Internal Controls: Tool for the company’s success

Purpose: The paper examines the effectiveness of internal control systems, explores the exposure of Spanish banks to the dangers of default as a result of internal control systems and establishes a relationship between internal controls and credit risk. Design/Methodology/Approach: Quantitative research approach is used to test hypotheses on the relationship between internal controls and credit risk among listed banks in Spain. Data from Bankscope and company websites from 2004-2013 were used. Generalized Least Squares (random effect) econometric estimation technique was used for the model. Findings: We find that internal control systems are in place but their effectiveness cannot be guaranteed. This exposes Spanish listed banks to serious default situations. There is significant effect of internal controls on credit risk especially the control environment, risk management, control activities and monitoring. The non-disclosure of material internal control weakness is a contributory factor to the ineffective internal control systems. There is however a perceived board ineffectiveness which does not augur well for effective internal control systems. Board characteristics for Spanish banks confirm the agency theory. Research Limitations and Implications: Data unavailability for certain years, variables and many inactive banks did not permit a larger sample size than expected. The use of quantitative variables lacks flexibility. Practical Implications: Bank management will find the work useful to ensure strict enforcement of internal control mechanisms and see it as both credit risk and operational risk issues. Central bank should hurry to compel banks to disclose material internal control weakness as provided in the reviewed COSO framework. Social Implications: Ineffective internal controls lead to credit risks, bank closure and loss of investments. Society suffers a lot from such losses and contagion. Disclosure of material internal control weakness is a social responsibility of banks. Originality/Value: The authors are yet to come across the use of purely quantitative variables to model the effect of elements of internal controls on credit risk. This study opens and adds a new dimension of internal controls not only to be seen as operational risk issue but also credit risk.

В статье исследуются вопросы организации систем внутреннего контроля как формы реализации рисковой функции страхования. Анализируются статистические данные по рынку страховых услуг и обосновываются направления развития системы внутреннего контроля и аудита страховых организаций, её взаимосвязь c государственным финансовым контролем финансовой устойчивости субъектов страхового дела. Рассматривается автоматизированная система внутреннего финансового контроля и аудита, построенная на принципах риск-ориентированного подхода в соответствии со стандартами Solvency II, как механизм, способствующий достижению локального компромисса в отношениях участников страховых экономических отношений. В ходе проведения исследования был сделан вывод о том, что страховым организациям необходимо внедрение эффективной системы внутреннего контроля, которая позволяла бы органам страхового надзора осуществлять превентивное выявление рисков потери финансовой устойчивости и платежеспособности субъектов страхового надзора.Цель – разработка модели системы внутреннего контроля и аудита страховых организаций в системе государственного страхового надзора в соответствии с риск-ориентированным подходом.Метод или методология проведения работы: статья подготовлена на основе проведения кабинетных исследований, информация собрана посредством качественных методов сбора данных, а именно сравнительного анализа, факторного анализа, формализованного контент-анализа.Результаты: разработана модель системы внутреннего контроля и аудита, основанная на принципах риск-ориентированного надзора в целях ранней диагностики рисков страховых организаций.Научная новизна исследования – разработка рекомендаций по совершенствованию принципов и методов внутреннего контроля и аудита страховой организации в системе государственного страхового надзора, построенной на принципах риск-ориентированного в целях превентивной диагностики рисков страховщика.Область применения результатов: полученные результаты целесообразно применять субъектами страхового надзора, в частности страховыми организациями и органами страхового надзора.

Under the current conditions of the economic development, the management of entities requires information in order to make efficient economic decisions to achive the objectives by taking the respective risks as well. To achieve this goal, among other things, the organization of effective internal control systems and accounting is important. Financial scandals at the beginning of the XXI century highlighted the deficiencies and indicated the need to establish effective internal control systems and risk management. Small and medium enterprises currently represent the major part of economic activities throughout the world. In Albania, they represent the largest proportion of all types of enterprises, providing a lot of opportunities for employment. Mechanisms of internal control are a tool and a way of monitoring the human resources activities of SMEs. It plays an important role in the prevention and detection of fraud and protection of physical and intangible resources, and leading to high efficiency and smooth functioning of the business. This study examines and describes the effectiveness of internal control systems in Albanian small and medium size enterprises. The study focuses on the five main components of internal control and their impact on achieving the company’s objectives. To achieve these objectives we formulate one research question: To what extent does the internal control system of SMEs comply with the principles of effective internal control? The literature review chapter is based from various resources such as books, articles and online papers. We will use questionnaire to collect data pertaining to the five essential and interrelated components of internal control: control environment, risk assessment, information and communication, monitoring and control activities. After obtaining adequate theoretical framework and practical data, a comprehensive analysis is carried out based on these data. This study has shown that SMEs in Albania has a solid and effective internal control system, but still it needs more improvement and generally it requires more attention from the board members.

