Introduction to Systems and Controls

When a business is young and there is lack of resources, implementing systems and controls may not be a priority. However, as the business grows, lack of systems and controls in managing a business may cause confusions and as a result, the business may be prone to making costly mistakes and it also increases the risk of fraud.

Successful businesses emphasize continuous fine tuning of the internal control and processes to ensure its relevance and effectiveness. Maintaining and implementing sound systems of controls that are properly documented have the following benefits:

(a) It helps to provide assurance to stakeholders, including shareholders, financiers and employees that the business is in compliance with laws and regulations and operates effectively and efficiently;

(b) It mitigates risk of fraud or serves as a deterrent to fraud;

(d) It enhances the reliability and timeliness of accounting and financial reporting; and

(e) It provides clarity to employees and makes it easy to hand over of tasks when there is a staff replacement.

The broad framework to implementing effective systems and controls are as follows:-

(a) Control Environment - It is the guiding principles (such as integrity and ethical values) of management that sets out the objectives of implementing systems and controls. The purposes of implementing the relevant systems and controls, amongst others, is to ensure compliance to standards, provide for accountability of assets, shed clarity on authority and limits, achieve higher level of accuracy and completeness of records and information;

(b) Risk assessment - It involves analysing the areas of risk and threats; and assessing the probabilities and consequences of lapses;

(c) Control procedures - It relates to formulating policies and procedures tailored to the requirements of the current set-up of the business, considering the practicability of the procedures and if the entity has the required resources to adhere to the procedures;

(d) Information and communication - It is to ensure that all persons within the organisation are aware of the controls, procedures and authority limits that have been put in place and are committed to carrying out their responsibilities diligently.

(e) Continual monitoring and corrective action - Supervision is needed to ensure adherence to controls and systems. Monitor and report on non-compliances, investigate and understand the root cause. Take corrective action and make necessary changes to enhance the effectiveness of controls.

Simplicity and ease to implement are important considerations when formulating controls and procedures. Controls and procedures that are too complex and cumbersome will often fail and they can cause businesses to lose productivity and nimbleness.

To conclude, business owner plays a very important role to ensure enforcement and compliance. If the business owner constantly approves non-adherences on the pretext that achieving the outcome faster is more important than compliance to procedures, very soon, no one in the organisation will respect the importance of systems and controls.