Internal Controls Systems – HRS Total Solutions

Internal Controls Systems

System of internal control is an important mechanism of correct and responsible management in all kinds of organization. In a small organization, it can lend itself to manual executive control alone but the more complex the organization and the more employees and processes it has, the more the system needs to contain functionality that can help the management ensure internal controls are in place and working as intended.
The result of such functionality will be increased chances that processes and procedures are operating as intended and risk is being kept at tolerable levels. Accountability and compliance with regulations follow this state of affairs, as do increased sustainability potential of the organization and a healthier working environment.

Key benefits of the internal control system include:

  • Treatment of risk
  • Achieving higher standards
  • Compliance with laws and regulations
  • Improved communication and procedures

Key Elements of an Internal Control System

To make internal control work as a system and to achieve the organization's objectives, we need a number of key components that interact in a way that advances those objectives.

Control Objectives

Any internal control system will command a cost in resources and to justify this cost there is a need for a higher objective, the achievement of which is advanced by the system. Such control objectives are varied in nature and will invariably be specific to each organization. Example control objectives include compliance to regulations, adherence to standards and improving quality. In some systems, reduction of risk might comprise a control objective in itself while in others risks may exist as a separate layer.

Examples of control objectives

  • Protect against financial loss following disaster
  • Prevent fraudulent activity by employees
  • Maintain high password security
  • Ensure DR capability

Internal Controls

Internal controls are distinctly different from internal control. Internal controls are the trees of the internal control system while internal control is the forest. The internal control system achieves internal control in the organization by putting in place internal controls. Internal controls are mechanisms, rules, safeguards and processes whose purpose is to positively influence activity in the organization in such a way as to advance the control objectives and reduce risks to those objectives. Internal controls are meant to help control various aspects of the organization's activity and provide reasonable assurance that this activity is in accordance with its control objectives. They add a degree of automatic management which otherwise would have to be done by mangers manually. Internal controls can dictate modes of operation, affect behavior, enforce best practices and more.

Examples of internal controls

  • Buy sufficient insurance cover
  • Check out references for new employees
  • Restrict times of working on the financial systems
  • Force password changes every 6 months
  • Do backups every day