THE ROLE OF INFORMATION TECHNOLOGY IN DEVELOPMENT OF AN EFFECTIVE INTERNAL CONTROL SYSTEM.

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Firms are essential building blocks of any nation’s growth and development. As business units, it is natural for firms (no matter their nature and form) to experience risks and opportunities. What determines the survival rate of a firm is the set of mechanisms it has put in place to help maximize opportunities and to nip deviations in the bud. These set of mechanisms imprinted in an organizational system of operations is in auditing parlance called Internal Controls. Thus in order to understand the role of information communication technology in the development of an effective internal control system, it is important to completely understand the concept of internal control and its importance. Infact, according to COSO 2004, an effective internal control system is a sine qua non for a reliable Enterprise Risk Management. The International Auditing and Assurance Standards Board defines internal control as, “the process designed, implemented, and maintained by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.”

However, this definition is based on the definition given by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). An enriched and broadened definition of internal control, taking into account some of the suggestions of IFAC’s Global Survey on Risk Management and Internal Control (2011), would be: Internal control is an integrated part of an organization’s governance system and risk management, which is understood, effected, and actively monitored by the organization’s governing body, management, and other personnel, to take advantage of opportunities and to counter the threats, in line with risk management strategy and policies on internal control set by the governing body to achieve an organization’s objectives through, among other things: executing effective and efficient strategic and operational processes; providing useful information to internal and external users for timely and informed decision making; ensuring conformance with applicable laws and regulations, as well as with the organization’s own policies, procedures, and guidelines; safeguarding the organization’s resources against loss, fraud, misuse, and damage; and safeguarding the availability, confidentiality, and integrity of the organization’s information systems, including IT Even before the outbreak of the worldwide construction and mortgage industry meltdown in 2009, huge efforts have been taken by countries all over the world to ensure firms take necessary steps to set up an effective internal control system. For example, The Public Company Accounting Reform and Investor Protection Act (2002), otherwise generally referred to as the Sarbanes-Oxley Act, (2002), introduced in the United States, made it mandatory for management to initiate good internal control and provide assessment of its effectiveness. By doing this, regulatory bodies in various countries firmly believe that the concept is very important for the ultimate survival of independent business units and in turn the national economic system as a whole. However, as it has been discovered after various researches, it is not easy for a firm to successfully implement its’ internal control system effectively. More so, in a construction industry which is quite unique from other sectors of the economy, it becomes more difficult to successfully implement the details of the inbuilt internal control system in order to achieve the aforementioned objectives for setting up an internal control system.