Create Business Success by Creating Controls
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The successful operation of a business requires control by top managers and
owners. This is true whether we're talking about a large Fortune 500 company or
a small privately owned mom and pop business.
Policies and procedures are put in place to give top management confidence
that the company's objectives are being met. These policies and procedures are
called Internal Controls.
There are 2 main types of Internal Controls - Accounting Controls and
* Accounting Controls are designed to safeguard the assets of the company and
to insure that accounting records and financial statements reveal reliable
* Administrative Controls are designed to insure quality job performance by
employees with regard to company operations and compliance with all applicable
laws and regulations.
The ultimate purpose of Controls is to prevent errors and fraud and to
promote efficiency. Controls should help to eliminate or reduce surprises and
keep the company moving toward it's goals.
Controls include a range of responsibilities such as: approvals, performance
evaluations, separation of duties, account reconciliations, verifications,
authorizations, passwords, etc. They also include policies regarding employee
conduct such as personal phone use, harassment, or safety while traveling on the
job for example.
But we have to acknowledge that no system is foolproof. It's possible that
conspiring employees can cover up small or large embezzlement, no matter what
policies are in place. Controls can provide reasonable, but never absolute,
assurance to management
When establishing Controls, companies are always limited by the reality of
resource constraints. Controls must be monitored and checked by supervisors and
managers. So the benefits of controls must be weighed against their costs to the
While Internal Controls are made up of specific policies and procedures, they
should be thought of as an ongoing process. They need to be reevaluated and
updated on a consistent basis to accommodate for internal changes such as
Control activities should be promoted throughout a company, from the top
levels of management down to entry level positions. Each employee's job
description should include the responsibility to communicate operations
problems, violations of the code of conduct, or illegal activity to their
superiors immediately upon observation.
The best way to insure that errors and fraud don't occur is to hire the right
people. Bringing in employees who are competent, honest and believe in
conducting themselves with integrity, is the best way for owners or managers to
sleep well at night.
"The individual is the central, rarest, most precious capital resource of our
society." -Peter Drucker (1909-2005)
About the Author
Laura Adams is the host of the popular MBA Working Girl Podcast. The content
combines brainy business school theory with real-world business practice from
her career as a business owner, manager, consultant and trainer. Subscribe for
FREE to this top-rated show and get the useful MBA Essential Tip at
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Article Published/Sorted/Amended on Scopulus 2008-01-03 11:55:38 in Business Articles