that limit the potential for fraud by establishing separation of duties between employees to reduce the opportunity for conflict of interest and by physically securing equipment, inventories and cash. It also establishes clear protocols and procedures for completing day-to-day tasks to reduce the risk of errors.
To be effective, a control system must have procedures that effectively communicate significant information upstream. This can include a chain of responsibility that allows the top levels of management to follow up on significant findings and communicate changes in priorities to employees. The COSO framework requires an internal audit function, which is a process that provides reasonable assurance that the entity’s operations are efficient, its financial disclosures are reliable and it meets regulatory compliance objectives.
Human Resources
Whether for morale, product quality or staying within budget, all businesses require effective controls. These may be preventive, detective or a combination of both. Typically, control management processes involve passwords, approval procedures and policies that regulate activities or prevent errors.
Among the most important business controls are those that govern people, known as human resources. Also called manpower, labor or personnel, this department is responsible for recruiting and training employees, addressing employee grievances and handling the employer-employee relationship. Its role includes establishing employee performance standards, resolving conflicts between employees and ensuring that the company stays within its established budget.
As a result, it requires more shrewd, wise long-range planning than any other business function. It can take years to change habits, attitudes, beliefs and values in a workforce. Good HR practices can help ensure that the right people are in place at the right time needs read more hear.
