Objectives of a System of Internal Control

As we all know, each organization has its own preset goals. The organization works towards achieving these goals. When we say that the organization works, we mean the people who work in the organization help the organization in achieving these goals. In order to do so, however, there must be a system of internal control in place. Other than accomplishing the desired goals and objectives of the organization, this system plays a very important role in any organization. It is also important for the accurate financial management of the organization.

Having an internal control system is not a new concept. It has been in practice since the Ancient Egyptian Civilization. These objectives of internal control are extremely important and are much-needed in today's corporate world. Let us find out what purpose does a system of internal control serve and what are its objectives.

Compliance
Compliance with the Government laws and the accounting practices followed in the country, is an important objective of these internal control system. The compliance to these practices helps the organization to make sound investments and to make good use of the organization's money. Also, compliance with the laws helps the organization to avoid any legal issues. The accounting process also needs to be in compliance with these.

Reliability
When we talk about the money of any organization, we talk of huge sums. Chances of frauds where so much money is involved, cannot be ruled out. Reliance on the internal systems, on the people and on the accounting practices followed by the organization is important. With an internal control in place, this reliability increases. It is necessary to monitor all the accounts receivable and to honor all the accounts payable. A person alone cannot handle all work related to cash flow. Hence, a good way to control these monies is by spreading the task amongst a small group of people. Another way to control is to make use of the numerous accounting software that are available.

Safety
Safety of the organization's accounts is one of the important objectives of a system of internal control. Even the employees and the customers of the organization need to feel safe in the organization. Hence, safety can never be ignored. Formation of fool-proof policies and rules and regulations is the key to safety.

Security
Although related to safety, security is a totally different issue which needs to be handled differently. Security will involve the safety of not only the customers and the employees of the organization but also the property of the organization. Security can be physical with security guards, locks and anti theft devices used for providing protection. Security also helps in risk management of the organization.

Efficiency
Which organization can survive without being efficient? Efficiency is another important objective of a system of internal control. The internal system needs to be aware of how efficiently the organization and the employees of the organization are working. It assists in human resource management. This is important for achieving the organization's goals and objectives. Performance management reviews and implementing efficiency models like JIT and KANBAN are the ways to control the efficiency in the organization.

Financial Reporting
Accounting is related with the financial aspects of the organization. Financial reporting is, thus, important. Internal controls are necessary to ensure that the auditors and the accountants of the organization make all the financial reports correctly and to ensure that the financial planning is done accurately. These reports like the balance sheet and the profit and loss statement need to be in the prescribed form followed by the organization. They also need to conform with the basic accounting concepts and principles and the laws governing the organization.

Resource Utilization
Another objective of internal control, complete resource utilization is necessary. The resources are said to be completely utilized, when they are used to the optimum level. If a multitasking person is hired and he/she is told to finish only one type of work, then the resource is not utilized at optimum level. In other words, it means avoiding wastage of man, material, money and machines. The internal control system needs to ensure that all the resources of the organization are optimally used.

The system of internal control helps the organization in goal-setting. In order to do so, however, the organization should have certain policies, rules and regulations in place. Moreover, each employee of the organization must be aware of his/her role in achieving the goals. They must be given duties and responsibilities along with some authority. Only then will these objectives be realized and the organization will progress well.