Risk management and internal control are vital to a business’s financial health, but can often be put to the wayside amongst required day-to-day work. However, the benefits of taking the time to prioritize risk management can far outweigh the time put in up front. With the wide range of uncertainties faced by organizations, risk management can help you to more efficiently pursue organizational goals and create a better understanding of the risks faced.In addition, putting into place the proper internal control is a proactive action against those risks.
The Committee of Sponsoring Organizations of the Treadway Commission defines internal control as a process affected by an entity’s board of directors, management and other personnel that is designed to provide reasonable assurance regarding achievement of objectives in relation to the following:
- Effectiveness and efficiency of operations
- Reliability of financial reporting
- Compliance with applicable laws and regulations
Once in place, effective internal control should enhance opportunities and deflect risks, as the controls are not intended to be an inconvenience to a business’s daily processes. Below are just some of the common internal controls that can be implemented by a business.
- Segregation of duties – whether a small or large business, segregation of duties is important to ensure that a single employee doesn’t have control over responsibilities allowing for a higher risk of fraudulent activity.
- Approval – assigning approval rights to upper management allows for accountability and prevents the risk of employees making unnecessary or large purchases through the company.
- Access – controlling access to sensitive data can be anything from utilizing a password for digital information to storing data in a locked area with limited access.
- Timely reconciliations – reconciliation of different accounts leads to more accuracy of information, which only helps to engage in more well- informed financial decisions.
Assessing risk management and using the information to put effective internal control into place can be your organization’s first defense against fraud, and ultimately, lead to more efficiency.