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

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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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