Reasons why internal controls might not work despite best
efforts are as follows:
- Lack of judgement while taking decisions: Internal controls
might fail due to the fact that individuals taking the decision
might not be equiped adequately with the complete information
required for the purpose of decision making or the individuals
responsible for the decision making are not backed with the
experience required for this purpose.
- Attitude of the Management of the organization with respect to
the internal controls: Many a times management themselves override
the internal controls because they feel that these controls are
inconvenient or inappropriate and therefore don’t apply to
them.
- Occurrence of unexpected events: The reason why internal
controls don’t work is that the internal control systems are
designed to tackle certain situations or a certain range of
variables and when the actual events or situations happen beyond
the expected range then the internal control systems may not be
able to tackle them effectively.
Employers should enact the following procedures for internal
control for risky projects:
- Separation of duties: Employer organizations should work
towards separation or segregation of duties and responsibilities so
that no one person has complete responsibility for any activity or
job and thereby reduces the probability of frauds happening. In
case of organization which have risky activities , it becomes
essential that no single employee has complete control over the
risky activity and so the organization doesn’t suffer adversely.
Even in case when organizations are small in size with lesser
number of employees this can be implemented by making 2 or more
employees share their responsibilities or in case of risky
activities it should be reviewed by co-employees which serves the
same purpose.
- Standardization of documentation: This is a very effective
procedure adopted by the employers so that there is consistency and
standardization in the documentation formats so that it becomes
easier to review the past records in the process of identifying the
root cause of the discrepancies.
- Approval of authority: Employers should have managers who are
responsible for authorizing the specific transactions so that it
puts in an additional layer of responsibility accounting in the
organization so that it is clear that all important and risky
activities have been analyzed and approved by the appropriate and
responsible designated authorities.
- Physical audits: Physical audits as a part of internal control
systems in organizations handling risky activities is extremely
important as it highlights and brings out the discrepancies that
are hidden or any bypassing of the designated authorities that have
happened, In case of risky activities these physical audits should
be frequently carried out.