Internal Control Framework Research Articles

Enterprise internal control, digital transformation, and digitalization paradox: empirical evidence from China

ABSTRACT This study examines how internal control mechanisms within Chinese enterprises influence their journey towards digital transformation. Focusing on listed companies in China, data from 2012 to 2022 are analysed to ascertain the effects of internal control quality on embracing digital transformation. This study finds that firms with robust internal control frameworks are more inclined to undertake digital transformation initiatives. However, the paradox where digital transformation, despite its potential benefits, initially appears to detrimentally affect the financial performance of these enterprises is also highlighted. This negative financial implication is less pronounced in companies with strong internal controls, particularly non-state-owned and larger enterprises.

INFLUENCE OF INFORMATION TECHNOLOGY ON INTERNAL CONTROL SYSTEMS IN TERTIARY INSTITUTIONS IN OSUN STATE, NIGERIA

The study examined how information technology affects internal control systems in tertiary institutions in Osun State. Specific goals were to ascertain whether or not information technology has a significant impact on the internal control systems and internal audit processes of tertiary institutions. A survey research design was chosen. A sample size of 100 respondents participated in the study. This study used the stratified sampling method and a regression technique was used for data analysis. The findings showed that internal control systems and internal audit procedures in tertiary institutions in Osun State were highly influenced by information technology with t= 20.02 P< 0.0 and t= 19.049p<0.05, respectively. It was concluded that internal control systems and internal audit procedures at tertiary institutions were strengthened and improved by information technology. The study has recommended that tertiary institutions adopt information technology in order to improve their internal control frameworks. To keep their staff’s necessary skills and knowledge current, the management of tertiary institutions should encourage both on-the-job and off- the-job training in information technology. To stop fraud, internal control mechanisms should be put in place. To establish who will be held accountable for violations, tasks must be digitally separated effectively.

Fraud Prevention Strategies and Financial Stability of Insurance Companies in Kenya

Insurance companies play a crucial role in reducing risks and uncertainties, making them a vital part of the economy. However, they are vulnerable to various types of fraudulent activities, such as false claims, premium misuse, and financial record manipulation. While efforts have been made to address these challenges, more investigation is needed to determine the effectiveness of fraud prevention methods in maintaining financial stability. This research project aims to bridge this gap by exploring the empirical connections between internal control frameworks, transaction monitoring processes, financial audit procedures, and the overall financial stability of insurance companies in the Kenyan market. The goal is to understand how these techniques can deter fraud, promote regulatory compliance, and strengthen the organizational structures in the industry. Additionally, the study examines established theories like agency theory, risk management theory, institutional theory, and game theory to clarify the theoretical basis supporting these tactics and their impact on the financial stability and longevity of insurance companies. The conclusion of the study offers valuable insights regarding the correlation between fraud prevention measures and financial stability within the insurance sector.

Robust internal model control based on a novel generalized extended state observer and its application on a two-inertia system

Disturbance observer (DOB) and extended state observer (ESO) are extensively utilized to handle external disturbances and model uncertainties in the control system. Nevertheless, the integration of these two methods to improve disturbance suppression remains an open question. In this research, the disturbance compensation mechanism of DOB is employed to compensate the disturbance estimation error of ESO, thereby achieving an effective integration of DOB and ESO. Additionally, a generalized ESO (GESO) is proposed to replace ESO. A robust internal mode control (RIMC) scheme is then developed by incorporating GESO into a two-degree-of-freedom internal mode control (TDF-IMC) framework. Moreover, the equivalence of RIMC and classical TDF-IMC is given by a rigorous derivation under the frequency domain description. Finally, the RIMC is applied to the control of a two-inertia system to verify its superiority in terms of robustness, disturbance rejection, and resonance suppression.

Development of a Framework of Key Internal Control and Governance Principles for Robotic Process Automation (RPA)

ABSTRACT Although robotic process automation (RPA) usage is growing rapidly in accounting, concerns are emerging regarding the internal controls and overall governance structure surrounding RPA. To help address these concerns, we use a design science research approach and work with a Fortune 500 company to develop an RPA governance framework. The framework consists of four governance areas and 14 control requirements, which help maximize the benefits and minimize the risks associated with the use of RPA. We validate that the framework is useful and generalizable to many organizations by presenting the framework to and subsequently interviewing and surveying 86 professionals at different organizations, including internal and external auditors, chief audit executives at several multinational corporations, academics, accounting and finance professionals, and other RPA stakeholders. Their feedback suggests the framework is successful in achieving its objectives.

