April 25, 2011
Justification for an Internal Control System
Insurance and portfolio approaches are good controls, but they are not enough to protect the company from risks. As a controller I encourage you and your leadership team to increase the internal controls in the company. The insurance and portfolio approaches will be discussed and explained how they work. Also an explanation of why more internal controls are needed and how it will benefit the company.
Insurance is a way of looking at the risk, and knowing that an acceptance of loss is present, but it is not as large as it could be. Companies carry insurance policies to prevent obtaining a large liability from an accident or damages from acts of nature. By insuring the company, assets, or even the employees, management is saying that they accept there will be a loss, and the only gain is the company is insured, therefore, a claim can be made to replace or receive monies for the loss (McCarthy, p. 75).
The portfolio approach is beneficial in measuring the type of risk he/she may want to take on and the likelihood of making a positive return. The focus is mainly on short-term risks. This causes any future risks to be overlooked and all the energy is set toward the risk at hand. Future risks are unnoticed and are growing because no other controls are in place to prevent or stop the risk from becoming damaging (McCarthy, p. 80).
An Internal System is More Beneficial
The insurance and portfolio approach are successful but more controls would incorporate all aspects that need attention regarding fraud, management oversight, risks, segregation of duties and compliance. The need for more internal controls will...