Financial Management - Internal Controls

Review of literature

Internal controls

        There is direct relationship between internal control issues and fraud concepts. According to Almatrooshi, Hussain and Ajmal (2017), the cost of weakness or absence in internal control and auditing could be likened to the cost of no education. With the help of principles related to internal control, there is direct association between effective corporate governance and internal controls and between the inverse of weal corporate governance and internal controls. In addition, it helps in suggesting the organization about the purpose, size, budget, location, life cycle stage and operating environment. This would have direct effect on the effectiveness of the structure of internal control. However, there is not much research on the systems of internal control about the enterprise management; adequate research is from the perspective of the auditor, instead of management perspective.

        In the words of Azar and Raouf (2017), internal control knowledge is a significant component influencing the management welfare, customers, corporate directors, staffs, suppliers and society. A suitable process of internal control is crucial to manage majority of the information for aiding in the process of decision-making along with protecting the assets of the organization. In addition, it is significant to understand the influence of internal control on the plans, actions and decisions of the management. Furthermore, it has been found that there is significant contribution of the external dynamics like customers, suppliers, location, organizational size, organizational purpose, environment and event on the internal control system. Thus, each item has continued in driving the circle of management planning, stakeholder feedback and decision-making procedures. Hence, it could be stated that every line item depicts a single fact of the internal control system.  

Corruption costs:

        There have been costs of around $600 billion in a year pertaining to fraud and corruption every year (Balasubramanian and Shukla 2017). According to the data of the World Bank, the global public officials obtain more than $1 trillion in the form of bribes every year, which has risen tenfold since 2001. For developing nations such as UAE, in which fraud and corruption could result in the waste of investment funds and aids, there are substantial projections of the losses; even though the documentation is not made easily. Even though there are significant investments related to billions of dollars every year, corruption is adjudged as the significant reason for the failure of numerous development programs in the Middle East.

        It is not easy to ascertain the exact cost of corruption and fraud, since fraud is a criminal act depending on concealment and the organizations often do not have any idea of their victimizations. Hence, the frauds are not detected or even if they are detected, such frauds have occurred for numerous years (Batniji et al. 2014).

Role of accounting profession to combat with corruption:

        The increasing corruption volume via money laundering and the increasing demands for public accountability of funds have dragged the accounting profession in the middle of fighting corruption (Duffy and Alkazemi 2017). However, the combination of the various financial statements and auditing knowledge having investigative skills is essential to identify financial crimes. The non-profit organizations require determining whether the organizations need to adopt voluntarily the governance principles, which are included in SOX. The UAE government is involved in supporting efforts related to anti-corruption by developing laws categorizing money laundering in the form of severely punishable crime (Dixon, Bhuiyan and Üstüner 2018). Thus, the accounting profession is called upon in developing counter methods in denying money laundering and their accomplices’ opportunities in legitimizing their illegal gains. However, numerous money launderers utilize legal businesses and NGOs in the form of conduit for the trained funds.

Summary:

        From the above discussion, it has been found that with the help of principles related to internal control, there is direct association between effective corporate governance and internal controls and between the inverse of weal corporate governance and internal controls. In addition, it helps in suggesting the organization about the purpose, size, budget, location, life cycle stage and operating environment. This would have direct effect on the effectiveness of the structure of internal control. However, there is not much research on the systems of internal control about the enterprise management; adequate research is from the perspective of the auditor, instead of management perspective. With the help of principles related to internal control, there is direct association between effective corporate governance and internal controls and between the inverse of weal corporate governance and internal controls.

        In addition, it helps in suggesting the organization about the purpose, size, budget, location, life cycle stage and operating environment. This would have direct effect on the effectiveness of the structure of internal control. However, there is not much research on the systems of internal control about the enterprise management; adequate research is from the perspective of the auditor, instead of management perspective.

References

Almatrooshi, S.S., Hussain, M. and Ajmal, M.M., 2017. The role of public policies in promoting corporate social responsibility. International Journal of Public Sector Performance Management, 3(4), pp.398-415.