THE IMPACT OF USING INTERNAL CONTROL UNDER THE ELECTRONIC OPERATING SYSTEM

Internal control tools constitute one of the modern frameworks approved by the Committee of Sponsoring Organizations (COSO). "And the one which takes into account setting the objectives first, then estimating the possibility of those objectives being exposed to threats, then internal control procedures are designed that reduce the risks, and at the same time provide reasonable guarantees for achieving the organization's objectives and introducing all modern developments into the system. The contemporary trend of internal control focuses on the integration between managing the risks to which the organization is exposed and the internal control frameworks (Enterprise Risk Management- Integrated Framework) and its abbreviation (ERM), which provides the organization Management in conditions of uncertainty related to risks and their probabilities to be able to create and preserve value. The continuous developments in internal control systems, on the one hand, and competition between economic units, on the other hand, have led to many challenges through the use of modern technology and the innovation of new methods of development, which required the development of all sub-systems of control, including internal control systems, and then review the internal control structure and the extent of its acceptance of this computer-based technology and the effectiveness of its devices in providing information that supports the system's ability to adopt it. Based on this, the research topic was divided into five sections. The first section dealt with the research methodology, the second section dealt with the theoretical framework of the internal control system, and the third section dealt with the problems and limits of using electronic computers. The fourth section was devoted to studying the impact of using computers. The electronic section focuses on the components of the internal control system, while the fifth section is dedicated to stating the most important conclusions and recommendations.

Research on Internal Control of Chinese Commercial Banks Based on Comprehensive Risk Management

The dynamic and complex nature of global financial markets has necessitated the evolution of internal control mechanisms within commercial banks, especially within the context of Chinese financial institutions which operate in a rapidly changing economic environment. This study delves into the intricacies of internal control systems in Chinese commercial banks, scrutinizing their effectiveness through the lens of comprehensive risk management practices. Employing a mixed-methods approach that combines quantitative data analysis with qualitative case studies, this research examines the extent to which these banks have integrated risk management into their internal control frameworks. The analysis focuses on financial, operational, compliance, and strategic risks, providing a holistic view of the internal control landscape. Key findings reveal that while many Chinese commercial banks have made significant strides in embedding risk management principles into their internal controls, there remain notable inconsistencies and gaps, particularly in areas related to emerging financial technologies and regulatory compliance. Moreover, the study highlights the critical role of organizational culture and leadership in fostering an environment conducive to effective risk management. This research contributes to the existing body of knowledge by offering insights into the challenges and opportunities facing internal control systems in Chinese commercial banks. It underscores the necessity of adopting an integrated risk management approach to enhance resilience and competitiveness. Furthermore, the findings have practical implications for policymakers, regulators, and banking professionals, suggesting pathways for strengthening the internal control mechanisms to mitigate risks and capitalize on opportunities in the evolving financial landscape.

The effect of applying the internal control system COBIT5 framework on tax performance

The purpose of this research is to analyze the effect of applying the internal control system according to the COBIT5 framework on tax performance. Data was collected from the research sample using the questionnaire form, and the number of distributed questionnaires was (55), distributed to each of the officials and workers in the Iraqi General tax authority, Professionals, and Academics at the University of Baghdad. A set of statistical methods were used to study the relationship between the two research variables, using the statistical program (SPSS) to analyze the data and calculate (the arithmetic mean, correlation coefficient, coefficient of variation, F test, R2 coefficient of determination, T test, Cronbach's alpha coefficient). The research has a significant positive relationship and influence between the framework (COBIT5) and the tax performance. The most influential dimensions of COBIT5 in tax performance dimension delivery, service and support (DSS), followed by evaluation, guidance and control (EDM), while the least influential dimensions in tax performance dimension compliance are planning and organization (APO). The research recommended adopting the COBIT5 internal control framework as a guide for auditors to advise senior management on the efficiency of the internal control system in the tax institution. This includes a governance framework for information technology, which is one of the most important pillars of the corporate governance system. This research also contributes by providing theoretical and practical implications for tax administration to improve the reality of tax performance.

