The Importance of Internal Control

April 23, 2010

How internal control helps a company

The importance of credibility in a company is priority number one. Internal controls exist to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Imagine another Enron? The importance of Internal Control cannot be stressed enough.

It prevent  you from frauds

It plays an important role in preventing fraud, detecting fraud, and protecting tangible and intangible assets/resources. One of the main things to keep in mind when establishing internal controls is to establish segregation of duties. Having more than one person complete a task gives you, the business owner, assured credibility that the task was completed right. Sometimes thought of as costly, the segregation of duties is very important in creating a system of checks and balances that maintain the credibility of employee job tasks. Picture an employee that handles all of AR and AP, the possibility of fraud grows as the segregation of duties is less divided among employees.

Systemize create freedom

Under the Sarbanes-Oxley Act, many of the previous known accounting processes and controls have been changed and regulated. The importance of Internal Controls goes beyond preventing risks. The same internal controls can also be used to systematically improve businesses, particularly in regard to effectiveness and efficiency; starting by maintaining the segregation of duties. Why wouldn’t a company want to improve business processes, policy, and its internal environment?

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