Activities

How Does Control Activity Work?

Control Activity – The policies, procedures, and mechanisms that an organization’s management has implemented to reduce the risks identified during the risk assessment process are referred to as “Control Activities” (CA). To put it another way, management takes control actions to reduce or eliminate risk. Risk assessments are frequently carried out by businesses to design appropriate management actions to mitigate risks and identify risks that may impede the achievement of organizational goals. Therefore, the risk assessment process led to the need for control activities.

How Does Control Activity Work?

How does it function?

CA is carried out across all organization functions and at multiple levels. The manager is responsible for establishing management practices that are both efficient and effective. These practices can be preventative, investigative, or corrective.

  • Proactive: These types of CA are inherently cost-effective because they are implemented proactively to prevent asset loss in the first place.
  • Finding: This type of control action is initiated when the preventive CA is found to be ineffective in detecting errors or anomalies that could hurt the assets.
  • Treatment: When a detection CA discovers an error or irregularity, it is put into action solely to resolve the issue at hand. To avoid issues, installing a new system may necessitate modifying an existing system.

Activities of control include:

A list of management alternatives, including some of the most widely used CAs, is provided below.

  • Authorization: These kinds of authorizations are used to make sure that all organization-wide transactions follow the restrictions and exceptions outlined in the policy framework or granted by appropriate officials.
  • Review and Approval: This type of CA is used to make sure that all transactions are checked for accuracy and completeness by the right people.
  • Confirmation: Computer and manual controls are used in these control activities to make sure that all accounting data is obtained correctly.
  • Compatibility: The accounting data registered in the system is validated against the source data as part of these control activities. This assists in ensuring the accuracy of your financial records.
  • Assets’ physical safety: Assets are safeguarded from damage or loss because of negligence, fraud, theft, natural disasters, accidents, and other factors with these kinds of CA.
  • Partition of Obligations: By involving multiple people in a particular process, this kind of administrative activity helps reduce the risk of human error, negligence, or fraud.
  • Education, Training, and Preparation: By providing staff with appropriate education and training, these management activities help reduce the risk of errors brought on by operational inefficiencies. However, it is essential to regularly evaluate your education and training programs to ensure that they are in line with current organizational and industry practices.
  • Evaluation and planning for performance: An organization can use key performance indicators created by these kinds of monitoring activities to spot unanticipated and unusual shifts in trends. These changes might mean worse things, so more research is needed. Assessments are typically carried out at various organizational levels or as directed by management.

Examples of activities under control:

Let’s look at some examples to see how CA can help an actual organization.

Example 1 – Control Activity:

Technology has advanced over time to provide extremely high levels of precision. However, human input remains the foundation of the output. Therefore, there is always the possibility of producing incorrect output because of improper or incorrect input. Two people can split up the work so that one person doesn’t have to handle the whole process to prevent human error, negligence, or fraud. The transaction is entered into by the first party, and the second party gives their approval. If two people don’t work together to fool the system, this control system won’t be able to significantly reduce risk.

Example 2 – Control Activity:

To guarantee prompt detection of delinquent accounts and proper action planning, a company developed several new policies for reviewing and reconciling accounts receivable. The new policy mandates a weekly reconciliation of the system-registered accounts receivable and accountant-accessible receipts. The reconciliation must then be reviewed by the assistant principal. The Assistant Controller and the Accounts Receivable Manager are responsible for aging the accounts receivable balance at the end of each month. Finally, delinquent accounts should be investigated further, and management must approve written-off bad debts.

Conclusion:

To lessen or eliminate risk, managers at various levels of an organization take control of activities. There are three main classifications of CA: activities for preventative control, activities for detective control, and activities for corrective control. Some of the most common CAs are approvals, reviews and approvals, verification, coordination, asset security, duties segregation, education, training, coaching, and performance planning and evaluation.

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