Internal Controls - Essay Example

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This essay describes internal controls are business procedures adopted to safeguard business assets, ensure accurate and reliable financial information and compliance with all financial and operational requirements to assist a business in achieving its set goals…
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Internal Controls
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Internal Controls Internal Controls Internal controls are business procedures adopted to safeguard business assets, ensure accurate and reliable financial information and compliance with all financial and operational requirements to assist a business in achieving its set goals. The internal controls also prevent fraud by ensuring that the company staff follows the management practices accordingly. The internal controls are crucial to all businesses irrespective of the size. Accountants and business auditors apply internal controls to test the firms overall compliance with the managerial practices. Lack of attention to the internal controls creates a business environment ripe for fraud, carelessness, and mismanagement and underutilization of business resources.
An individual, staff member or external parties commit fraud. Fraud will occur when the internal controls set aside do not adequately fit the purpose to an extent that the fraudsters believe that suspecting them is impossible (Arwinge, 2013). Therefore, improper internal controls create an environment for a fraud that consequently leads to loss of business resources. The business may eventually become insolvent. Moreover, lack of proper business internal controls leads to bad decisions for the business (Leitch, 2012). Wrong decisions on financial matters of the business may eventually lead to the business becoming insolvent or bankrupt.
Lastly, lack of proper internal controls leads to improper and inefficient allocation of resources. As a result, the managers spend a lot of time fixing the problems that could be avoided with proper internal controls (Arwinge, 2013). Consequently, a reduction in business output occurs compelling the company to shut its operations.
Improper internal controls eventually lead to business closure. The management and staff should take it their responsibility to ensure that the internal controls in place are operational (Sebastian, 2011). The staff should report to the management staff any breach internal controls. The management should first establish a proper vertical communication to ensure that the employees report such incidences.
Arwinge, O. (2013). Internal control: A Study of Concept and Themes. New York: Heidelberg. Print.
Leitch, M. (2012). Intelligent Internal Control and Risk Management: Designing High-Performance Risk Control Systems. Aldershot, England: Gower. Print.
Sebastian, S. (2011). Management Report Opportunities for Improvements in FDICs Internal Controls and Accounting Procedures. Washington, DC: U.S. Govt. Accountability Office. Print. Read More
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