Impact of Internal Controls on Organizational Effectiveness

Abstract

Identifying the contribution of internal control system is significant part of any organization. Existence of system of internal controls in an organization enable management to deal with rapidly changing economic and competitive environment, shifting customer demands, priorities and restructuring for future growth. However, it's very rare to find previous researches conducted to examine the importance of internal controls to an organization, especially in the southern province in Sri Lanka. This research was conducted to investigate the impact of internal controls to achieve the effectiveness of organizational activities. The study was done as a case study and Finance Division of Harischandra Mills PLC was selected as the research site. Data for the study was collected by depth interviews with managerial executives and account clerks as well as by participationary observation. Collected data was analyzed using quantitative methods which included cost-benefit analysis, profitability analysis and trend analysis. The study found that internal controls exert a significant positive influence on organizational effectiveness. Accordingly, the study results showed that, it minimizes occurrence of frauds, errors and other irregularities, assures a high degree of accuracy and reliability of financial data, safeguard assets, promotes operational efficiency and encourages adherence to the established managerial policies. The study further highlights that the organization needs to pay_ considerable attention on internal control system so as to respond the inflationary effects and unavoidable weak points are inherent even in 100% accurate system of internal controls.