Optimization of Internal Control for Budget Operations in Public Institutions Based on Random Forest Algorithm

In order to promote the construction of internal control in public institutions and improve work efficiency, the author proposes an optimization of internal control in public institution budget business based on random forest algorithm. We have constructed a big data audit framework for internal control of A Maritime Bureau based on the financial cloud platform and sorted out its audit process. By using the random forest algorithm to identify suspicious points in the internal control audit of administrative institutions at the data level, an example analysis is conducted using some data from A Maritime Bureau's assets, budget, revenue and expenditure, infrastructure, and contract business. The results indicate that the design of the internal control big data audit plan for administrative institutions will promote the innovation of audit information technology and application in A Maritime Bureau, provide theoretical guidance for the internal control big data audit carried out by administrative institutions, and effectively solve the problems of high workload and low work efficiency when A Maritime Bureau conducts internal control big data audits, thereby improving audit efficiency.

RECOMMENDATIONS FOR ENHANCING INTERNAL CONTROL MECHANISM OF COMMERCIAL BANKS WITH A CASE IN THAI NGUYEN

Objectives: The objective of this paper is to present solutions and suggestions for enhancing the control mechanism of commercial banks, with a specific case study conducted in Thai Nguyen. In light of the increasing demand for bank risk management, this study aims to propose strategies to improve and develop more effective control solutions. Methods: Efforts will be made to organize and integrate risk management datasets into an effective Management Information System (MIS) or bank core system. Additionally, this study will emphasize the integration of risk management and monitoring activities as crucial components of a robust internal control system. By doing so, managers will be equipped to maintain effective internal control functions over time. Results: The results of this study are yet to be determined. However, it is anticipated that the proposed solutions and suggestions will contribute to enhancing the control mechanisms of commercial banks, particularly in the context of risk management. By integrating risk management datasets and activities into the internal control system, banks may experience improved efficiency and effectiveness in managing risks. Conclusion: In conclusion, the integration of effective risk management practices within the internal control framework of commercial banks is essential for ensuring stability and resilience in the face of financial uncertainties. This paper underscores the importance of proactive measures in enhancing control mechanisms, particularly in the context of evolving banking landscapes. Through the implementation of the proposed solutions, banks in Thai Nguyen and beyond may fortify their risk management practices and bolster overall operational resilience.

NC-SIMC: Neuro-Controller Simple Internal Model Control

This study introduces a novel Neuro-Controller Simple Internal Model Control (NC-SIMC) paradigm. Our primary goal is to develop a neural network architecture that integrates the logical principles of Proportional-Integral-Derivative (PID) controller design, as outlined by the SIMC rules, into a model capable of generating control actions without the necessity for training with closed-loop data. This is achieved by employing the Simple Internal Model Control framework to effectively train the adapted neural network structure. We present a machine-learning approach that combines a specialized inductive bias node by using a custom new layer inside the neutral net structure to address this goal. Hence, it bridges traditional control theory and machine learning. A key innovation of our NC-SIMC approach is its ability to learn and internally formulate a control structure and parameters. This enables it to establish suitable control actions based on the system’s state, setpoint, and feedback without relying on a fixed control structure. Our paper demonstrates the efficacy of NC-SIMC in stabilizing control actions and its adaptability across various operating conditions without requiring retuning. This performance is shown to be favorably comparable to traditional SIMC rules. We conclude by discussing the potential for future improvements in dynamic performance and the integration of constraints directly into the inductive bias layer, opening new avenues for advanced control system design. The main advantage of our strategy is that no closed-loop data is needed to identify the NC-SIMC PID controller. Instead, the model learns from the SIMC rules.

