Internal Control - Revision history

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← Older revision		Revision as of 00:02, 25 March 2024
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	== See Also ==		== See Also ==
		+	Internal control represents the policies, procedures, and activities implemented by an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. These mechanisms are designed to ensure the efficiency and effectiveness of operations, the reliability of financial reporting, and compliance with laws and regulations. Internal controls are a critical component of corporate governance and risk management.
		+
		+	*[[Corporate Governance]]: Discussing the system by which companies are directed and controlled, including the roles of boards of directors, shareholders, and other stakeholders in ensuring that an organization's management acts in the best interest of all parties.
		+	*[[Risk Management]]: Explaining how organizations identify, assess, and prioritize risks to their operations and objectives, including the role of internal controls in mitigating financial, operational, compliance, and strategic risks.
		+	*[[Financial Reporting]]: Covering the process of producing statements that disclose an organization's financial status to management, investors, and regulators, emphasizing the role of internal controls in ensuring accuracy and reliability.
		+	*[[Compliance]]: Discussing the measures taken by organizations to ensure they meet legal and regulatory obligations, including internal controls designed to prevent and detect violations.
		+	*Audit and Assurance: Focusing on the examination of an organization's financial statements and related processes by an independent body to assess the effectiveness of internal controls, accuracy of financial reporting, and compliance with accounting standards and regulations.
		+	*Fraud Prevention and [[Fraud Detection]]: Explaining strategies and systems implemented to prevent fraudulent activities and detect any occurrences, highlighting the critical role of internal controls in safeguarding assets.
		+	*[[Operational Efficiency]]: Discussing the practices aimed at maximizing the effectiveness and efficiency of business operations, including how internal controls contribute to streamlining processes and reducing waste.
		+	*[[Sarbanes Oxley Act (SOX)]]: Covering the U.S. federal law enacted in response to a number of major corporate and accounting scandals, detailing the requirements for internal controls over financial reporting for public companies.
		+	*[[COSO Internal Control Integrated Framework]]: Explaining the Committee of Sponsoring Organizations of the Treadway Commission's framework for evaluating and improving internal control systems, including its five components: control environment, risk assessment, control activities, information and communication, and monitoring activities.
		+	*Information Technology Controls: Discussing controls specific to IT and systems that support the processing and security of information, including access controls, network security measures, and information processing policies.
		+	*Internal Control Over Financial Reporting (ICFR): Focusing on the processes used by companies to ensure the accuracy and reliability of their financial reporting and compliance with applicable laws and accounting standards.
		+	*Segregation of Duties (SoD): Explaining the practice of dividing tasks and responsibilities among different people and departments as a control measure to prevent fraud and errors.
	*[[IT Governance]]		*[[IT Governance]]

@@ Line 40: / Line 40: @@
 **Audits
 *Corrective: Coupled with preventive and detective controls, corrective controls help mitigate damage once a risk has materialized.
-**Document [[Policy|policies]] and [[Procedure|procedures]]
+**Document policies and procedures
 **Enforce them by means of warnings and employee termination when appropriate
 **Wisely back up data to enable restoring a functioning system in the event of a crash. If a disaster strikes, business recovery can take place when an effective continuity and disaster management plan is in place and followed.

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 ===See Also===
 *[[Governance, Risk And Compliance (GRC)]]
 *[[IT Governance]]

@@ Line 5: / Line 5: @@
 This definition reflects certain fundamental concepts:
 *Internal control is a process. It is a means to an end, not an end in itself.
-*Internal control is affected by people. It involves not only policy manuals and forms, but also people functioning at every level of the organization.
+*Internal control is affected by people. It involves not only policy manuals and forms but also people functioning at every level of the organization.
 *Internal control is geared to the achievement of objectives in several overlapping categories.
 *Internal control can be expected to provide only reasonable assurance to an organization's leaders regarding achievement of operational, financial reporting, and compliance objectives.<ref>What Does Internal Control Mean? [https://www.mtu.edu/internal-audit/control/what-is/ Michigan Tech]</ref>
@@ Line 101: / Line 101: @@
 ===See Also===
-[[Governance, Risk And Compliance (GRC)]]<br />
+*[[Governance, Risk And Compliance (GRC)]]
-[[Government Enterprise Architecture (GEA)]]<br />
+*[[IT Governance]]
-[[Government Interoperability Maturity Matrix (GIMM)]]<br />
+*[[Corporate Governance]]
-[[IT Governance]]<br />
+*[[Management]]
-[[IT Governance Framework]]<br />
+*[[Risk]]
-[[Corporate Governance]]<br />
+*[[Risk Mitigation]]
-[[Board of Directors]]<br />
+*[[Compliance Audit]]
-[[Management]]<br />
+*[[Compliance Officer]]
-[[Risk]]<br />
+*[[Audit Trail]]
 ===References===

