Internal Controls - Essay Example

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. Internal controls are crucial to all businesses irrespective of size. Accountants and business auditors apply internal controls to test the firm's overall compliance with managerial practices.

Lack of attention to internal controls creates a business environment ripe for fraud, carelessness, mismanagement, and underutilization of business resources. An individual, staff member, or external parties commits fraud. Fraud will occur when the internal controls set aside do not adequately fit the purpose to the extent that the fraudsters believe that suspecting them is impossible (Arwinge, 2013). Therefore, improper internal controls create an environment for fraud that consequently leads to the loss of business resources.

The business may eventually become insolvent. Moreover, the 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, a lack of proper internal controls leads to improper and inefficient allocation of resources. As a result, the managers spend a lot of time fixing 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 of internal controls. The management should first establish proper vertical communication to ensure that the employees report such incidents.