Creating an internal control system through internal audit: A scheme for developing business processes

The need for internal audit firms in India has become especially urgent against the background of the global crisis and a series of corporate scandals caused by weak control of internal management processes.

A systematic approach proposed by internal audit companies in India is necessary to create or develop an effective internal control system in any company as it is a regulatory element of the company’s management system, which provides the principle of “feedback” to achieve the goals.

There are 3 main stages identified by experts for the creation and development of the internal control system:

• Examination of the internal control system’s current state;
• Development of a target model of the internal control system;
• Development and implementation of measures necessary for the transition to the target model of the internal control system.

The third stage includes 4 components:

1. “Internal environment” – the creation of rules and conditions for the sustainable and efficient functioning of the company;
2. “Processes and structure of the company” – how our company functions in dynamics;
3. “Competent staff” – what kind of employees are needed and how to organize their work;
4. “Structure of internal control system”- the structure of the internal control and risk management system (in this block more focus is put on the two interrelated tools to achieve the company’s goals: internal control and risk management).

How the internal environment of the company affects the work of the internal control system?

The internal control environment can either enhance or weaken the impact of negative factors on the company’s activities. In other words, the control environment does not directly influence control procedures but acts indirectly.

For example, the lack of regular budgetary control in a company can lead to inefficient use of resources, and even to theft.

The absence of an internal control system and regulated procedures for monitoring the conclusion of contracts can lead to untimely management decisions. Which is fraught with disruption of the uninterrupted flow of the relevant business processes.

It affects the quality of external audits and, accordingly, the quality of financial reporting. It can also lead to serious violations within companies, significant financial losses, and even bankruptcies.

To avoid this and to implement good internal control in your company, the assistance of internal audit companies in India is needed.

One of the important types of control is control over the preparation of financial statements. Due to this, an internal audit is more effective than an external audit, as due to a better knowledge of the business, the internal auditor can provide more effective advice.

Internal audit is especially important in a period of increased competition, increased responsibility for violations of budgetary and other legislation, and plays a huge role in the post-crisis period. Nevertheless, not all managers understand the functions of the internal audit. Internal audit firms in India perform the functions of monitoring the financial and economic activities of the organization, acting as both a consultant and a controller of all internal financial processes within a company.