A Comprehensive Study on Blockchain Technology and its Prospects to Create an Effective Internal Control System

This paper explores the revolutionary impact of blockchain technology on internal control systems in organizations. In today’s interconnected and rapidly changing corporate landscape, businesses must establish efficient administrative control systems to mitigate risks and meet legal obligations. Blockchain technology, with its decentralized record-keeping and cryptographic security features, addresses many contemporary issues related to transparency, security, and efficiency. This study delves into how blockchain affects internal control frameworks by ensuring immutable transaction trails, improving traceability, and enhancing security, all while automating processes through smart contracts. Additionally, challenges such as scalability, interoperability, and regulatory compliance are discussed. The conclusion emphasizes that while blockchain is not a replacement for internal control systems, it acts as a powerful complement, strengthening overall system efficiency and effectiveness.

The Influence of Internal Control Quality on Corporate Financial Performance: An Empirical Analysis based on Panel Quantile Regression Model

This study delves into the relationship between internal control quality and the financial performance of Chinese-listed corporations. Employing a distinctive research approach featuring panel quantile regression, this study meticulously examines data spanning the period from 2011 to 2020, encompassing 953 Chinese-listed entities. The analysis, in comparison to conventional methods such as ordinary least squares (OLS) regression and fixed-effects models, consistently reveals a robust and statistically significant positive correlation between internal control quality and corporate financial performance. Notably, the findings of the panel quantile regression bring to the forefront a nuanced perspective, elucidating an enhancing effect of internal control quality on Return on Assets. Nevertheless, this effect diminishes as one ascends the quantile distribution, elucidating varying degrees of influence contingent upon the internal control quality spectrum. These findings underscore the pivotal role of effective internal control systems in augmenting financial performance, with implications for corporate governance. Furthermore, this research underscores the evolving nature of internal control frameworks, particularly in the context of digitalization, thus delineating an imperative area for prospective scholarly exploration.

Evaluation of the internal control system of banks listed on the Iraq Stock Exchange according to the COSO framework during the Covid-19 pandemic

This study aims to assess the internal control system in the banks listed on the Iraq Stock Exchange in accordance with the COSO framework during the Covid-19 pandemic period by contrasting the internal control system components for the research sample with the internal control system components of the COSO framework and determining the degree of compatibility between them as well as the importance of applying the internal control system procedures according to the COSO framework during the Covid-19 pandemic period. the significance of implementing the internal control system procedures in accordance with the COSO framework during Covid-19 pandemic period. To achieve this goal, a questionnaire was designed consisting of five axes, distributed to 300 employees of banks listed in the Iraq Stock Exchange, 197of which were retrieved. The research reached conclusions, the most important of which is that there is compatibility between the components of the internal control system in the banks listed on the Iraq Stock Exchange with the components of the internal control system of the COSO framework. The results also showed the importance of applying the procedures of the internal control system in accordance with the COSO framework with all its components during the period of the Covid-19 pandemic. Information and communication won the first place in terms of importance, followed sequentially by risk assessment, control activities, control environment, and Monitoring. The study presented many recommendations, the most important of which is the need to urge local professional organizations to keep pace with the recent developments of the updated global internal control frameworks and try to spread them among professionals through the training courses they hold.

Development of a policy and regulatory framework for mitigating cyberfraud in the South African banking industry

PurposeCyberfraud is a global problem, which has negative impacts on the financial institutions, global economy and the public. The existing policy and regulatory frameworks for mitigating cyberfraud in South African banks are not holistic, thus, the purpose of this study is to develop a holistic policy and regulatory framework that integrates the legal, governance, internal control and supervisory frameworks for cyberfraud mitigation in the South African banking industry. Methodology: The study employs a mixed method comprising of both qualitative and quantitative approaches. A structured questionnaire was developed and made available to selected members of staff of the 17 licensed banks in South Africa. These experts deal directly with the banking operations, administration and customers' services. Non-parametric statistical analysis, specifically the Chi-square, Fischer's Exact, Spearman's correlation and cross tabulation statistics, were employed for the statistical analysis of the data gathered from the survey. From the outcome of the survey, a simplified policy and regulatory framework was developed for the mitigation of the effects of cyberfraud in order to enhance the performance of South African banks. FindingsThe outcome of the survey indicated that there is a relationship between the methods of cyberfraud identification and the occurrence of cyberfraud in the South African banking industry. Furthermore, the methods of cyberfraud identification were presumed to be effective based on the evidence presented in this study. Despite this, the effect of cyberfraud perpetration was still found to be detrimental to the South African banks. Practical implicationsThis study presents a simplified and executable policy as well as regulatory framework for mitigating cyberfaud in South African banks. The proposed policies and regulations are geared towards improving cyber resilience and minimising the effects of cyberfraud occurrences. NoveltyExisting works have not sufficiently reported on the integrated policy and regulatory framework for mitigating cyberfraud. Thus, this study developed a simplified integrated policy and regulatory framework for mitigating cyberfraud to enhance the performance of South African banks in the area of cyberfraud mitigation.

