Effectiveness of Internal Control System Research Proposal Paper

Effectiveness of Internal Control System

            Internal control is a process effected by an entity’s board of directors, management, and other personnel – designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

·         Effectiveness and efficiency of operations

·         Reliability of reporting

·         Compliance with applicable laws and regulations

An effective internal control system has a code of ethics, a solid accounting system, control activities, and monitoring activities.

1. Code of ethics

            The first feature of a good internal control system is the organization’s view of integrity and a sense of ethics. Members of senior management, such as the ED and the financial officers, ultimately have the responsibility of the internal control system. The ED can have a significant impact on the organization’s overall view of what constitutes acceptable practices. If the ED conveys to the rest of the management and staff that integrity and a sense of ethics are valued qualities in the organization, adherence to any internal control system will be stronger than it would if the ED did not demonstrate a commitment to these qualities.

2. Accounting

            The accounting system used by the organization exerts a lot of influence over the integrity of financial reporting. Therefore, the accounting system can be considered an important piece of the internal control system. The IRS provides clear directions regarding specific categories and classes into which revenues and expenses must be allocated.

3. Control activities

            Another critical feature of a good internal control system is its control activities. Control activities help ensure that all members of the management team and staff are following the organization’s accounting, finance, and recordkeeping policies and procedures. Each functional level throughout the organization should have its own control activities that are relevant to the function and the level.

4. Monitoring activities

            An essential feature of a good internal control system is its monitoring activities. Monitoring should be an essential part of general management and supervisory activities and of the internal audit function of the organization. When a problem is detected in the system, the problem should be addresses, and the problem and its solution should then be up the chain of command.