RATIONALE

Internal controls are the structure, policies, and procedures used to

ensure

that

management

accomplishes

its

objectives

and

meets

its

responsibilities. Internal controls are the responsibility of all employees of the

department; generally an employees position will determine the extent of their
involvement. Internal control is people-dependent; it is developed by people, it
guides people, it provides people with a means of accountability and people
carry it out. While everyone in a department has responsibility for ensuring the
system of internal control is effective, the greatest amount of responsibility
rests

with

the

managers

of

the

department.

(https://acfid.asn.au/sites/site.acfid/files/resource_document/internalcontrols-for-nfp-organisations-brochure.pdf)

Internal control continues to be a major emphasis for most organizations.

Under Sarbanes-Oxley, publicly traded companies must perform a fraud risk
assessment and assess related controls. Smaller organizations and private
companies are realizing improvements in effectiveness and efficiency of
operations through implementation of internal control systems. Within the
Committee of Sponsoring Organization (COSO) internal control-integrated

framework, control environments set the tone of the organization by influencing

the control consciousness of employees. The control environment is the
foundation of an effective system of internal control. Internal control is more
than policy and procedure; it is a process effected by people throughout the
organization. Within the COSO framework, every member of the organization is
responsible for internal control. Organizations whose leaders are able to attract
and retain good people will be more likely to implement a successful system of
internal control. One of the best ways to maintain a good workforce is to have
sound human resource management, which includes having employment
policies and procedures that comply with state and federal employment
regulations. (http://www.aabri.com/manuscripts/121314.pdf)
Human resource departments function in both a transactional and
compliance capacity. The transactional function is concerned with process
documentation, records maintenance and security, payroll and recruiting and
hiring employees. Responsibilities within the HR compliance function focus on
ensuring the business adheres to federal and state employment and labor laws.
A strong internal control system that provides accountability and encourages
sound management practices is an essential component of both functions.
The importance of internal control procedures within HR lies in the
efficient, effective and compliance-oriented environment internal controls

create. Within this environment, internal control procedures work to identify

control points -- a position within an HR process where an error or irregularity
is likely to occur -- pinpoint control point risks and then mitigate or eliminate
each risk. A strong control along with sound risk management procedures frees
HR, management personnel and the business owner to focus on achieving
strategic goals.
Preventative HR internal controls are an important first line of defense.
Preventative controls decrease the likelihood of intentional or unintentional
data entry errors and discourage or deter illegal or unethical actions. Examples
include error-checking capabilities in HR system software, computer security
procedures that limit access to employee records, authorization procedures
that require a manager to approve employee timecards before theyre submitted
to HR and segregating duties in payroll procedures so that the same employee
isnt

recording

data

and

also

issuing

paychecks.

(http://smallbusiness.chron.com/importance-internal-control-procedureshuman-resources-77536.html)