The measurement of risks of health damage under provision of primary medical sanitary care

The organization and implementation of quality management system in medical organization based on internal quality control and safety of medical activities, permits to implement continuous improvement of organization functioning, to eliminate errors or undesirable occurrences as well as to prevent causes of premature mortality and to contribute into increasing of indicator of life expectancy.The implementation of risk-oriented approach in management of medical organization within the framework of internal quality control and safety of medical activities is actual and necessary condition in accordance with adopted regulatory legal acts. Currently, in the healthcare system there are no developed and approved methods of developing infrastructure of risk management in medical organization. The purpose of the study: to apply the FMEA analysis and Pareto diagram technologies to quantify and rank risks of health harm in development of organizational and managerial decision-making. The sociological method was applied to identify violations in provision of medical care, including their frequency and possible risks. The FMEA analysis was implemented to each undesirable occurrence (risk), considering frequency of its occurrence. The priority number of risk (PMR) is calculated and risk register is compiled. The Pareto diagram construction technology made it possible to assess significance and to build risk matrix.

A Review of India Approaches to Cooperative Compliance in Light of the International Tax Practice and the OECD Framework

The OECD provides a framework for co-operative compliance. To the OECD-Forum on Tax Administration questionnaires covering the years 2018 and 2019, India responded that its international tax practice is in line with the OECD’s framework. This paper reviews select features of the Indian tax system that are in line with the response. The paper looks at contemporary tax compliance measures such as faceless assessments and dispute resolution that promote cooperative compliance. While it is seen that there have been recent policy innovations to promote cooperative compliance in India, the responses are not based on any structured cooperative compliance approach as that described by the OECD. It is observed that there are in fact some missing elements as many of the initiatives such as the large taxpayers’ unit that ticked many boxes but are no longer in operation. Finally, the paper identifies that single point of contact in the administration, opportunity to clear the past before joining a cooperative compliance framework and internal control framework are initiatives that can boost cooperative compliance in India. Cooperative Compliance, OECD, corporate governance, internal controls, tax control framework, tax certainty, tax assurance, India, tax reform, dispute resolution

A Model of Risk Management Strategy at Banks in their Operational Activities

By partnering with the business, the operational-risk discipline can create a more secure and profitable institution. Successful banks embrace risks while developing powerful mechanisms to prevent or manage risk and stay ahead. This study is devoted to the problems of improving the banking risk management, taking into account the new regulatory and technological requirements based on the use of modern technology and combining the latest achievements in numerical mathematics, statistics and information technology. Focusing on literature and by conducting a case study on operational risk management on one of largest retail banks, this paper aims on answering how operational risk management can be improved by implicating risk governance and internal control frameworks. It was concluded that although improvements have taken place in how operational risks are being managed, there is still room for improvements. An intersection of risk type and business/functional area of focus, prioritized based on the business environment is critical when fulfilling this life cycle of risk management activities. When too linear, the steps are not agile enough, so the cycle needs to be performed on a micro-level and aggregated for macro-level insights/risk decision-making. The suggested model outlines the understanding of the safe and prudent management of risks under the current prudential framework. It also demonstrates the ability of appropriate operations management techniques to reduce operational risk losses in the banking industry significantly.

