Internal Controls
Internal controls are the structure, policies and procedures that areput in place by the management of a company to ensure the effectiveness ofits operations and the compliance with its internal policies as well as the 1. Importance of Internal Control Programs An effective internal controls system in an organization ensureseffectiveness of its operations and minimizes chances of violation of rulesand regulations by the employees. It is instrumental in preventing orreducing employee theft and fraud and ensuring reliability of the company'sfinancial reporting. The importance of controlling employee theft and fraudis evident in a 2002 Report[1] which estimates a loss of $ 600 billion in2001, or about $4,500 per employee, as a result of on-the-job fraud. 2. Effective Internal Control Techniques The commitment and attitude of the top management towards an InternalControls Program is crucial for its effectiveness. The management must view
In such a system of checks-and-balances, a decision-makerauthorizes transactions but does not have custody of assets or accounts. , that it would help theorganization in achieving its goals, rather than as an onerousresponsibility that has to be fulfilled just to meet the regulatoryrequirements. The management and the auditors' commitment to a code of ethicsare crucial to the effectiveness of the internal control system. The maincause of the Enron scandal can be traced to the setting aside of its ownCode of Ethics by Enron's management. For example, the Enron board at onestage waived the company's conflict of interest policy to allow its CFO toinvest in the company's special purpose entities (SPE), then failed tofollow up to ensure that its own mandated compensating controls were beingfollowed. internal control in a positive light, i. (Locatelli, 2002) Such commitment of the corporate managementand corporate board towards internal control, invariably filters down tothe employees and helps to create the appropriate company culture in whichthe internal control policies and procedures are given due importance. It also provides protection for 'whistleblowers'; thus encouraging self-regulation of companies by ethicalemployees. [1] Association of Certified Fraud Examiners (ACFE)'s 2002 Report to theNation: Occupational Fraud and Abuse. Forexample, it provides for much longer jail terms for frauds and white collarcrimes; it makes the chief executive officers (CEOs) and chief financialofficers (CFOs) personally liable for signing false accounts and financialstatements; stipulates that auditors shall not provide other services suchas financial consultancy and that auditors shall be rotated periodically toprevent the conflict of interest. The Act contains several concrete steps to strengthen internal control. It may seem an obvious thing to state, but all internal control systemsmust consist of a written set of policies and procedures. Importance of the Sarbanes-Oxley Act The enactment into law of the Sarbanes-Oxley Act in July, 2002 is widelyconsidered to be the most significant accounting legislation since 1933.
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Acceptance Essays
