It is necessary to highlight the importance of internal controls in organizations, due to the constant changes they experience. Humans are wrong so mistakes must be identified before they cause harm.
Internal control is an expression used to discover the actions taken by directors, managers or administrators, to evaluate and monitor operations in their organizations. Therefore, the term internal control is defined as a continuous process carried out by the entity's management, management, and other employees to provide reasonable assurance that the following objectives are being achieved.
• Promote effectiveness, efficiency and economy in operations and quality in services;
• Protect and conserve public resources against any loss, • Waste, misuse, irregularity or illegal act;
• Comply with laws, regulations and other government rules; and, • Prepare valid and reliable financial information, presented in a timely manner.
In other words, internal control includes the organization's plan and the set of methods and procedures that ensure that the assets are properly protected, that the accounting records are reliable, and that the organization's activity is carried out effectively according to the guidelines established by the administration.
The Coso Report defines it as “a process, executed by the board of directors or board of directors of an entity, by its steering group (management) and by the rest of the staff specifically designed to provide reasonable assurance of achieving the following three in the company target categories:
• Effectiveness and efficiency of operations
• Sufficiency and reliability of financial information
• Compliance with applicable laws and regulations.
Internal Control is divided into Administrative Control and Financial Control. The first is applied in all the phases of the administrative process and the second is oriented towards the control of the accounting and financial activities of the organization and the interrelation of both creates an integrated internal control system.
Internal control consists of five components that are derived from the way the administration manages the entity, and are classified as follows:
1. Control Environment
It consists of the establishment of an environment that stimulates and influences the activity of the personnel with respect to the control of their activities. It is the basis of the other control components and consists of seven factors such as: integrity and ethical values, the commitment to be competent, the activities of the board of directors and the audit committee, the mindset and style of operation of management, organization structure, allocation of authority and responsibilities, and human resources policies and practices.
2. Risk assessment:
It is the identification and analysis of risks relevant to the achievement of objectives and the basis for determining how such risks should be improved. Risk assessment must be an unavoidable responsibility for all levels that are involved in achieving the objectives. This self-assessment activity should be reviewed by internal auditors to ensure that both the objective, focus, scope and procedure have been properly carried out.
3. Control Activities:
They are those carried out by the management and other personnel of the organization to comply daily with the assigned activities and are expressed in the policies, systems and procedures. They can be manual or computerized, administrative or operational, general or specific, preventive or detective.
4. Information and Communication Systems
They are the processes, channels, means and actions that, with a systemic and regular approach, ensure that information flows in all directions, internally and from / outside the entity, with quality and in a timely manner, allowing the fulfillment of individual and group responsibilities.
5. Supervision and Monitoring:
Process designed to verify the validity, quality and effectiveness of the entity's internal control system, which include some of the following characteristics: good internal administrative criteria; independent supervisions (external audit); self-evaluations (management reviews); supervision through the execution of operations. The result of supervision, in terms of findings (control deficiencies or opportunities for improvement of control), must be reported to higher levels (management, committees or board of directors).
Internal control is not a strict sequence of components, in which each one influences only the one that follows, but is dynamic, flexible and interactive, in such a way that each component can impact on another, causing certain actions to correct a deviation or reinforce a measure. Each organization must design the control system that best suits its characteristics and conditions.
The Directorate is directly responsible for internal control and varies according to its hierarchy; The president or director of an organization is responsible for ensuring the existence of a positive internal control environment, directing and guiding the activities of senior officials, establishing principles, values and policies that are part of the basis of the internal control system of the organizationand it must also meet periodically with those responsible for the different areas in order to review their responsibilities. The managers of each area have the responsibility of implementing the control policies and procedures that allow achieving the expected results and their actions must be integrated into the organization's internal control system. Those responsible for financial functions and their teams are of vital importance towards internal control, given that their actions are closely linked with all the operational and functional units of the organization due to the activity they carry out in terms of budget and financial planning, in addition to that they must prevent and detect fraudulent financial information.
The Board of Directors has the function of guiding and controlling the activities of the organization and through supervision is involved in all aspects of internal control. The audit committee plays an important role in the organization and has the authority to question managers about how they are fulfilling their responsibilities, and to investigate, together with internal audit, the existence of senior managers who try to circumvent internal controls.
Internal Auditors are those who directly examine internal controls, recommending improvements in applied controls if so warranted. Internal Audit is a systematic process of objectively evaluating and obtaining evidence about claims related to economic events, communicating the results to Stakeholders Its objectives are based on evaluating the control of administrative activity and its results; in examining accounting and financial operations and their legal provisions; report on the results of the financial statements; evaluate the effectiveness in the use of resources; prevent the misuse of resources;strengthen administrative-financial discipline by evaluating and reporting the results to whom it may concern and, lastly, helping to maintain honesty in administrative management and preserving the moral integrity of workers.
That is why, the knowledge that an employee has of the failures that exist in the organization, associated with low remuneration or debts, gives rise to committing intentional and unintentional errors, which can lead to fraud in the organization. Fraud is an action contrary to the truth and to righteousness that harms the person against whom it is committed. It is also the act intended to avoid a legal provision to the detriment of the State or third parties, And what is said about Corruption?
Corruption is when a person unlawfully puts his personal interests above those of the people and ideals that he is committed to serving. It comes in many forms and can range from trivial to monumental. Corruption has been more concerned with the public sector but normally when it happens the private sector is equally involved.
And the Ethics where we left it?
Ethics as a fundamental element for internal control has been questioned in recent years, due to the global financial crisis, which has made investors lose confidence in the transparent management of companies. A shows a button, we have the financial scandals in which presidents, executives, directors, employees of major organizations are involved, which have adulterated financial information, thereby demonstrating a great lack of business ethics, adding to this the lack government oversight and control
Ethics is action, it is in all our labor relations with our coworkers, with clients, suppliers and others related, and it manifests itself in open communication and mutual trust.. An internal or control environment can only be positive in organizations where there are people with Ethical Values, competent, and committed to their organization. Work ethic is the fundamental pillar of internal control because it is the basis for the other components to be sustained, if the people who work in an organization lack ethics, the established objectives would be unreliable, the risks of non-compliance would be implicit and it would be difficult to prevent them. they would achieve reliable control activities. It is not reasonable to have only ethical beliefs and thoughts and to act incorrectly, unfairly, dishonestly or illegally
For ethical work behavior to exist, we must master the 3 Rs.
The Respect that should be given to all the people with whom we interact and to the assets of the organization.
The Responsibility when offering the goods that we elaborate or the services that we render, in the stipulated time and with quality.
The Results are based on the quality and quantity of the results that we generate.
To conclude , control is conceived as the mechanism that allows deviations to be corrected through quantitative and qualitative indicators within a broad social context, in order to achieve the fulfillment of key objectives for organizational success.
And for these controls to be successful , ethical values must be cultivated in organizations, showing respect, responsibility and showing transparent and quality results.
Bibliography
1. Estupiñán Gaitan, R., (2006). ”Internal Control and Fraud based on transactional cycles”, 2nd ed. Bogota Colombia. Ecoe Editions.
• CPC Magazine of the Public Accountant. Disclosure body of the Colegio de Contadores Públicos del Estado Miranda. 2009.
• Ormaechea Juan (2005). ”Audit and Internal Control”. New revised edition. Madrid Spain. Cultural, SA
