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Objectives of Internal control
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[Objectives:] basic objectives of a process are achieved.
It is vital for any organization to set right objectives,
to thrive after them effectively and efficiently, exploiting important opportunities.
This is how organization's resources are made best use of and safeguarded.
The best use of resources brings best effectiveness with best efficiency.
Effectiveness is doing right things. Efficiency is doing them right.
Exploitation of opportunities is a key factor in both effectiveness and efficiency.
Besides successful strategic choices and exploitation of opportunities
well-designed operative processes are vital in achievement of an organization’s overall objectives.
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[Compliance:] rules are respected.
Rules create the basis and environment for functions of societies,
national economies and organizations.
Rules, as constraints and minimum demands, put the limits within which
organizations are due to be effective and efficient,
within which to achieve objectives.
Rules of an organization itself are inevitable to tell such things as who is authorized to do what,
who is accountable for what to whom, what are the responsibilities of various employees,
and how wages and other compensations are determined.
Compliance with rules is important for avoiding penalties, claims for damages,
bad publicity, and loss of trust, and invalidity of legal acts.
When rules are complied conditions of peace and order become established
- letting employees concentrate on fulfilment of higher level needs,
instead of worrying about the threats around them.
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[[Control] Information:] there is information
for determining to what extent the objectives of internal control
concerning achievement of objectives and compliance have been attained within a process.
Control information is needed for controlling the process both
during the process and afterwards, and for developing the process, and for communication.
Key pieces of control information need to be available, thus documented, to persons,
whose job is to determine, to what extent basic objectives have been achieved
and rules complied with, and act based on that.
Inadequate control information raises doubts,
whether basic objectives of a process respecting rules have been achieved, and if,
to what degree - making a process look worse than what it is factually.
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Elements of Internal Control
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[Control] environment: behavioural circumstances
[within an organization] affecting achievement of internal control objectives,
including - but not limited to - employees’ state, quality, and abilities of mind,
including personal integrity, and commitment to values and objectives of the organization.
Control environment and behaviour of employees affect each other.
Managers must recognize this relationship, and take it into account in management and leadership.
They must not give employees messages that undermine control environment,
but opposite messages - day after day.
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Controls: procedures and other arrangements for ensuring acceptable attainment
of basic objectives of a process. There are ad hoc controls and permanent controls.
The former are reactions to a specific situation, performed without considering its wider application.
Permanent controls are due to take place systematically as they are built within a process
[according to internal control plan].
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Accounting systems: they provide information about "what is" or " "what happened"
compared to what "what should be" or "what should have happened"
- providing users information with control criteria (expectations), facts,
and results of comparisons between facts and criteria.
Negative deviations from expectations indicate non-attainment of objectives,
non-compliance with standards and budgets etc.;
knowing them is essential for control, and prerequisite for correcting action.
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Determination of Risks: a process where a risk is identified, analysed and evaluated.
It starts when building a process, and it should never stop.
A process is built without perfect information about existing risks, and risks to come.
One cannot rely either that the internal control plan of a process is followed rigorously.
That’s why determination of risks, including healthy scepticism
towards the process and its internal control, is a must:
unacceptable risks and inefficiencies will be considered early enough, the process will be fixed,
and basic objectives of the process will be achieved in an acceptable way.
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You can download free ECAR 2 Document (pdf file)