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Characteristics of a good internal control system

written by Juan Pablo Calle, On May 13, 2022


Strengthen your company's internal control by knowing the most important characteristics to do so in the best way.

Effective internal control depends on good organization. Reducing the level of errors and irregularities helps to ensure that the objectives of the control system are achieved correctly. Learn the characteristics of a good internal control system here.

Organization plan

The first feature of an internal control system is the organization plan. In order for it to be effective, it must be simple and flexible. This plan should clearly outline the functions of each unit and its staff members.

First, an internal control plan must have well-defined procedures that integrate the activities of all the sectors of the organization.

Second, in order to align each area of the company, there must be an organizational chart that defines the line of authority and responsibilities within the company: supervisors, technical leaders, managers, directors, etc.

This clarification of functions and activities should be established in procedure manuals in order for them to be clear and to avoid errors.

Segregation of functions

Structural independence of an organization means separating the functions of each area of the company. This is essential for an effective internal control system, as it ensures that one person is not responsible for all stages of an operation.

In this sense, all processes must go through different phases, and each of them must be under the responsibility of a different person. Thus, the execution, authorization or registration of a transaction is performed independently by one employee.

Hence, the importance of having a manual that specifies the organizational chart, functions and those responsible for each area.

If your company uses management software, it must have the option to define and restrict user profiles.

Having a technological tool such as Pirani's risk management software will allow you to more easily identify, measure, control, and monitor risks to prevent their materialization or mitigate their impact should they occur. 

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Control of access to assets

Effective internal control depends to a large extent on the security of the processes. An organization achieves an adequate degree of security when access to assets or accounting records is limited.

This involves restricting physical or remote access to assets or the preparation of documents for authorizing access thereto.

Authorization system and procedure

Effective internal control includes methods to monitor the records of operations and transactions. The procedures involved in an activity must include periodic audits and reviews, as well as obtaining control information.

Records that report the outcome of a particular activity should be produced by independent sources so that they can be compared to those in the area performing the task. In the event of a discrepancy, this will show a failure in the transaction log.

Methods for processing data

Depending on the complexity of an organization, the means to process data can be manual, mechanical or digital.

In order to reduce possible errors and manipulation, as well as to involve all staff members in the process, it is advisable to use software or cloud solutions that allow the monitoring of internal controls as objectively as possible.

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