Thursday, 28 July 2016

The control system you put in place



Hello readers, today I will be looking at control systems you put in place in your business to safeguard your assets. A control system is the actions you put in place to record and protect the assets of a business organisation. A control environment can be seen as one of the five components of the internal control system. In other words, it is not responsible for the overall effectiveness of the internal control system but it contributes positively to it. A strong control environment includes the attitudes of the directors and management. They must be full of integrity; they must communicate and enforce integrity when it comes to dealing with employees. This will increase the confidence of the individuals charged with governance (directors) and management that their financial statement will be free from false information. In other words, it will reduce the risk of theft within business organisations.

A strong control environment also encourages competency. Your staff must not be given responsibilities that are beyond their level of competence, this will help minimize errors during the execution of business activities, as such enabling the business to achieve its goals easily. When staff are given tasks beyond their level of competency, there is a high possibility that they will not achieve the goal of the task. The way duties are assigned to all level of management and staff must be planned properly, the plans must be executed and enforced. Directors must also be a part of the business, in other words they must contribute to the managerial activities of a business organisation.

Another component that encourages an effective control system is the segregation of duties. When the accounting processes are segregated into smaller business tasks it also minimizes the risk of fraud and errors within an organisation as it will be difficult to carry out fraudulent activities or make errors that way. Maintaining records by using the appropriate information system is another component that ensures an effective and efficient control systems. Transactions should be recorded appropriately. The information system must record and report the business transactions correctly, following all the accounting policies and procedures. 

A business must also carry out risk assessment processes. Risks must be assessed, the likelihood and the probability of the risks must also be analysed. When likelihood and probability of the risk occurring are high the risk should be avoided, however when one of them is high and the other is low the risk should be mitigated for example you can get insurance. When the likelihood and probability of the risk are both low, they can be overlooked. The last component of a control system is the monitoring of controls. You must monitor your controls to ensure that they are carrying out the goals they have been instilled to achieve. This will help you know when it has a loophole, thus, actions can be carried to eliminate such loopholes. In other words, businesses must review their control systems to ensure they are effective and efficient.

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