Procedure to evaluate the level of Maturity and Efficiency of the Internal Control

(*) Vega de la Cruz, Leudis Orlando; (**) Nieves Julbe, Any Flor; (***) Pérez Pravia, Milagros Caridad

(*)Facultad de Ingeniería Industrial y Turismo
Universidad de Holguín Oscar Lucero Moya
Holguín- Cuba
leovega@uho.edu.cu

(**) Facultad de Ingeniería Industrial y Turismo
Universidad de Holguín Oscar Lucero Moya
Holguín- Cuba
anieves@uho.edu.cu

(***)Facultad de Ingeniería Industrial y Turismo
Universidad de Holguín Oscar Lucero Moya
Holguín- Cuba
mpp@uho.edu.cu

Reception Date: 03/23/17 – Approval Date: 06/25/17

ABSTRACT

It is a substantial objective of the economic and social model of a nation that the business system is constituted by well-organized and competitive companies and that generate the maximum satisfaction to the population. This research creates the basis for the evaluation of the Internal Control System, which is obligatory for all entities, which creates various actions that contribute to a better administrative and accounting control. The objective is to provide the information directed to the degree of progress of the execution of the components of the Internal Control System in the business sector. The methodology used with the Socio-Economic Approach to Management, as well as the analysis of the results of the implementation of the control with the application obtained with the use of the system evaluation form, in a hospital entity, the results of the maturity index and efficiency. They demonstrate, in general, a satisfactory and effective implementation of this system, made aware and internalized the importance of internal control as part of the management, in order to achieve a more reliable entity whose service of greater satisfaction to the citizen.

KEY WORDS: Internal control; Schedule of evaluation; Socio-Economic Approach to Management; Hospital-stay entity.

INTRODUCTION

In the business system, the Socio-Economic Management Model (SEAM for its acronym in English) stands out for its contribution of added value to improving the efficiency of business decision-making systems in the core or heart of this model is the concept of integral quality (or integrated quality), which is a priority of this and the human factor as the lever to solve and improve the integral quality. The performance of the organization requires motor strategy, dynamic human potential and a control system of economic  resources, aspect that is closely related to the Internal Control System (SCI), which for a long time its scope was limited to economic areas (areas of accounting and finance activities), the rest of the operational areas and in fact their workers did not feel involved. Not all managers of our organizations saw in the SCI a management tool capable of being used to achieve the effectiveness of the operations that had been proposed.
Currently the management of the SCI has evolved into a widely developed business function, studies on the subject, made in recent times (Moya Guerrero, 2005, Nieves Julbe, 2010, Aguiliar Serrano, 2012, Espino Valdés, 2014, Vega de la Cruz y Nieves Julbe, 2015, Vega de la Cruz and Nieves Julbe, 2016, Naranjo Gil, 2016, Maciel, Stumpf & Kern, 2016), come together to recognize a set of factors of the first order, such as:

• The need for the SCI to be integrated into the development of the set of activities that are part of the mission of the organization, so that it is imbricated in the normal work processes and at the same time, it is identified as a continuous and singular process, becoming a system.

• The need for the objectives of the SCI to correspond and refer to the macro purposes of the organization, essentially linked to its efficiency and effectiveness

• The need to unify the meaning that the SCI has for all the members of the organization and other people involved.

This research analyzes the state of the SCI’s performance in a business entity, based on the stipulations of the resolution that governs the SCI and proposes a model of maturity of the capacity of the company SCI management to measure its effectiveness with the usefulness of it flourishing as a useful tool for diagnosing the current situation in companies in this area, also it allows to establish measurable improvement objectives, since the results are valued numerically and this facilitates the monitoring of the evolution of the level of maturity, the proposal responds to the latent need of business entities to improve their control system to achieve effectiveness in their operations.

