Internal Control and Organisation SOPs

Internal Control Framework- Designing and Implementing an SOP

Internal controls are the strategic policies, procedures and practices that are implemented in such a way to ensure that the operations and management of a company or an organisatiom are conducted in a controlled and in systematic manner. They are designed to safeguard and to protect the company’s assets and confidential information from the external threats and frauds. The success of any organisation depends on an effective internal control framework that should be designed and implemented in such a a way to suit the regulatory, business and managerial demands of an organisation and company.

This article outlines everything related to the internal control framework, design and implementation of SOP for it and benefits of Internal control framework.

What is an Internal Control Framework?

Internal control framework refers to the standarised procedures, practices and policies that are established in order to ensure that an organisation’s or a company’s processes and and operations are conducted in a controlled and in the systematic manner. The COSO (Committee of Sponsoring Organisations of the Treadway Commission)^[1] framework is known worldwide as the most popular frameworks that is used to establish internal controls to be integrated into business processes and controls. In 2013, the COSO framework also included a COSO Cube, a 3-D diagram that demonstrate how all the elements mentioned in the framework are inter-related.

In India, internal control framework is managed and regulated by the SEBI (Securities Exchange Board of India). The COSO framework is also widely used in India and it provides a comprehensive framework for internal control and is consisted of five components, mainly control enrivonrment, risk assessment, control activities, information and communication and lastly, monitoring. SEBI only provides comprehensive and detailed internal control framework for only financial markets and reporting for listed companies.

Apart from these internal control frameworks, companies and organisations also choose other types of frameworks, such as the ISO 9001 Quality Management System and the ISMS (Information Security Management System) framework, according to their specified needs and requirements.

Steps to Design and Implement a Standard Operating Procedure (SOP)

Effective designing and implementing a SOP (Standarised Operating Procedure) for Internal Control Framework in India is a complex process and it includes several steps. These steps are mentioned below in a great detail:-

• Before designing an effective internal control environment, it is important to first review and assess the current internal control environment, reviewing existing policies, procedures and practices to identify grey areas and weaknesses.
• After this step, it is important to define the objectives and scope clearly of the framework that aligns with the organisation’s overall goals.
• Next step is to implement the framework by training employees, updating policies and procedures and monitoring compliance. This can be done via various methods such as regular audits, reviews and testing of controls.
• The roles and responsibilities of the various stakeholders, such as the board of directors, management and other employees, must be clearly defined in the framework.
• For designing and implementing a successful SOP, it is necessary to train employees and update policies and procedures that are designed to achieve the objectives of the internal control framework. These policies should be aligned in such a way to meet the organisational’s goals.
• Next step is to develop a standarised procedure to implement the framework. This includes specific actions that need to be taken, like training of employees in such a way so as to achieve the organisational goals fully.
• The last and not the least is to monitor and evaluate the effectiveness of the framework and the SOP. This can be done and achieved and done through regular audits and assurance to make sure that the procedure and SOP and the internal control framework is being followed consistently.

Benefits of Internal Control Framework in India

There are several benefits of internal control framework in India. They can help organisations and companies to achieve their goals by minimising and mitigating the risks. These benefits or advantages are given below :-

• It helps in protecting and in safeguarding an organisation’s assets by mitigating and by minimising risks, such as by preventing fraud, theft and misuse, and it also ensures that the company or an organisation’s assets are used effectively and efficiently.
• Organisations can prevent hefty fines and penalties by complying with the provisions laid in the SEBI. It also helps in improving the operational efficiency of an organisation by reducing the scope of error and delays in processes. This results in the improved overall quality and in customer satisfaction.
• It also helps in enhancing the transparency of an organisation by ensuring that the informed and appropriate decisions are made based on the accurate and complete information. This promotes a culture of ethical behavior and also inculcates a feeling and a sense of trust with stakeholders and with customers.
• Better control and management of internal control  helps in better decision making by providing timely and accurate information. They also help management to identify and address issues before they become significant and major problems.

Conclusion

To summarise, implementing an internal control framework can provide a range of benefits that help organiations in becoming more transparent and will also help them in achieving the organisational goals while minimising and mitigating their risks. Designing and implementing the SOP for framework in an appropriate manner is necessary to ensure improved efficiency of the organisation, which eventually will help in cost reduction and in enhancing overall customer satisfaction.

Also Read:
Using the Work of Internal Controls
Internal Controls- A Guide for directors
Internal Controls: Definition, Importance and 5 types of elements