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Why are Internal Controls Important?

Maintaining strict oversight of internal processes can prevent regulatory issu

An inability to create effective internal controls over technology systems and manual processes can end up costing an organization much more than it would have to set up the checks in the first place.

ComputerWorld UK reports that the Financial Services Authority in the United Kingdom was able to fine Credit Suisse £5.95 million for not establishing control failings and IT systems that would protect its customers.

The bank's clients paid more than £1 billion between January 2007 and December 2009 to invest in structured capital at risk products, but Credit Suisse did not properly implement controls and systems to keep track of the advice it doled out to customers, the source says. A failure to monitor the quality and care employees took in advising clients and their failure to assess "customers' attitudes to risk" were other problems that the regulator uncovered.

Other organizations have also struggled to create adequate controls around their products and services. UBS recently announced that it had conducted a self-review of its internal controls, and had concluded that some were not effective, which allowed certain unauthorized trading activities to occur. The company said it had been defective in monitoring the validity and accuracy of inter-desk reconciliation processes between the banks' "equities and fixed income, currencies and commodities businesses," among other issues.  

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Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Controls are the replacement for single owner oversight and direct knowledge, and the foundation of scaled organizations. Controls enable successful, financially viable, organized activity.

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