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 **Document [[Policy|policies]] and [[Procedure|procedures]]
 **Enforce them by means of warnings and employee termination when appropriate
-**Wisely back up data to enable restoring a functioning system in the event of a crash. If a [[Disaster Recovery|disaster strikes, business recovery]] can take place when an effective [[Business Continuity Management (BCM)|continuity and disaster management]] plan is in place and followed.
+**Wisely back up data to enable restoring a functioning system in the event of a crash. If a disaster strikes, business recovery can take place when an effective [[Business Continuity Management (BCM)|continuity and disaster management]] plan is in place and followed.
 *Compensative: Compensation can take place to an extent only. However, compensative internal control procedures should be adopted at the earliest.
 **Rad through the detailed transaction report- Track exactly where the error originated and drive a backlink.

← Older revision		Revision as of 17:26, 10 April 2021
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−	[[File:~~Types of~~ Internal Control.png\|400px\|Types of Internal Control]]	+	[[File:Internal Control Types.png\|400px\|Types of Internal Control]]

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-'''Internal Control''' is a process affected by an organization's governing board, management, administration, and personnel and is designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
+'''Internal Control''' is a [[Process|process]] affected by an [[Organization|organization's]] governing board, [[Management|management]], administration, and personnel and is designed to provide reasonable assurance regarding the achievement of [[Business Objective|objectives]] in the following categories:
-*effectiveness and efficiency of operations;
+*[[Organizational Effectiveness|effectiveness]] and [[Operational Efficiency|efficiency of operations]];
 *reliability of financial reporting; and
-*compliance with applicable laws and regulations.
+*[[Compliance|compliance]] with applicable laws and regulations.
 This definition reflects certain fundamental concepts:
 *Internal control is a process. It is a means to an end, not an end in itself.
@@ Line 9: / Line 9: @@
 *Internal control can be expected to provide only reasonable assurance to an organization's leaders regarding achievement of operational, financial reporting, and compliance objectives.<ref>What Does Internal Control Mean? [https://www.mtu.edu/internal-audit/control/what-is/ Michigan Tech]</ref>
-Internal controls are one of the most essential elements within any organization. Internal controls are put in place to enable organizations to achieve their goals and missions. Management is responsible for the design, implementation, and maintenance of all internal controls, with the Board responsible for the overall oversight of the control environment. Strong internal controls allow for organizations to achieve three main objectives. These three objectives are: accurate and reliable financial reporting, compliance with laws and regulations, and effectiveness and efficiency of the organizations operations. In order to achieve these objectives an internal control framework needs to be applied and followed throughout the organization. The five components of the internal control framework are control environment, risk assessment, control activities, information and communication, and monitoring.<ref>What is the Objective of Internal Controls? [https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/ Cerini & associates]</ref>
+Internal controls are one of the most essential elements within any [[Organization|organization]]. Internal controls are put in place to enable organizations to achieve their [[Business Goals|goals]] and [[Business Mission|missions]]. Management is responsible for the design, implementation, and maintenance of all internal controls, with the Board responsible for the overall oversight of the control environment. Strong internal controls allow for organizations to achieve three main objectives. These three objectives are: accurate and reliable financial reporting, compliance with laws and regulations, and effectiveness and efficiency of the organizations operations. In order to achieve these objectives an internal control framework needs to be applied and followed throughout the organization. The five components of the internal control framework are control environment, risk assessment, control activities, information and communication, and monitoring.<ref>What is the Objective of Internal Controls? [https://ceriniandassociates.com/news-feed/2016/02/29/key-components-of-internal-controls/ Cerini & associates]</ref>
 '''Components of Internal Control<ref>The Framework for Internal Control [https://finance.uw.edu/fr/internal-controls University of Washington]</ref>'''<br />
 The framework of a good internal control system includes:
-*Control environment: A sound control environment 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.
+*[[Control Environment|Control environment]]: A sound control environment 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: This involves identifying the areas in which the greatest threat or risk of inaccuracies or loss exist. To be most efficient, the greatest risks should receive the greatest amount of effort and level of control. For example, dollar amount or the nature of the transaction (for instance, those that involve cash) might be an indication of the related risk.
