Internal Control System Research Paper

Abstract

Internal controls provide efficient and effective operations, it’s a way to prevent frauds and abuses, reduce costs of doing business, and they ensure reliability of financial reporting and reduction of operational losses. This paper provides an overview of control system and importance of its absence in banks. It defines the control environment in banks and main features of assessing the effectiveness of internal control system.

Introduction

The banking industry all over the world has faced considerable bank failures and crises throughout the years. Bank failures happen to Central banks and governments because of its systematic nature and regularly intensify retreats and act as catalyst for financial crises (Basel, 2004). Internal control problems cause significant financial losses to the banking

The paper describes the essential principles of an efficient internal control system, system requisites and main components of it, types of internal control and importance of effective control system in banks. The objective of the paper is to bring out the role of control system of banks in general and outline the main principles which asset the effectiveness of banks’ internal control systems.

Origin of Internal Control

The European banking sector is defined as a system of formal supervision settled with particular principles to all aspects and level of risk. The European Central Bank (ECB) and the central banks of the member States, which primary focus on the sector regulation of organizations, are the main authorities in the control field. In the last decennary the Basel Committees role had emerged: a global fill in one assembly working on create and the supervision techniques inside the saving money segment coordinate looking into a worldwide scale. The activity of this Committee refers to the greater action of the Bank for International Settlements (BIRS), the oldest financial