The article is of interest to internal control specialists who carry out their activities, both within the system of the Ministry of Defense of Ukraine and the Armed Forces of Ukraine, as well as in other bodies of state power, institutions and organizations of any form of ownership. Also, the results of the study will be useful to the audit team as a service that is directly involved in the process of assessing the effectiveness of the functioning of the internal control system. In the article, through review of normative legal documents, an analysis of the formation and functioning of the internal control system, both in the Ministry of Defense of Ukraine and the Armed Forces of Ukraine, as well as in the state as a whole, was conducted. The place and role of internal control in the general system of state internal financial control, in addition to the internal audit and the harmonization unit within the Ministry of Finance of Ukraine, have been established. The role of the main international standards of state internal control in the development of state internal financial control in Ukraine is determined. It is formulated that the system of internal control in the process of its functioning, like any other system, is exposed both by external and internal factors. The list of existing factors influencing the functioning of the internal control system through analysis in three directions is determined: analysis of the guidelines and the main international standards governing the functioning of the internal control system, the analysis of scientific articles, scientific works in the relevant field, interviewing with specialists of internal control of the Ministry of Defense of Ukraine. The above made it possible to distinguish external and internal factors in the context of the problems of this article. Internal and external factors have been investigated in the context of managed and unmanaged factors. The results of this research are the starting point for solving the scientific task of substantiating the scientific and methodical apparatus for assessing the effectiveness of the functioning of the internal control system in the system of the Ministry of Defense of Ukraine and the Armed Forces of Ukraine.

The Alignment of Internal and External Control Mechanisms: The Differential Market Valuation and Performance Effects in High-Growth Versus Low-Growth Industries

Evaluation of the government's internal quality control system (SPIP) in the implementation of good governance at the Gorontalo district regent's office. In order to realize quality internal control of government quality, an evaluation of the implementation and internal quality is carried out through research. The method used in this research is descriptive quantitative evaluation of the research sample totaling 31 regional employees. Data collection techniques are questionnaires, observations and documents. The data in the study were analyzed by the percentage formula (%). The research results show that. (1). Evaluation of the government's internal quality control system (SPIP) in the implementation of good governance with control environment indicators is in the less effective category with a percentage of 69,93%. (2). Evaluation of the government's internal quality control system (SPIP) in the implementation of good governance with risk assessment indicators is in the less effective category with a percentage of 68.01% (3). Evaluation of the government's internal quality control system (SPIP) in the implementation of good governance with indicators of control activities in the effective category with a percentage of 70.48%. (4). Evaluation of the government's internal quality control system (SPIP) in the implementation of good governance with indicators of information and communication is in the effective category with a percentage of 74.19%, (5). evaluation of the government's internal quality control system (SPIP) in the implementation of good governance with indicators of monitoring and internal control is in the less effective category with a percentage of 68.81%.

Purpose: This study aims to investigate the implementation of internal control in religious institutions, especially church institutions. A difference in church governance certainly differentiates the church's internal control, so the issue of internal control is very important and interesting for further investigation.
 Methodology: This study used a sample of 100 churches. The researchers used questionnaires in data collection. The sampling method used is the purposive sampling method. To see whether there are differences in internal control between different church governance styles, the researchers used the chi-square analysis.
 Results: The findings of this study are as follows: all churches have realized the importance of accountability that must be held to gain the trust of their congregants. Hence, all churches sampled in this study already have an internal control system. This study found differences in the systems based on church governance. Therefore, it is known that governance differentiates churches’ internal control systems.
 Implications: The implication of this research is that a church must have an effective internal control system. This is necessary because the church must be accountable to all of its stakeholders, especially the church congregants. The implementation of the internal control system may differ according to the church management system. However, the elements of the internal control system must be the same even though the process of implementing the internal control system is different.

In the increasingly competitive market of today’s society, to survive has been inseparable from the development of internal accounting controls for enterprises. Practice has proved that the internal accounting control system is an important component of modern enterprise management, is to ensure sustained and healthy development of enterprises and is an essential element of business success. Since the small and medium-sized board listed company went public in 2004, the relevant departments of China continue to raise its operating characteristics, revise and supplement the relevant accounting regulations. However, the internal control of the enterprise remains a problem, therefore, to strengthen internal accounting control construction can be said to have emerged. Small plates listed family companies control more serious, the chairman has the absolute controlling stake in that company’s separation of ownership and management is very low. Based on these problems, in combination with the actual situation of small and medium-sized boards of listed companies, we can learn more mature theory of internal accounting control, analyze deeply and research the problems of internal accounting control, and put forward the countermeasure and the suggestion. Its purpose is to help rationalize business activities, legalization, in order to improve economic efficiency of enterprises. Sound and effective internal accounting controls can help identify the small board listed company’s internal accounting control deficiencies, and the analysis of practical problems will promote a more efficient and healthier development for the small plate of listed companies. To combine the actual situation and the theoretical basis of the small and medium-sized boards of listed companies, it can provide better suggestions and comments for the internal control system, so that through a more scientific analysis of the internal accounting control of small and medium-sized boards of listed companies, to identify existing problems, we can put forward a reasonable approach.

