Internal Control for Effective Operations in Public Sector Companies
Internal controls are important for businesses to ensure efficient operations. Effective controls help organizations to achieve established goals. Control measures lead to better accountability among employees. It ensures compliance with relevant regulations, thereby preventing fines and other problems.
Good internal controls are particularly important for public sector firms. Here we will discuss in depth how effective controls lead to efficient operations in a complex environment.
Internal Control Measures: An Introduction
Internal control measures allow companies to protect the best interest of the stakeholders. The cost control measures ensure that the companies operate efficiently without waste of resources. It results in improved operational efficiency leading to the achievement of complex goals and objectives.
A risk-based approach is important for implementing controls. The control measure allows public firms to effectively and efficiently utilize public funds. The control measures measure involves a systematic assessment of risks based on which targeted controls are implemented.
Internal control policies can be put together for various reasons. Some of the reasons for implementing control measures include the following.
- Reduce costs
- Improve productivity
- Efficient resource utilization
- Compliance with rules and regulations
- Promote accountability
- Prevent fraud
The management of public bodies must implement effective internal control measures. The company management must implement measures to protect the company’s assets. The company’s internal control measures aim to protect the interest of the company.
The purpose of implementing internal control should be to not only identify the risks but also to implement measures to reduce the risks.
Internal controls should comply with the Sarbanes Oxley Act of 2002 which was created in response to the public accounting scandals. The accounting lapses in recording financial transactions of Enron, WorldCom, and Tyco International plc had shaken investor confidence. The act imposed more strict requirements for bookkeeping and accounting to reduce the risks of fraud.
Accounting Disclosures
Companies must take measures to disclose accounting information. Senior officers must certify that the financial statements comply with the statutory disclosure requirements.
The accounting control measure involves reviewing the financial statements by the officers to ensure that they present an accurate picture of the financial position of a company.
Internal Control Measures
Senior officers of companies must create internal control measures. The internal control measures can be preventive and detective.
The purpose of preventive internal control is to reduce the likelihood of bookkeeping errors. Control measures are implemented to reduce the risk of fraud. Some of the preventive internal control measures include:
- Detailed documentation of accounting activities
- Strict authorization practices
- Accountability of officers
- Separation of duties
- Limiting physical access to assets
The second type of cost control measure is detective cost control. This cost control initiative is implemented to reduce catch events as they occur. An example of a detective control measure includes taking active measures to prevent hackers from accessing confidential information.
Detective control attempts to find a solution after the event has happened. Detective control measures also involve studying the impact of a negative event so that more strict control measures can be taken to prevent the event. Internal audits and external audits are examples of accounting-related control measures to protect a company’s financial resources.
Protection of Confidential Information
Company management must take strict measures to protect confidential company information. The company management must protect data and prevent falsification. The confidential information should be stored in a secure medium for a set amount of time as specified by the SOX Act of 2002.
Efficient Corporate Governance
Internal control measures lead to efficient corporate governance. Implementation of internal control practices allows improved direction and control of resources. Internal control strategies align the interests of different stakeholders creating a more ethical environment.
The system of effective corporate governance through effective cost-control measures leads to a transparent governance practice. It leads to more efficient identification, prioritization, and mitigation of risks.
Corporate governance control mechanisms are directed by external parties. These include trade unions, government regulators, and financial control bodies. The control mechanisms aim to ensure compliance with rules through internal policies and union contracts.
Independent audits are an important control of corporate governance. The audits are carried out by registered auditors who must investigate the company operations to ensure compliance with the relevant laws. The audits ensure that the public firm is performing duties in the best interest of the stakeholders.
Prevention of Losses
Lack of proper internal control leads to gross inefficiency in the public sector. Inadequate control measures result in the loss of a huge amount of public funds. It opens the door to criminal temptations and negligence that drains the precious financial resources of public firms.
Public firms must create strong policies to reduce risks and threats. It Is important to create internal control policies to monitor the usage and accounting of funds. Proper authorization, segregation of duties, and effective supervision are some of the critical control measures that can help public firms to operate efficiently while ensuring the effective utilization of public money.
Conclusion
Internal control measures are implemented to ensure financial integrity. Public firms must implement control measures to comply with regulatory requirements. The control measures should also involve setting rules for the protection of the company assets.
Companies must make sure that employees take measures to follow the controls set by the management. There should be accountability to ensure that each employee takes the initiative to follow the cost control measures.
Internal control strategies play a critical role in efficient public governance. It ensures that the public firms continue to operate in an efficient manner achieving all the goals. Effective control measures should also relate to accounting and bookkeeping.
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