Justification for Internal Control System

Justification for Internal Control System

Justification for Internal Control System

In today’s world, an internal control system is a must have tool for any business. With an internal control system, companies are taking a proactive approach to preventing fraud and inherent risks by implementing checks and balances within the organization. These checks and balances segregate job duties and implement procedures to safeguard the company’s assets. While other theories such as insurance or portfolio approaches are valid and important tools, both of these theories provide a more passive approach in comparison to an internal control system.

An internal control system ensures the organization progresses forward on the desired strategic path without fear of major risks affecting its advancement, besides internal controls keep everything under observation with strict vigil of the organizations management. While constantly checking for errors and deviations, internal control systems provide a level of security against the four major risk factors of “strategic, operational, financial, and other” (McCarthy, Flynn, & Brownstein, 2004, p. 250). In contrast, the insurance approach is about cleaning up the damage after it has occurred.

The amount of money and time invested in implementing an internal control system is outweighed by the benefits. Additionally, an internal control system will reduce errors because of the checks and balances. Also, an internal control system meets the requirements of the Securities and Exchange Commission (SEC) as well as adheres to the stricter law requirements mandated by the Sarbanes Oxley Act of 2002. For publically held companies, an internal control system is mandatory.

With an internal control system, the company will gain streamlined productivity because of the segregation of job duties and elimination of duplicate work. Internal control prevents employees from having access to similar job functions. For example, an employee...