How do companies choose their strategic control system? What is the nature and function of the strategic control system? What are the essential elements of a strategic control system? What is the nature and function of the internal control system as an important element of a strategic control system?
This strategic policy question relates to the optimal role of an organization’s internal control systems, processes and procedures designed to create and maintain operational performance excellence that maximizes return on investment and shareholder wealth while minimizing risk exposure and operating costs, simultaneously.
Obviously, an effective internal control system is correlated with optimal operational performance excellence and is important for a good organizational system and strategy designed to maximize the wealth-producing capacity of your business enterprise. In this series on organizational performance excellence, we will focus on the pertinent strategic control system question and offer some operational guidance.
The main objective of this review is to highlight some of the conceptual frameworks, theory and practice of quality management, strategic relationships, and industry best practices. For specific financial management strategies, please consult a competent professional.
Internal control as an integral part of the strategic control system is a series of interrelated activities imposed on the organization’s standard operating procedures, designed to protect assets, minimize errors, and ensure that operations are performed according to standards.
While a strategic control system establishes standards and methods for measuring performance, determining whether actual performance matches the expected performance standards, and implementing corrective actions, internal control is designed to reduce the level and type of risk the organization faces.
Furthermore, while control systems ensure operational effectiveness, control activities often slow down the flow of routine business operations processes, which can reduce overall efficiency. Therefore, the design of the internal control system requires management to balance risk mitigation with operational efficiency. This process can sometimes result in management accepting a number of risks in order to create a strategic profile that allows the organization to operate more efficiently and effectively, although it sometimes suffers the loss of control being deliberately reduced.
In addition, all organizational strategies that are subject to limited optimization have costs and benefits. The critical question is: Are the benefits worth the costs? In practice, executive leadership applies a net present value approach to weighing the costs and benefits of structures, systems, and strategies. The optimal choice maximizes net profit by equating costs and marginal profits.
Some Operational Guide
In general, no organization is immune to misappropriation, embezzlement or corruption – be it unintentional or intentional. Many organizations do not assess the abuse or threat of corruption until it occurs.
An effective system of internal control must be designed to reduce the level and nature of risk experienced by the organization. In practice, as an integral part of internal controls, organizations leverage technology-enabled solutions to scan the entire spectrum of operational risk, immediately.
The ability to quickly identify potential high-risk internal and external transactions before they have a negative impact on the organization is critical to an optimal system of internal control designed to create and sustain operational performance excellence derived from business intelligence, risk mitigation, data analytics, and evidence-based knowledge. effectively pushed. organizational systems, processes and procedures.
In addition, internal control should provide the mechanisms, rules, and procedures implemented by the organization to ensure the integrity of financial and accounting information, facilitate accountability, and reduce fraud and the entire spectrum of operational risk.
In addition to complying with laws and regulations, and preventing employees from misappropriating assets or committing fraud, internal control must facilitate operational efficiency and effectiveness by increasing the accuracy and timeliness of financial reporting.
The objectives of effective internal control should include regulatory compliance, accuracy, validity, physical safeguards, and error mitigation. Control procedures should include segregation of duties, access controls, random physical audits, standard documentation, trial balances, periodic reconciliations, and approval authorities.
Controls should always include policies and procedures in place to ensure the continued reliability of the accounting system. Accuracy and reliability are paramount in accounting systems. Without accurate accounting r Yes, managers cannot make fully informed financial decisions, and financial statements may contain catastrophic errors. Control procedures in accounting should be broken down into categories, each designed to prevent fraud and identify damaging errors before they become problems or crises.
Control systems must fully meet regulatory requirements, meet stakeholder expectations and protect the organization from potentially devastating financial and reputational damage. When properly implemented and integrated, organizational risk mitigation, anti-abuse, anti-bribery and anti-corruption technology-based solutions should utilize digitally enabled analytics and advanced monitoring tools to help organizations scan the entire compliance and operational risk spectrum, so they can more intelligently anticipate, mitigate, and manage risk.
While smaller organizations with limited resources are not always capable of performing complex internal controls including task and separation decisions, internal control systems tend to increase in complexity as the size of the organization increases. Establish standards and methods for measuring performance; determine whether actual performance matches the expected standard performance; and taking corrective action should always be an integral part of effective internal control.
Finally, internal control is most effective when it is implemented and supported by a culture of assessment and continuous improvement. Therefore, effective internal control must consist of an integrated process to ensure the organization’s objectives of operational efficiency and effectiveness, reliable financial reporting, and compliance with laws, regulations and policies are met. Controls should include the effective use of firewalls and encrypted passwords that restrict internal and external access to critical business intelligence, proprietary, accounting, and other financial information. Systematic measurement, analysis, and knowledge management require the results of internal control to be collected, analyzed, and used for continual improvement.
In short, control systems must provide processes and procedures by which organizational resources are directed, monitored, and measured. The internal control system should include a human element such as a board of directors that performs effective oversight and an independent internal auditor who conducts periodic randomized audits and unscheduled verifications. Control systems, processes and procedures are very important in detecting and mitigating high-risk activities and preventing various types of abuse and protecting organizational resources, both tangible and intangible resources.