+*[[Risk Assessment]]: This involves identifying the areas in which the greatest threat or [[Risk|risk]] of inaccuracies or loss exist. To be most efficient, the greatest risks should receive the greatest amount of effort and level of control. For example, dollar amount or the nature of the transaction (for instance, those that involve cash) might be an indication of the related risk.
 *Monitoring and Reviewing: The system of internal control should be periodically reviewed by management. By performing a periodic assessment, management assures that internal control activities have not become obsolete or lost due to turnover or other factors. They should also be enhanced to remain sufficient for the current state of risks.
-*Information and communication: The availability of information and a clear and evident plan for communicating responsibilities and expectations is paramount to a good internal control system.
+*[[Information]] and [[Communication|communication]]: The availability of information and a clear and evident plan for communicating responsibilities and expectations is paramount to a good internal control system.
-*Control activities: These are the activities that occur within an internal control system.
+*[[Control Activities|Control activities]]: These are the activities that occur within an internal control system.
@@ Line 32: / Line 32: @@
 *Preventive: Preventive Controls are designed to discourage errors or irregularities from occurring. Internal controls best work on the principle, ‘Prevention is better than cure’. They are proactive controls that help to ensure departmental objectives are being met. Examples of preventive controls are:
 **Segregation of Duties: Duties are segregated among different people to reduce the risk of error or inappropriate action. Normally, responsibilities for authorizing transactions (approval), recording transactions (accounting) and handling the related asset (custody) are divided.
-**Approvals, Authorizations, and Verifications: Management authorizes employees to perform certain activities and to execute certain transactions within limited parameters. In addition, management specifies those activities or transactions that need supervisory approval before they are performed or executed by employees. A supervisor’s approval (manual or electronic) implies that he or she has verified and validated that the activity or transaction conforms to established policies and procedures.
+**Approvals, Authorizations, and Verifications: Management authorizes [[Employee|employees]] to perform certain activities and to execute certain transactions within limited parameters. In addition, management specifies those activities or transactions that need supervisory approval before they are performed or executed by employees. A supervisor’s approval (manual or electronic) implies that he or she has verified and validated that the activity or transaction conforms to established policies and procedures.
 **Security of Assets: Access to equipment, inventories, securities, cash and other assets is restricted; assets are periodically counted and compared to amounts shown on control records.
 *Detective: Detective Controls are designed to find errors or irregularities after they have occurred. Examples of detective controls are:
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 **Perform analytical reviews- Do a thorough analysis and plug all loopholes.
 **Reassign reconciliation- Shuffle the assignee for performing reconciliation task.
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 *Personnel benefits committee: The role and the responsibilities of the personnel benefits, in general terms, are to: (a) Approve and oversee administration of the Company's Executive Compensation Program; (b) Review and approve specific compensation matters for the Chief Executive Officer, Chief Operating Officer (if applicable), Chief Financial Officer, General Counsel, Senior Human Resources Officer, Treasurer, Director, Corporate Relations and Management, and Company Directors; (c) Review, as appropriate, any changes to compensation matters for the officers listed above with the Board; and (d)Review and monitor all human-resource related performance and compliance activities and reports, including the performance management system. They also ensure that benefit-related performance measures are properly used by the management of the organization.
 *Operating staff: All staff members should be responsible for reporting problems of operations, monitoring and improving their performance, and monitoring non-compliance with the corporate policies and various professional codes, or violations of policies, standards, practices and procedures. Their particular responsibilities should be documented in their individual personnel files. In performance management activities they take part in all compliance and performance data collection and processing activities as they are part of various organizational units and may also be responsible for various compliance and operational-related activities of the organization. Staff and junior managers may be involved in evaluating the controls within their own organizational unit using a control self-assessment.