The Importance of Internal Controls

The importance of internal control systems is to provide an effective risk management system as well as corporate control. Every organization is subject to some kind of risks depending upon its products and services it sell, the market in which it functions, its financial sources, and the way it operates its resources. It is important to coordinate every aspect of a business organization in an effective way. A good internal control has now become an essential part of risk management.

Internal controls are designed to protect companies from fraud and inaccurate data recording. By incorporating the fundamentals of internal control such as risk assessment and employees' role assignments, companies can set up an effective system to monitor, analyze and protect their reports. Businesses need to maintain track of essential financial activities and with internal control protection a company can set well-defined goals and make accurate projections.

The primary purpose of internal control is to promote efficient operations that go with the objectives of an organization and to ensure whether the company's activities are in accordance with laws and regulations. The procedure in the operation of a good internal control system would be the supervision of activities in connection with authorizations and reconciliations, reviewing of employee performance, security of assets, and segregation of duties. Internal controls prevent errors and loopholes by detecting them in a timely manner, therefore promoting reliable and accurate accounting records. The advantage is to quickly resolve issues arising as a result of reporting errors. This can protect the interests of employees by clearly specifying their duties and responsibilities and protect them against being accused of fraud.