Internal Control Businesses

Internal control businesses

Introduction

The internal control originated after the appearance of accounting and its double starting principle in the fifteenth century, but it was not until the end of the 19th century where businessmen felt the need to create a system to control delegated tasks and functionsTo its staff, it is there that as a consequence internal control is born, as a tool to control and prevent fraud and errors, mitigate risks and protect their interests.

According to the above, internal control arises as an activity of management management, which has the participation of each of the members of the organization to ensure and verify that its operations are effectively developed for the achievement of the objectivesproposed.

Developing

In short, internal control is a preventive process whose purpose is to provide reasonable security that organizational activities are aimed at achieving the objectives and goals, as well as guaranteeing compliance with the applicable legal framework and safeguarding the resources of the entity"

On the other hand, another author indicates that internal control is a continuous, dynamic and comprehensive process, carried out by the officials of an entity, which allows identifying and preventtransparent.

In this sense, the importance of internal control is that applying a good control system, regardless of the size, mission or nature of the company, will have great impact on the operation of its activities, being essential that its design and implementation is of knowledgeof all personnel because thanks to them the development of the same is possible.

In addition, an internal control system responds to the needs of an organization, ensures the effective and efficient use of its resources, guaranteeing the growth of the entity through reliable, ethical and complete management of its operations.

When talking about internal control as a process, it refers to a series of actions implemented to all activities within the management and integrated to the other basic processes of the same, such as: planning, execution and supervision . These actions are incorporated into business activities and their correct execution will save the entity’s assets, thus achieving better results that are polished to meet the goals proposed by senior management, and above all the effects ofThese operations decisions are reflected in the company’s financial information, which will serve as a tool to take.

Likewise, according to Estupiñán (2015) the application of a control in the organization will guarantee the achievement of objectives directed in meet: a) the efficiency and efficiency of operations, b) Reliability in the accounting system, c) Protection of resources, d, D) Compliance with applicable laws and regulations, and e) detection of deviations and error prevention.

All these objectives will improve the financial and administrative management of the company, through the application of control plans in the basic processes of the same, in order to achieve the competitiveness of the business and that this is positively qualified by the control entities to be governedto current laws and legal regulations.

In addition, internal control is made up of five components: control environment, risk assessment, control, information and communication activities, and monitoring and monitoring. All these elements will help to minimize the process to follow for the proper management of the operations, taking into account that they are interrelated, which will allow applying the best control system in the entity, knowing that through them they will be achievedhave lasting and reliability in the environment.

Fraud in organizations

In recent years, fraud has become a common term in both public and private companies, being one of the main problems of society. For Sarango & Tipán (2014), fraud "refers to an intentional act by one or more individuals among the administration, employees, or third parties, which results in a wrong representation of the financial statements" (P.41).

On the other hand, the International Audit Standard 240 defines fraud as an intentional act carried out by one or more people in the management, those responsible for the entity’s government, employees or third parties, which entails the use of deception in order toget an unfair or illegal advantage.

In this sense, fraud can be perpetuated by people who are directly or indirectly involved in the organization, which commit irregular activities or processes to benefit financially, taking advantage of the confidence that has been given to it, and in the same way, having access to important information, they are easy to carry out this crime.

Likewise, the technical audit standards regarding errors and irregularities, indicates that these fraudulent actions can be given by: a) manipulation, falsification or alteration of documents, b) undue appropriation and irregular use of assets, c) suppression or omission ofThe effects of transactions on records or documents, d) Registration of fictional operations, and, e) undue and intentional application of principles and accounting standards.

Considering the above, there are multiple irregular activities that could be committed when there is a failure of controls and measures to prevent fraud, where frauds find the precise way to achieve their goal, using the power they exercise in a company, thinking onlyTo your benefit.

On the other hand, according to studies carried out by Donald Cresey in 1961, fraud can be perpetrated or persuaded by three important factors, which called it "the fraud triangle" and these are: the incentive, which occurs when the administration or theemployees have a stimulus to do so;The opportunity refers to weak and ineffective controls in the processes, so it will be easier to commit this crime;and rationalization, which is related to the moral of the perpetrator

These factors directly affect the fraud to commit such a crime, where it is essential that companies reinforce their control systems, so that their operations are carried out without any novelty, focusing mainly on imparting ethics and integrity between theiremployees, and above all, encouraging them to commit to being loyal to the organization.

