| Internal
Control: A Manager’s Journey
By
K.H. Spencer Pickett, assisted by Jennifer M. Pickett
John Wiley & Sons; 2001; 384 pp.; $60 hardcover; ISBN:
0-471-40250-8
Reviewed
by Allan M. Rabinowitz
The
“accounting novel” is a fairly recent invention
that is winning increasing acceptance in some colleges and
universities as a supplement to traditional accounting textbooks
as a way to draw greater attention to attributes such as
values, ethics, analytical and interpersonal skills, and
creativity. (See “A Novel Approach to Accounting Education,”
by Richard E. Brown and Mark J. Myring, CPA Journal,
March 2002.)
In
Internal Control: A Manager’s Journey, the
author uses that fictional approach to introduce the reader
to internal control concepts and techniques, telling a tale
of an organization experiencing serious systems problems,
control lapses, and fraud allegations.
This
volume pertains to a series of topics essential to the welfare
of organizations and their employees as well as members
of their boards of directors, external auditors, and business
consultants. Graduate and advanced undergraduate students
will find it a helpful way to appreciate the scope and importance
of internal control.
The
book includes detailed appendices for a managerial control
system needed for all operations; the top 10 imperatives
for facilitators; training course outlines for the subjects
covered; and a brief risk paradigm.
The
book’s central character, Bill Reynolds, was recently
promoted to the position of head of corporate standards.
Reynolds is under significant stress as he begins to cope
with his new responsibilities. During a doctor-advised vacation
to Jamaica, he meets Jack Durham, an MBA-school friend of
his CEO who is a business consultant.
As
the two men tour the island, Reynolds discusses his work
problems. He learns that Durham, a former internal auditor,
is now writing a book on internal control, and Reynolds
recognizes a valuable resource for developing a standards
manual for his company. As the two men tour Jamaica, their
dialogue centers upon internal control, which they believe
will benefit both of their endeavors.
Their
discourse opens with concepts of control and with control
and system elements that are often tied to aspects of the
Jamaican locale, such as buying mangoes and bread. The thoughts
expressed include internal control as every employee’s
personal responsibility; the need for each employee (executive
management in particular) to comprehend the importance of
controls as they go about their work; and that awareness
workshops can play a training role. Touched upon in a very
practical vein are risk assessment and management, accepting
a proper degree of risk that will allow an entity to progress,
managerial control systems, basic control standards, and
control frameworks.
Reynolds
and Durham next discuss the roles procedures play, their
nature, their heightened need in areas of higher risk, their
preparation and implementation, assessing compliance with
procedures, handling breaches of procedures, and a frequent
review and updating. A customer complaint–handling
procedure is presented as an example and stresses the training,
mentoring, and coaching necessary for implementation.
A section
titled “Value for Money and Quality” reviews
economy, efficiency, and effectiveness as key aims of first
the internal control process and then of quality management
systems. Organizational fraud is deemed to be everyone’s
control responsibility. Dealing with allegations of fraud
is covered, as are detecting fraud, carrying out investigations,
internal disciplinary procedures for unacceptable behavior,
evidence files, ethical considerations, whistle-blowing,
and fraud prevention measures. The approaches discussed
are then applied to a liquor theft at their hotel.
The
potential impact of control on restraining or promoting
employee creativity and seemingly warranted risk taking
is explored at length, along with structured and controlled
innovation. A series of principles is advanced for effectively
blending creativity with controls whereby employees are
encouraged to generate new ideas while managers remain in
control.
Reynolds’
and Durham’s last day of conversation focuses on Durham’s
concept for a corporate internalized control facility (CICF).
This involves all employees in their area’s risk identification,
self-assessment of controls, and checking on compliance
as a routine but integral work process, as opposed to infrequent
risk assessment by a specialized team.
The
book provides guidelines for setting up a small CICF function
apart from the work of internal and external auditors, beginning
with director-level corporate risk assessment and control.
Risk awareness seminars and risk assessment workshops, run
by CICF facilitators, would then train employees to see
how their work could benefit by gaining basic competence
in all the control environment areas previously discussed.
The
book’s conversational tone, a fictional yet practical
setting, a sprinkling of romance, and many pieces of wisdom
all make for somewhat pleasant and very educationally rewarding
reading.
Allan
M. Rabinowitz is a professor of accounting at the
Lubin School of Business, Pace University, New York, N.Y.
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