Top three benefit of good internal control
Benefit one: Business process improvement
One byproduct of implementing strong internal controls is business process improvement. When companies start to take a close look at their business processes and document, measure, and monitor them, they can make them more efficient and streamlined. It gives companies a chance to examine their processes closely and ask themselves probing questions such as, “Why does it take seven people for us to do something, when Company X only needs three people to do the same thing?”
Benefit two: Management by exception
By establishing a norm (such as “The process works this way and when it doesn’t, a control will alert us”), companies learn to manage by exception. Controls start to function as a barometer of how things are operating in the company — and give an early warning of how things could go awry, or an indication of trends. Controls can also flag how companies need to change or improve their processes. If companies don’t continue to assess their controls and respond to the changes that controls indicate are necessary, they could be considered negligent.
Benefit three: Real-time monitoring
Automated internal controls are like traffic cops. They prevent accidents (by directing the flow of traffic), detect accidents (by listening to the radio), and clean up after accidents (removing damaged cars and calling an ambulance to take the injured to hospital). (We cover automated controls in more detail in the section, “Seeing How Automated Controls Make Things Easier” later in this chapter.)
Like traffic cops, automated internal controls can be on duty 24 hours a day, seven days a week, monitoring both past activity and activity taking place in real time. In any automated process, key points in the process should serve as checkpoints to make sure that previous steps were completed and the next processing step is ready for execution. In most companies, the checks and balances used to monitor the automated processes rely on staff to review reports or transactions to make sure that the transaction is recorded accurately and in accordance with accepted accounting guidelines.
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