How Important Internal Control Is to Organizations

Have you ever ridden a full grown adult horse in its prime? Perhaps this could be a thoroughbred. Imagine how this horse with all its attributes could gallop in the open field free, wild and with reckless abandon and out of control or lacks the internal control while you are riding on top of that powerful creature. Sounds exciting, exhilarating and even terrifying right? Just like the horse, you feel uninhibited and the adrenaline rush.

Then suddenly, this seemingly innocent and magnificent work of nature gets rid of you by throwing you to the ditch at will and continues to gallop by its lonesome apparently pleased with its antics and without any hint of remorse. You can almost hear the horse laugh if there is one. What happened? Or the proper question may be to ask: Why did the horse become out of control? Or an even better question is: “Why did the rider allow the horse to throw him to the ditch where he could have imposed proper internal control on the horse so it won’t go wayward without any direction and ditch him at his expense.

The foregoing may sound fun but when the horse started going crazy and out of control to the point of getting rid of the rider, it became anything but fun. Well, as we see, using the same metaphor in any endeavor we undertake whether in business or personal, the same spirit of fun should be present in all of our undertakings otherwise it’s not worth doing. However, it must be always tempered with a sense of control or using the company where we work as an example there must be an internal control system.

What do we mean when we say internal control? In business internal control: “Comprises the plan of the organization and all of the coordinate methods and measures adopted with a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.” Simply put, the organization with all its departments: marketing, accounting, I.T., credit and collection, R&D should be geared towards a common goal and that is to realize the mission and vision of the company exemplified in its day to day operations.

This may be increasing sales, profit, or market share which in the long run, should give the company some leverage in moving towards its goal and realizing its vision because of the operating efficiency executed by its areas (marketing, accounting, etc.). The internal control gives these areas or departments the movement through proper execution and integration with one another towards a certain direction.

We may say that the horse in our given example above represents a certain department in the company, whether this is marketing, accounting, sales, and the rider is the one steering the horse and giving direction is the internal control. Incidentally, just like the horse in an open field and with all its majestic attributes, a company nowadays should also explore the potential outside of its comfort zone because unless it breaks out of its status quo, meaning, it tries new patterns and combinations, examine why the old system is not working the way it used to work and adopting new ones, even novel ideas, it would be at risk of becoming an endangered organization. This potential is part of the internal control environment of the company and it is also two-fold.

With some organizations, they would rather remain the same for the longest time, more often longer than what is necessary because it worked for them before so it must work for them now. They become biased with their old system which sometimes is prone to being blind-sided.  In here, we would see “too much control” or restraint to the point of suffocating the organization into a slow death.

Regardless of how it was successful in implementing its internal control system back in the day, we have to revisit the effectiveness of the system and devise strategies in order to adapt to the present economic environment. In summary, we can say that Structure provides an organization with a skeleton. Internal Control gives it the muscles, sinews, nerves, and sensations that allow managers to regulate and govern its activities.