At present, fraud in organizations has been very valid, so it is necessary to identify the existing fraud types, so that the Association of Certified Fraud examiners [ACFF] (2020), points out the following:

Internal fraud, also known as labor fraud, is that an employee, manager or executive commits some type of irregularity through the misuse or application of the resources or assets of the organization, while external fraud, occurs when suppliersdishonest participate in tenders manipulation schemes, billing for the company for non -provided goods or services or so brief requests to employees and also, when dishonest clients present checks without funds or information from a falsified account for payment (P.3).

Therefore, it is essentialFraud, where the administration must be attentive to possible strange behavioral features that any of its employees may present, which is a warning sign that something suspicious is happening.

Continuing with the International Audit Standard 240, this indicates that the prevention and detection of fraud is the responsibility of the administration, which implies the commitment to create and generate a culture of honesty, integrity and ethical behavior among its employees, monitoring and continuously controllingThe fulfillment of them (Mayorga, 2016).

Thus, the possibility of mitigating risks in the organization is everyone’s task, mainly from the management, who have to monitor that the application of fraud prevention measures are executed as planned, so that it is not an impediment thatThe company meets its goals and objectives.

Control environment in organizations

Internal control in an organization is of vital importance for fraud prevention and detection, which is why establishing a good control environment is essential for activities to develop effectively. Therefore, Guerrero & Mangones (2016) defines the control environment such as:

A set of actions, policies and procedures that reflect the general attitudes of the high levels of administration, directors and owners of an entity in terms of internal control and its importance for the organization, has great influence on the way the activities are structuredof a company, the objectives are established and the risks are valued (P.35).

Thus, the control environment is the basis of internal control and its development implies the participation of all members of the organization, where the ethical values and integrity of them are highlighted, which is reflected in the performance of their operations.

Thus, a timely control environment establishes the good practices of a favorable organizational environment, based on the development of appropriate values, behaviors and rules among its members, in order to generate a culture of internal control (technical internal control standards, 2014).

In this context, human capital is essential for the execution of operations and are those that make the growth of the organization possible, so it is essential that from the first moment they enter their work, there is an organizational climate conducive and aboutEverything, which is accused that thanks to them the company will comply with all the proposed goals.

On the other hand, the control environment consists of eight key factors, among them we have: a) Philosophy of the management, b) integrity and ethical values, c) organizational structure, d) Human Resources administration, e) Professional competence,f) Assignment of authority and responsibilities, and g) Board of Directors or Audit Committee (Lazaro, 2018, P.fifteen).

All these factors contribute in the development of an effective control environment, where each one must maintain a considerable balance to strengthen controls in the organization, being of vital importance that continuous monitoring is carried out so that failures do not happen on the roadthat can weaken the rest of the components, knowing that the control environment is key to maintaining a stable organizational culture.

In addition, the control environment factors propitiate “the development of a positive and support attitude for internal control and for a scrupulous administration” (Comptroller General of the Republic, 2020, P.4). Therefore, this component is based on the actions and policies that will help the management to guide and structure the essential points that will be interrelated with the other internal control components, so that the activities of the company are executed effectively and therefore, it will bemay prevent fraud and irregularities.

It is worth mentioning that an entity committed to integrity and ethical values develops and uses a code of conduct and other policies to communicate adequate ethical and moral norms of behavior and deal with conflicts of interest, undue payments, adequate use of resources, activities, activitiesPolicies, among others (Condori & Villanueva, 2016).

This and other measures that constitute and structure the control environment will be of great support for the responsible personnel to establish a reliable control system that provides security in the execution of the operations, controlling that they do not deviate and are not causingThe possible risks that could occur in the entity.

In this way, for internal control to be carried out as expected, for correct supervision of the measures raised, senior management creates an audit committee or a board of directors to delegate such responsibility, which is composed ofIndependent Members (Guerrero and Mangones, 2016).

In this sense, this committee is established with the purpose of complying with all the provisions developed and in this way it will be supervised that the factors described above are complied with by all personnel, regardless of the position they perform or their work area, having betweenIts main functions, monitor that financial reports are transparent and prepared as the law says, and also prevent senior executives from commenting errors or dishonest in the processes.

Likewise, it is essentialactive in the company’s processes, generating an environment of trust and fidelity.

conclusion

In short, the control environment is key to establishing and having indispensable elements to exercise discipline among staff, which will help develop measures to periodically evaluate the processes and above all, the risks that may appear, which leads to aInternal control system really function as a fraud prevention tool for the organization.