The basis of the successful activity of a business entity is an effective internal control system, the effectiveness of which directly depends on the assessment of the risks of the enterprise's activities. Therefore, an important issue of scientific research is the determination of methodological approaches to the optimal interaction of participants in the process of risk management and internal control in order to increase the efficiency of domestic enterprises. In the process of research, general scientific theoretical and empirical methods were used, based on systemic, historical and complex approaches: analogy, comparison – when revealing the issues of the synthesized functioning of risk management and internal control systems; modeling, generalization – when studying the constituent elements of the methodological tools in the enterprise management system. The work proves that in order to increase the efficiency of the enterprise's activities, it is worth introducing an integrated approach to the internal control system, which should be based on the interaction, unification, functional coordination of participants in internal control and risk management, taking into account the industry specifics, scale of activity, regulatory and legal environment, corporate culture. For optimal interaction of all participants in the risk management and internal control process of the company, it is proposed, based on the provisions of the “Three Lines of Defense” model, to introduce into the current practice of the enterprise a mechanism for coordination and partnership interaction of all participants in such a process, with consolidation in the relevant internal regulations. In this regard, a format of the model of the internal standard of risk management of the company has been developed for implementation, which takes into account the specifics of the enterprise's activities, creates a basis for increasing the value of the company, and ensures business efficiency. It is substantiated that the interaction of participants depends on the organizational and functional components of the internal control system. Therefore, in the logic of the integrated approach, an organizational and functional model of internal control has been built at the appropriate levels and taking into account the synthesizing components, which should ensure optimal interaction of participants in the risk management process in the control sphere.

There is a general consensus that internal Control systems are important management tools in financial management. There has been controversy as to why there is a declining profitability trends among Small and Medium scale Enterprises despite government’s commitment to availability of funds. Economic Survey 2017 statistics indicate a tremendous growth in profitability of small and medium scale Enterprises in Kenya over the last ten years; constituting about 96 per cent of all business enterprises in the country; yet 71% of the business start-ups do not operate beyond their third anniversary. Empirical studies on internal control systems yielded mixed results and focused on different firms rather than SMEs. However, little is known on the effect of internal control systems on the financial performance of distribution companies. The main objective was to analyze the effects of internal control systems on financial performance of small and medium distribution companies. The specific objectives of the study were to: determine the effect of control activities; find out the effect of risk assessment; establish the effect of information and communication on financial performance Moonbluez Enterprises Limited. The study was anchored on Agency and Reliability theory, and a conceptual framework showing the interaction between internal control systems as the independent variable and financial performance as the dependent variable. Correlational and case study design was adopted targeting all the 38 employees while employing census survey technique. Primary data was collected using questionnaires and secondary data was collected from relevant books, journals and periodicals. Reliability and validity of the instrument was checked using test-retest technique and expert reviews and Pilot study was conducted of the 4 employees of Moonbluez enterprises. Descriptive statistics such as mean and standard deviation and inferential statistics such as Pearson’s correlation and multiple regression analysis was employed to analyze the data. Presentation was done by the use of tables and charts. The results of the study may help identify gaps within the systems of internal control at Moonbluez Enterprises Limited and in the distribution industry at large especially among small and medium sized entities. Further the study may also add to the existing knowledge bank regarding book keeping, internal controls and financial performance among small and medium sized enterprises in Kenya. Scholars and researchers who would like to carry out more studies on internal Controls and financial performance in small and medium sized entities may find the study beneficial. Keywords: Financial Performance, Internal control, Risk Assessment, Control activities DOI : 10.7176/RJFA/10-20-02 Publication date :October 31 st 2019

This study develops and tests a moderated mediation model regarding the effectiveness of internal control structure on organizational ethical behaviors via the mediating role of internal control effectiveness and the moderating role of organizational mindfulness in the relationship between internal control structure and internal control effectiveness. The proposed model and its hypotheses were tested using partial least squares structural equation modeling (PLS-SEM) in SmartPLS3 with survey data from 540 large Vietnamese manufacturing and service firms. This study found the following: (1) The internal control structure positively affects internal control effectiveness, which in turn promotes ethical organizational behaviors; and (2) The effect of internal control structure on internal control effectiveness is amplified by strengthening organizational mindfulness. The findings demonstrate that combining internal control systems and organizational mindfulness contributes to the ethical business practices of firms in an emerging market. Our study bridges the gap in the literature on internal control and mindfulness by providing empirical evidence on how the interaction between organizational mindfulness and internal control systems can promote ethical business practices. Additionally, our study advances the current understanding of how internal control systems can interact with organizational mindfulness to influence ethical business practices in the context of an emerging market.

