Integrating Risk Management And Management Control

Having internal controls is one thing, but how the company evaluates that control is a matter all by itself. Being an independent auditor, it is our job to understand an entity and

Internal control is one of the integral parts of an organization. It is a system which controls different types of risks,

● Monitoring — Internal control systems need to be monitored–a process that assesses the quality of the system’s performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations. It includes regular management and supervisory activities, and other actions personnel take in performing their duties. The scope and frequency of separate evaluations will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the board.

There are many rules companies must follow whenever documenting financial information or any other data which is gather during any business transactions. In order for said companies to report financial information internal controls have to be put in place as companies have to adhere to certain laws and regulations. Internal controls can be defined as a process which companies follow in order to ensure all financial reporting is done in a reliable and lawful manner. Some think of it as a system which works within a system as it plays a major role on the success of a company’s accounting system. At the organizational level, internal control objectives relate to the reliability of financial

The first component mentions, control environment sets the tone of an organization, influencing the control consciousness of its people, (Cleverly, Song, & Cleverly, 2011). The authors mention of this rule being the foundation for all the components providing discipline and structure for all other internal control components. The next interrelated internal control is risk assessment is the entity’s identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed, (Cleverly, Song, & Cleverly, 2011). Then, there is the information and communication are the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities, (Cleverly, Song, & Cleverly, 2011). This is very helpful for health care organizations to implement and follow through carefully in their departments and especially billing and coding. The last internal control rule states, monitoring is a process that assesses the quality of internal control performance overtime, (Cleverly, Song, & Cleverly, 2011). These internal controls related to the corporate compliance program are all impertinent to health care

So what are internal controls? And why are they so important? Internal controls describe the policies, plans, and procedures

Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.

Auditors should always evaluate the design and test the operating effectiveness of a company’s internal control. The key procedures of the evaluation of design are fulfilled by inquires, observations, and inspections. The same procedures can be used to test the operating effectiveness as well.

Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some

Internal controls prevent errors and irregularities from happening. If errors or irregularities do happen to occur internal controls will help ensure that they are detected in a timely manner. Internal controls also encourage adherence to prescribe policies and procedures. Internal control are also put into place in order to protect employees by outlining tasks and responsibilities, providing checks and balances, and also from being accused of misappropriations, errors and irregularities.

The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

COSO goes on to state that the internal controls of an organization can be depicted graphically using a pyramid (Appendix A). The pyramid is comprised of five different layers representing the overall internal control system. Additionally, COSO depicts the components of internal control as they relate to the organizations objectives listed above (Appendix B). The “control environment” layer represents the foundation of the pyramid.

One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is

Effective internal controls protect a company’s assets, maintain compliance, improve operations, prevent fraud, and promote accuracy in financial reporting. In 1992 the

The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.