September 19, 2023, LinkedIn
By Sankaran Krishnan, Assistant Vice President- Delivery, Path Infotech
Internal control within an enterprise is a comprehensive system of policies and practices designed to safeguard assets, ensure the accuracy of financial reporting, promote operational efficiency, and facilitate compliance with laws and regulations. It is vital to corporate governance, providing a framework to manage risks, prevent fraud, and achieve organizational objectives.
Segregation of Duties Internal control involves dividing responsibilities to prevent a single individual from controlling all aspects of a process. This reduces the risk of fraud and errors.
Access Controls: Access controls restrict sensitive information and systems to authorized personnel only, protecting against data breaches and cyber threats.
Internal & External Audits: Regular audits and reconciliations identify discrepancies or anomalies early on, allowing for corrective action. This helps in maintaining financial accuracy and preventing long-term issues from going undetected.
Documentation & Record Keeping: Well-documented procedures provide guidance for employees, ensuring consistency in operations. They serve as a reference point for training, compliance, and auditing, enhancing transparency and accountability.
Risk Assessment: Enterprises must identify, assess, and prioritize risks impacting their operations. This involves evaluating internal and external factors that may affect the achievement of organizational goals.
Training and Communication: Employees need to understand their roles within the control framework. Adequate training and communication help them recognize the importance of their responsibilities.
Adaptation and Improvement: Internal controls must evolve with the organization. Controls should be updated to address new risks as the company grows, changes processes, or enters new markets.
Internal control is the backbone of an enterprise’s governance structure. It protects assets, ensures financial accuracy, and promotes ethical behavior, operational efficiency, and compliance with legal and regulatory frameworks.
