Management's Responsibility for Internal Controls

• A manager is responsible for communicating information about internal controls to employees in a timely manner. Alistair Berg/Digital Vision/Getty Images

  Internal controls are a vital part of all successful organizations. Internal controls make up a system of policies and procedures designed to provide reasonable assurance that a company's objectives will be met. It is a system of checks and balances that can help assure consistent, accurate financial reporting and the avoidance of fraud. Management's responsibility for internal controls include making sure employees are taught the company's established internal controls and that they practice and adhere to the standards.

Establishment

• A company's management team is responsible for the development of internal control policies and procedures. Internal control systems are made up of five interrelated components: control environment, risk assessment, control activities, information and communication, and monitoring. The first step in establishing internal controls is to set business objectives. Once business goals are established, management develops the procedures necessary to meet the objectives. When developing procedures, management must assess the risks inherent in the environment. Managers are responsible to make sure the company's processes are carefully monitored and preventive measures are created and implemented to keep the identified risks from developing into real problems.

Changes

• Management is also responsible for ensuring that internal controls are functioning properly, taking change into account. When certain measures are not working, managers must be able to recognize the problems and take action, which may include creating additional controls or altering existing controls. In ensuring policies are followed, management has the responsibility of listening to employees. Employees must feel confident that management cares about their concerns, ideas and feedback. Good communication between management and employees is where positive changes within an organization begin.

Control and Information

• For internal control systems to operate effectively and efficiently, employees must follow the outlined procedures properly. Management does its part by ensuring certain control activities are in place and working properly. Segregation of duties is a vital part of a good internal control system. Management evaluates this part of internal controls often. Segregation of duties is the spreading of organizational duties throughout the company. For example, the person writing checks should not be the person reconciling the bank accounts. This policy helps avoid fraud. Another part of management's duties is ensuring that information is given to employees accurately and in a timely manner. This is vital in encouraging employees to know their responsibilities and to carry through with them.