Risk Management in Corporate Governance
Risk management is also a fundamental component of good corporate governance.
Good corporate governance means that the board must identify and manage all risk for a company.
And Internal control system is very important risk management system for company.
Internal Control System
An internal control system comprises the whole network of systems established in an organisation to provide reasonable assurance that organisational objectives will be achieved.
It is the process which is designed, implemented and maintained by management and those charged with governance.
Objectives of Internal Control System
Popular misconception is that the internal control system is implemented simply to stop fraud and error. As the points below show, this is not the case.
- The orderly and efficient conduct of its business, including adherence to internal policies
- The safeguarding of assets of the business
- The prevention and detection of fraud and error
- The accuracy and completeness of the accounting records, and
- The timely preparation of financial information.
Review Effectiveness of Internal Control
The review is a normal responsibility of management.
The review itself, however, will be delegated to the audit committee (the board does not have the time nor the expertise to carry out the review themselves).
The board must provide information on the internal control system and review in the annual accounts.
The review should be carried out at least annually.
Fraud Risk Management Strategy
Fraud prevention:
The aim of preventative controls is to reduce opportunity and remove temptation from potential offenders.
Some specific examples of fraud prevention include:
- An anti-fraud culture
- Risk awareness
Fraud Detection:
A common misbelief is that external auditors find fraud. This is actually rarely the case – in fact their letters of engagement typically state that it is not their responsibility to look for fraud. Most frauds are discovered accidentally, or as a result of information received (whistleblowing).
Some methods of discovering fraud are:
- Performing regular checks, e.g. stocktaking and cash counts.
- Warning signals or fraud risk indicators
Fraud Response:
The fraud response plan sets out the arrangements for dealing with suspected cases of fraud, theft or corruption.