The concept of Public Internal Financial Control (PIFC) has been developed by the European Commission in order to provide a structured and operational model to assist national governments in reengineering their internal control environment and in particular to upgrade their public sector control systems in line with international standards and EU best practice. The democratic changes affecting all areas of life in the last years, have led to reforms in the management of public finances of the public sector in the Republic of Albania. On the road of the accession to the European Union, Albania is in the process of important conceptual, legislative and structural reform of the Public Internal Financial Control framework with the aim of strengthening the managerial accountability of the managers of public sector organizations and further develop independent internal audit. The paper aims to give some key issues regarding PIFC development in Albania such as: the level of transparency regarding the status of the financial management and control and internal audit in the public sector; the awareness of the Heads of public organizations about the importance of sound financial management and control and to enhance their managerial accountability; information about the self assessment of the heads of public sector organizations on the adequacy and the effectiveness of internal control and about the progress made. It also outlines the weaknesses, solutions and development opportunities based on the assessment of the status of the financial management and control systems as well as of the internal audit. Through conclusions it summarizes the main directions in which the Albanian institutions must be focused in the future for further development and improvement of management of public resources. The development of the new model of public internal financial control in Albania demands from all the participants in the process, leading to effective action in accordance with their roles and responsibilities. Only proper implementation of new legislation and efforts by all stakeholders can lead to achieving the goal - to create a modern system, reliable and functioning of public internal financial control. In this regard the CHU/FMC will outline specific measures related to strengthening managerial accountability and updating of legislation and methodology in the field of internal control in accordance with EU legislation and best practices. As one of the three pillars of the Public Internal Financial Control System, Internal Audit has developed and continuously improved in order to take its modern role as advisor for the assessment and systems and contributing to the achievement of strategic and operational objectives of the organization, always in accordance with international standards and best practices. DOI: 10.5901/ajis.2014.v3n4p301

On the basis of determining the basic objectives of enterprise internal accounting control, we should divide and design the specific objectives of enterprise internal accounting control according to the level of corporate governance structure and the content level of enterprise internal accounting control objectives, so as to implement the requirements of enterprise internal accounting control system concretely. As the third information technology revolution after personal computer and Internet technology, cloud computing's brand-new business model and concept have a profound impact on the production and operation activities of enterprises. To realize the internal accounting control of enterprises, it is necessary to construct the internal accounting control objectives correctly and reasonably, and carry out hierarchical design according to the relationship between powers and responsibilities in the corporate governance structure and the contents of the internal accounting control objectives. This paper analyzes the concept of cloud computing, its influence on the internal control of enterprises, and how to realize the internal control in the cloud computing environment, and puts forward the methods and strategies for the objective construction and hierarchical design of the internal accounting control of enterprises.

Internal control systems play a very critical role in the attainment of organizations goals and objectives. Introduction and implementation of such internal controls in all areas of an organization may only be beneficial if it attains the required level of performance or effectiveness. Inventories still remain the biggest cost element in most organizations and especially in learning institutions where they influence the success of their programs. This study sought to assess the extent to which the internal procurement control processes are effective in safeguarding inventories at Rift Valley Institute of Science and Technology (RVIST). A total of 351 employees from all the nine departments in the institute who are involved in the procurement, storage, distribution and usage of inventory were taken for the study’s target population. The sample size of 187 employees was selected using stratified sampling method as study’s respondents. Structured questionnaires were used as tools for collecting data and were distributed to the respondents with the approval of the relevant authorities. All questionnaires were administered personally by the researcher and the respondents were given one week to fill them. Spearman rank order correlation and regression analysis were used to establish the relationship between internal procurement control systems and the effectiveness in safeguarding inventories. From the findings, internal procurement controls were effective in safeguarding inventories at the institute. The study recommends for due consideration of internal procurement control systems as an integral part of safeguarding and securing inventories

On account of new challenges to internal control of companies in IT intensive environment, it is necessary to enable internal control through information system integration. According to literatures ISI fosters an enabling approach to management control in terms of each of the four design characteristics which are repair, internal transparency, global transparency, and flexibility. Effective internal control system is not only a technical issue, but also a managerial issue. This literature demonstrated how to set and optimize a technique-managerial embedded internal control system. ISI through ERP is an enabling approach to control allowing for a more sound solution of both technical and managerial aspect. The integrated information architecture underlying ISI will foster the four design characteristics underlying an enabling approach to control therefore optimize internal control system through system integration, good information and communication, business process reengineering and IT techniques itself.