INTERNAL CONTROL

BRIEF OVER VIEW OF INTERNAL

CONTROL SYSTEM MEASURES AND ITS
IMPACT ON ORGANIZATINAL
PERFORMANCE
 DIFINATION OF TERMS
 CONTROL: Control is a function of management which help check errors in other to
take corrective actions.

 SYSTEM: A set of things working together as part of a mechanism or an interconnecting

network. It could also be defined as a set of principles or procedures according to which
something is done.

 PERFORMANCE: The execution or accomplishment of work, act, feats, etc. It also the
ability of an organization to reach its goals and optimize results.

 IMPACT: It is the powerful effect that something especially something new has on a
situation or someone

 MEASURES: A plan or cause of action taken to achieve a particular purpose

 ORGANISATION: An organized group of people with a particular purpose, such as a

business, or a government department.
INTRODUCTION
Internal Control System measures and its impact on organizational performance is
paramount in every organization. This is because internal controls ensures
prevention and detection of errors and frauds. Firms economic assets generates
income which ensures growth and sustainability. It is imperative for every institution
such as ours to ensure water tight controls if at all it is to achieve improved financial
performance.
Internal controls checks the governance of an organization to achieve profitability
growth and developments. Every organization especially service companies such as
Insurance, Micro Finance and Claim management institution are prone to risk that
are life threatening to the existence and sustainability. Operational and strategic risk
are of non financial character and result mainly from human errors, frauds, system
failures through regulatory environments, however when they materialized they lead
to financial losses for the organization.
Effective internal control system operates when some specific procedures are
adopted by the management. International Accounting Standards (IAS) categorizes
internal control types as a plan of organization, segregation of duties, control of
documents, safeguarding of assets, competence of staff, arithmetic and accounting
controls, recording and record keeping , supervision, authorization and approvals,
vocation and rotation of du6ties, cost feasibility , routine and automatic checks.
 What is Internal Control System
Internal control system is a process effected by the entity's board of directors,
management and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the categories; reliability of financial
reporting, effectiveness and efficiency of operations, and compliance with
applicable laws and regulations.
Also Business jargon defines internal control as a system designed, introduced
and maintained by the companies management and top levels executives, to
provide substantial degree of assurance in achieving business objectives, while
complying with the policies and laws, safeguarding the assets, maintaining
efficiency and effectiveness in regular operations and reliability of financial
statements.
Internal controls help companies to comply with laws and regulations, and
prevent fraud. They also can help improve operational efficiency by ensuring
that budgets are adhered to, policies are followed, capital shortages are
identified, and accurate reports are generated for leadership.
Components of Internal Controls
Internal control consists of five related components which are derived from the
manner in which management runs its business. These components are control
environment; risk assessment; control activities; information and
communication systems and monitoring.
These components of internal control apply to all business entities though some
organizations may apply the differently to others.
 Internal Control Components
Presence of integrity and ethical values, commitment to
Control Environment competence human resource practices and organization
structure.
Risk Assessment Entails risk identification, risk evaluation and risk response
These are the policies, procedures and mechanisms put in place
Control Activities
to ensure management directives are properly carried out.
This involves good identification and proper capturing of
Information and Communication pertinent information. Also entails proper flow of information
across and up within all the sections of the organizations.
This is the process of assessing the quality of the internal
Monitoring
control structure over time.
OBJECTIVE OF INTERNAL CONTROL SYSTEM
 To ensure that the business transactions takes place as per the general and specific authorization
of the management
 To make sure that there is a sequential and systematic recording of every transaction, with
accurate amount in their respective accounts and in the accounting period in which they take
place. It confirms that the financial statements fulfills the relevant statutory requirements
 To provide security to the companies‟ assets from unauthorized use; for this purpose physical
security system are used to provide protection such as security guards, anti-theft devices,
surveillance cameras etc.
 To compare the assets in the records with that of the existing ones at regular intervals and report
to those in charged with governance in case any difference is found.
 To evaluate the system of accounting for complete authorization of the transaction
 To review the working of the organization and the loopholes in the operations and take necessary
steps for its correction
 To ensure there is optimum utilization of firms resources I.e men, materials, machines and money
 To find out whether the financial statement are in alignment with the accounting concepts and
principles
 TYPES OF INTERNAL CONTROLS
The types of internal controls systems implemented in the organization will be based on
the company's nature and requirements. Internal control systems are important for every
organization for efficient management as well as also assist in the companies ‟ audit. It
includes all the processes and methods to help the company in reaching its ultimate
objectives. There are three types of internal controls which are;

 Preventive Internal Controls;

These controls are put in to place to keep errors and irregularities from happening or taking
place. Preventive controls usually occur on a regular basis. They range from lucking a building
before living to entering a password before completing a transaction. Other preventive controls
include; backing up computer data, testing employees, employee screening and training
programs, segregation of duties, vouching, obtaining approval before processing transaction
and having physical control over assets.
Types of Internal controls
 Detective Internal Controls
Detective internal controls are designed to find and reveal errors and irregularities after
they occur or take place. They serve as part of check-and -balances system and
determine how efficient policies are. Examples include surprise cash counts, taking
inventory reviews and approval of accounting works, internal audits, peer review,
enforcement of job description and expectations, and reconciliations. Detective internal
controls also help protects assets.

 Corrective Internal Controls.

As the name suggest, corrective internal controls are put into place to correct
any errors and irregularities that where found by the detective internal controls. When
and error is made employees should follow whatever procedures have been put in place
to correct the errors such as reporting the problem to a supervisor, organizing
training programs and progressive discipline for errors.
 OTHER INTERGRAL FUNCTIONS OF AND INTERNAL
CONTROL SYSTEMS

 SEDREGATION OF DUTIES (SOD).

 VOUCHING
 AUTHORISATION AND APPROVAL OF ACCOUNTING TRANSACTIONS
 INTERNAL CHECK
Internal check is an integral function of internal control system. It is an arrangement of duties of
the staff members in such a way that the work performed by one person is automatically and
independently checked by the other.
LIMITATIOS OF INTERNAL CONTOL SYSTEMS

It is important to keep in mind that internal controls while effective are not a
guarantee that a company's objectives will be met. Human errors and computers
errors are not accounted for by internal controls. In addition internal controls
assumes employees are honest and that they would not bypass guidelines or alter
data to benefit themselves.
QUESTION
AND
ANSWERS
 Conclusion
These components of internal control apply to all business entities, including
STILFRESH LTD. Internal controls are most effective when they are directly
incorporated in the process that support operations and enable quick response to
changing economic conditions. Everyone in an organization has the responsibility
to ensure internal control succeeds to some extent. Virtually all employees
produce information used in the internal control system or take other actions
needed to effect control.

The management of the organization should meet regularly to review the affairs
of the firm and direct strategic path of the firm and also ensure continued goal
congruence.