Internal control is all of the policies and procedures that management adopt to achieve the following set of goals:
- Safeguard the business assets from accidental loss, misappropriation or fraud.
- Ensure the reliability and integrity of financial information to ensure that management have accurate, timely and complete information in order to plan, monitor and report business operations.
- Ensure compliance with laws and regulations affecting the operation of the business.
- Promote efficient and effective operations.
- Accomplishment of goals and objectives.
The framework of an effective internal control system includes:
- A sound control environment that is created by management through communication, attitude and example. This includes a focus on integrity, a commitment to investigating discrepancies, diligence in designing systems and assigning responsibilities.
- Risk assessment involves identifying areas where the greatest threat or risk of inaccuracies or loss exists.
- The system should be periodically reviewed and tested to ensure activities are still relevant to the current assessment of risk.
- The availability of information and a clear plan for communicating responsibilities and expectations is paramount.
- Internal control activities are preventative and detective procedures that aim to avoid and deter the instances of fraud and error as well as capture instances that may have already occurred.
An effective financial management service in the business can design and implement procedures and internal controls that protect the business finances from the risk of error, misappropriation or fraud.