Running head: IMPORTANCE OF INTERNAL CONTROL IN BUSINESS 1
Importance of Internal Control in Business
IMPORTANCE OF INTERNAL CONTROL IN BUSINESS 2
Introduction
Brazos Manufacturing, Inc.(BMI), a $550 million international automotive parts supply company. It had urged to cut the budgets of its all of the vice presidents. The executive vice president of BMI fraudulently used corporate funds, set up an executive’s double standard and was above the law. However, the ethics officer considered the EVP’s tenure and 30 years authority and was at the very highest levels officer in North America. He wanted to avoid personal involvement in the case he should take action. The controller of company confronted the unethical behavior. He decided to strictly enforce the standards of BMI and disclose the ugly fact. How did company deal with the issues? How did company foresee the importance of the internal control in business and improve it and achieve its budgeted objective?
IMPORTANCE OF INTERNAL CONTROL IN BUSINESS 3
Discussion
In this case, EVP admitted to everything quickly and had apologized sincerely, and asked to keep his job. (Source) BMI should make the decision based on EVP’s attitude for his fraudulency instead of how huge his contribution to the organization for the past 30 years.Today, the legal and moral culpability of top-level company managers and the ethical dilemmas which auditors faced are the challenging issues that affect internal control in business organizations and even damage the interests of company stakeholders, such as stockholders, employees and the community.
Managers are responsible for attaining the goals of the organization, targeting particular levels of budgeted income and implementing internal control system. To achieve their objectives, managers need to create an ethical climate and foster socially harmonious relationships in the workplace. They should behave ethically themselves so that they can expect ethical behavior from employees. Managers are the most significant role models in the organizational setting; thus they have a major socializing influence on lower level employees. This is especially true for top managers. Because the dominant core values of the firm's culture are formulated at the top, and the authority structure of the firm begins at the top. Thus, ethical behavior must begin at the top. In the case of Above the Law, the executive vice president refused to carry out the ethical policies. We may image there were serious problems of internal control system in corporation. The company should modify and reinforce the system established to control managers’ behavior. To the ethics officer, was faced with an ethical dilemma. Edward Stead (1990) thought: “Code of
IMPORTANCE OF INTERNAL CONTROL IN BUSINESS 4 ethics are probably the most visible sign of a company's ethical philosophy. In order for a code of ethics to be meaningful, it must clearly state its basic principles and expectations; it must realistically focus on the potential ethical dilemmas which may be faced by employees; it must be communicated to all employees; and it must be enforced” (p.7). So the budget cutting policy was a meaningful code. It must be accepted and internalized by the employees who were required to implement it. The ethics officer should be punished due to the dereliction of duty.
As the controller of BMI, he took his responsibilities and realized the consequences of his signature. He also couldn’t condone EVP’s conducts and uncovered his unethical acts. The