Major Internal Control

Internal control in this company can refer to both administrative and accounting control.

1. Administrative control comprises the plan of organization and all methods and procedures that facilitate management planning and control. Examples are departmental budgeting procedures and reports on performance.

2. Accounting control comprises the methods and procedures that are mainly concerned with the authorization of transactions, the safeguarding of assets, and the accuracy of the financial records. Good accounting controls help maximize efficiency; they help minimize waste, unintentional errors, and fraud.

There are five key elements of internal control: environmental control, risk assessment, control procedures, monitoring and information and communication. Each area contributes an essential part of the control system in accounting information system as a whole, and without all of the key elements present, the controls and control system doesn’t work.

Environmental Control

The environmental control refers to management and employee attitude and behavior.

The goals and objectives of management will affect employee behavior and attitude throughout a business. For example, the goal and objective of the management is to achieve certain sales levels at all costs, this will discourages employees to adhere to the internal controls in place and encourages achievement of what management wants, never mind the consequence. So, to ensure employees adhere to internal control, the goals and objectives of management must communicate well and clearly to them. As a result, human resources department will then provide much of the input for effective environmental control.

Risk assessment

Risk assessment incorporates a businesses ability to analyze business risks, estimate their importance and react or act accordingly. Risk assessment is generally a managerial function, but can be included in a day to day analysis by employees, if the work environment includes risks and dangers.

Control Procedures

The next element, the control procedures simply provides the stated methods for carrying out the environmental controls, the risk assessment, the monitoring, and the information communication that must take place in the internal control process. In order to decrease the potential for fraud, inadequately trained personnel, and eliminate process error, control procedures benefit the company, the management, and the employee of a business. Control procedures greatly affect the information and communication aspect of the business, in that so much of the communication of the state of the business is dependent upon the information furnished by each department. The checks and balances that the control procedures provide assures a business that each department will provide timely and honest as well as accurate and useful information.