Perfect Internal Control.!!!
This question is usually asked what perfect internal controls are; this question has very straight forward answer,
There is no such thing as a perfect internal control system … reason being there are inherent limitations, which typically cannot be controlled, like
Misunderstanding of Instructions
It’s very common that when a person reads the instruction he/ she presides it in his own way and in the absences of proper training its common to get wrong persecution from instructions
Mistakes of Judgment
Many internal controls also based on expert judgements and making the mistake while jugging thins is also possible and often seen in raw material industry and mining industry , and mostly in food industry
Carelessness usually happen when one person is doing same type of work again and again , so by getting in routine he / she some misses the slight change in something which could have big impact , it usually happen that one use to forget the that particle thing which is mostly perfect .
This is a major inherent limitation because it also depends on person to person , some people get distracted when they are tense and some get focus when they are tense, some people get distracted in the presence of female staff in office.
Getting tired of work and over burden is cause of fatigue and this lead to lose of control
This is the situation where higher management override the control and lower management has to follow the orders , this type of situation leads the organisation to mismanagement and corruption , and junior staff also has to cover-up the situation to get avoid from caught form auditors or in routine check
Collusion Among Individuals
This is the situation in which one individual try to give some extra benefits to his friend or interested one, this situation can be tackled by segregation of duties , but its impossible to stop a person to give benefit on his table
Staff Size Limitations
When you are talking about segregation of duties, this is the major reason why segregation of duties are some time not possible, that one done have sufficient staff, either one don’t need more staff or more staff is not cost effective solution. IT has sorted out this problem to some extent by implementing systematic control over environment.
Compensating Controls Should Be Implemented to Ensure Objectives Are Met
Compensation control are controls which are used to counter –balance an internal control weakness
Summary of Above
- Misunderstanding of Instructions
- Mistakes of Judgment
- Personal Carelessness
- Management Override
- Staff Size Limitations
- Collusion Among Individuals
Level of assurance
As a Result of Inherent Limitations and Cost Limitations, the Internal Control Structure Can Provide Only “Reasonable”, Not Absolute Assurances, That Goals and Objectives Will Be Accomplished
The concept of reasonable assurance recognizes that the cost of an entity’s internal control structure should not exceed the benefits that are expected to be derived. Although the cost-benefit relationship is a primary criterion that should be considered in designing an internal control structure, the precise management of costs and benefits usually is not possible.