Evaluasi Lingkungan Pengendalian dengan Kerangka Pengendalian Internal COSO di KPP Pratama Jakarta Pesanggrahan

The control environment is crucial for establishing a reliable internal control system to prevent corporate fraud at the Jakarta Pesanggrahan Tax Office. It collects state revenue and accesses sensitive taxpayer information, including personal identity and financial data, making it susceptible to fraud risks. This study evaluates the control environment components of the Jakarta Pesanggrahan Tax Office using the 2013 edition of the COSO Internal Control Framework. The study used qualitative descriptive and case study methods. The population of this tax office consists of 93 employees. Primary data was collected through semi-structured interviews with 20 informants from various sections. Secondary data was collected through online sources, regulations, reports, and a literature review. The novelty in this study is that researchers used thematic analysis to produce 37 themes used as indicators in the suitability assessment of control environment components. The research results show that Jakarta Pesanggrahan Tax Office has 31 out of 37 indicators. In the "The organization demonstrates a commitment to integrity and ethical values" component, there are findings of working hours violations. In the component "The board of directors demonstrates independence from management and exercises oversight of the development and performance of internal control," there are repeated findings from the Supreme Audit Agency of the Republic of Indonesia, and the structure of the Internal Compliance Unit needs to operate independently. In the component "Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in the pursuit of objectives," there are differences in perceptions between personnel of the Compliance Committee and inconsistencies in work positions. In the "The organization demonstrates a commitment to attract, develop, and retain competent individuals in alignment with objectives," the Jakarta Pesanggrahan Tax Office has fulfilled all indicators. Finally, in the component "The organization holds individuals accountable for their internal control responsibilities in the pursuit of objectives," the finding is the form of quality inequality resulting from employee performance ratings. Overall, the study aims to contribute to developing knowledge about the control environment in the tax office.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) RELATED PROCESSES AND INTERNAL CONTROL

Purpose- With the increase and change in the information requirements of information users, ESG reporting has become a very important component of corporate reporting. The increasing interest in ESG fields requires effective process management and the preparation of high-quality reports in these areas. In this context, providing assurance in ESG reporting and establishing effective internal controls in ESG-related processes have become important issues. There are a limited number of studies in the literature on the relationship between ESG fields and internal control. Following the contributions of these important studies to the literature, the Committee of Sponsoring Organisations of the Treadway Commission (COSO) issued a guidance in March 2023 entitled "Achieving Effective Internal Control over Sustainability Reporting (ICSR): Building Trust and Confidence with the COSO Internal Control Integrated Framework" in March 2023. As is known, the COSO Internal Control Integrated Framework (ICIF-2013) is the globally recognized internal control framework. The guideline, which is prepared on the basis of this framework, contains guiding information for the establishment of an effective internal control structure in ESG fields on the way to the formation of sustainable businesses. The aim of this study is to emphasise the importance of internal control in ESG-related processes and to contribute to the development of the literature by explaining the perspective created by the ICSR guidance and examining the existing literature. Methodology- The study employs a literature review to analyse the ICSR guidance on establishing an effective internal control structure over ESG-related processes and academic studies on this subject and to emphasise the importance of the subject. Conceptual discussions and developments are important in increasing the effectiveness of internal control over ESG-related processes. Therefore, this study analyses the conceptual framework of effective internal control over ESG-related processes. Findings- ICSR guidance published by COSO explains the establishment of internal control structure in ESG-related processes with an integrated perspective. Guidance also includes illustrative cases that can guide practitioners, while also addressing the roles in governance processes. There are a limited number of studies on this subject in the academic literature. Conclusion- With the findings obtained from the study, the importance of an effective internal control structure in ESG-related processes is emphasized. It is thought that the new ICSR guideline will create significant values in the formation and adoption of an integrated understanding on this issue. As it is known, an effective internal control structure is expected to provide reasonable assurance in the realization of the objectives of businesses and organizations in relation to all processes related to operations, compliance, and reporting. In order to achieve the desired objectives in the processes related to ESG fields, it is necessary to identify and eliminate the possible weaknesses of the internal control structure in ensuring the realization of these objectives and to transform it into a more effective structure. It is thought that the studies to be carried out for this purpose will create value by increasing awareness in terms of creating the expected benefit from ESG-related processes and creating more effective ESG reports. Keywords: Internal contol, COSO, environmental social ang governance, sustainability, sustainable business JEL Codes: M10, M40, M48