Cost of controls
Costs of controls can include the price of physical safeguards, the value of additional hours of employee work incurred, your time, etc. The costs should be less than the benefits. Employee supervision is where most owner-operated businesses get this comparison wrong, particularly by assuming too low a benefit to a control over a long-term and trusted employee. It is not uncommon for the been-there-forever, taken-for-granted, almost-a-member-of-the-family employee to take advantage of the paternal way in which he or she is treated to loot the company blind.
Implementing controls
Proper control design and selection are only the first steps. The most important factors in making them work are communication and organization. Simply putting the controls in place won't guarantee their effectiveness.
Make sure that your people are aware of and understand the controls; and then find ways to influence their behavior so that they agree to respect them. Organization issues involved include the chain of command structure, cost constraints, job descriptions, and the company’s formal and informal feedback loops.
Employee motivation Perceived equity
Limitations:
Internal control can provide reasonable, not absolute, assurance that the objectives of an organization will be met. The concept of reasonable assurance implies a high degree of assurance, constrained by the costs and benefits of establishing incremental control procedures.
Effective internal control implies the organization generates reliable financial reporting and substantially complies with the laws and regulations that apply to it. However, whether an organization achieves operational and strategic objectives may depend on factors outside the enterprise, such as competition or technological innovation. These factors are outside the scope of internal control; therefore, effective internal control provides only timely information or feedback on progress towards the achievement of operational and strategic objectives, but cannot guarantee their achievement.
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