Justification for an internal control system
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Leadership confronts you, as a controller, and questions the need for an internal control system.
Write a report in 700 words, justifying the need for the system when controls are in place with insurance and portfolio approaches.
Explain why current approaches are valid but why an internal control system will be more beneficial.
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Solution Summary
Leadership confronts you, as a controller, and questions the need for an internal control system.
Write a report in 700 words, justifying the need for the system when controls are in place with insurance and portfolio approaches.
Explain why current approaches are valid but why an internal control system will be more beneficial.
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An internal control system is integral to insurance and portfolio approaches. In an insurance approach, the company is purchasing insurance as a protection from the highest degree of risk. This is an effective way to mitigate risk, but is not comprehensive enough to be used as a standalone measure for risk mitigation. All companies should use an insurance approach to protect their assets to the most reasonable extent possible. One of the problems that are inherent with the insurance approach is that it is very costly, and can cost companies thousands of dollars per year in cash that could have otherwise been allocated elsewhere. When we use a portfolio approach, we evaluate each part or segment separately in order to arrive at a consensus as to the actions that should take place in order to reduce risk. This is also a valuable approach, but should not be used as a standalone measure because it is not comprehensive.
It is crucial that all companies have a solid internal control structure, based on strategic managerial planning and control. A well-designed internal control structure can reduce risk greater than any other effort, if ...
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