DEVELOPMENT

Internal Control System as a facilitating force in the Management Model Partner -Economic The existing resolutions in the SCI, establish the basic rules and principles of obligatory observance for the subjects of the actions of audits, supervision and control of that body, constituting a standard model of the SCI that is formed by five interrelated components, within the framework of the basic principles and the general characteristics; These are the following: Control environment, Risk management and prevention, Control activities, Information and communication and Supervision and monitoring, all structured in standards. The control environment component sets the guidelines for the legal and harmonious functioning of the bodies , organizations, organizations and other entities, for the development of the actions, reflecting the attitude assumed by the top management and the rest of the group in relation to the importance of the SCI. It is structured in the following standards: planning, annual work plans, monthly and individual (P), integrity and ethical values ​​(IV), demonstrated suitability (I), organizational structure and assignment of authority and responsibility (EO), policies and practices in the management of human resources (HRP). The component Management and prevention of risks establishes the bases for the identification and analysis of the risks that the organs, organisms, organizations and other entities face to reach their objectives. The component is structured in the following standards: risk identification and change detection (IRDC), determination of control objectives (OC) and risk prevention (PR). The control activities component establishes the policies, legal provisions and procedures of control necessary to manage and verify the quality of the management, its reasonable security with the institutional requirements, for the fulfillment of the objectives and mission of the organs, organisms, organizations and other entities. It is structured in the following rules: coordination between areas, separation of tasks, responsibilities and levels of authorization © documentation, timely and adequate registration of transactions and events (D): restricted access to resources, assets and records (AR) , rotation of personnel in key tasks (PR), control of information and communication technologies (ICT) and performance and performance indicators (Ide). Recent studies improve management control tools (Pérez Lorences and García Ávila 2014). The Information and communication component requires that bodies, organizations, organizations and other entities must have timely, reliable information and define their information system appropriate to their needs. characteristics. It is structured in the following standards: information system, flow and communication channels (SI), content, quality and responsibility (CCR) and accountability (RC). The component Supervision and monitoring is aimed at the detection of errors and irregularities that were not detected with the control activities, allowing to make the necessary corrections and modifications. It is structured in the following standards: evaluation and determination of the effectiveness of the SCI (E) and prevention and control committee (CP). In the Socio-Economic Management Model it is stated that performance is not achieved only with good ideas of human potential, also needs control, ie self-control combined with a reporting system, based on this statement in this article emphasizes the need for the evaluation is made by comparing the situation of the organization evaluated with the scenarios for each one of the nineteen SCI standards described above, which allows visualizing the level of maturity reached and establishing or updating the strategies, policies and guidelines necessary to achieve it, as well as improving the management style. These elements of this system are taxed transversally in the SEAM, by avoiding the production of five hidden costs (absenteeism, work accidents, staff turnover, product quality and direct productivity) as the elements of the control environment allow to treat absenteeism. and accidents at work, on the other hand, one of the rules of the Control activities is responsible for the rotation of personnel and the behavior of these three costs impact on the direct productivity and quality of the products, these latter costs are supported in the evaluation of performance, Management and prevention of risks and Supervision and monitoring.

Procedure for the evaluation of the level of maturity and effectiveness of internal control

Estimated time for the realization of this evaluation it can vary from one to two weeks depending on the size and complexity of the business entities and the knowledge of this by the Prevention and Control Committee. The term efficacy has been addressed by several authors such as Doimeadiós Reyes and Rodríguez Llorian, 2015; Monteoliva, Ison and Pattini, 2014, this being the degree to which the objectives and goals of a plan are achieved, that is, how much of the expected results were achieved. Effectiveness requires concentrating the efforts of an entity in the activities and processes that really must be carried out for the fulfillment of the objectives formulated specifically for the effectiveness and maturity of the internal control. The proposed procedure is proposed (figure 1) conformed by three phases and seven steps to determine the level of maturity and effectiveness of the SCI, this is explained below.

Figure N° 1.Tool to evaluate the maturity and efficiency level of internal control
Source: Own Elaboration

Stage I. Initial preparation of conditions

It is necessary for the correct application of the procedure to achieve the commitment and need of the management to improve its internal control system.
Objective: create the conditions for the implementation of the evaluation procedure, with the constitution of the work group, the assurance of the starting conditions, the characterization of the entity and establish the indispensable requirements to develop the validation of the procedure as well as to enable familiarization with its particularities and allow a closer approach to its organizational culture.

Step 1. Constitution of the work team

Content: To constitute the work group to evaluate the level of maturity and effectiveness of internal control, it is recommended that the work group should:
be composed of a team of 7 to 15 people, with the participation of the members of the board of directors and a representation of all the areas of the entity that make up the prevention and control committee. have trained people (appoint a head of the work group) in management tools, management control, performance evaluation, which can guarantee the diversity of knowledge of team members.
Through brainstorming and group work, the design schedule of the internal control evaluation system is drawn up and approved, its initial tasks will be linked to the training of the work group.

Step 2. Characterization of the Organization

Content: Define elements that characterize the business entity, a brief historical review, strategic elements, organizational structure, management levels, and existing processes are recommended, as well as analyzing key elements for the evaluation as results of the self-control Guide issued by the governing body of the SCI, performance evaluations and management indicators of the entity.

Stage II. Planning

Once the vital elements to develop the evaluation have been defined, evaluation planning is carried out where the objectives, activities and tasks are specified; we need to know how to measure the level of maturity and effectiveness of internal control. In all cases, senior management will be responsible for measuring these indicators.
Objective: determine how to measure the levels of evaluation of the indicators.

Step 3. Define specific goals and objectives in the evaluation

Content: the specific objectives of the evaluations to be carried out in this procedure are defined in order to verify to what extent the desired state of the procedure is achieved, making it possible to avoid that it passes to the implementation phase with an erroneous model, these are:
1.           Define those elements of internal control to which the degree of maturity will be determined.
2.           Determine the degree of maturity and current effectiveness of the defined elements.
3.           Establish the gaps between the current and desired state.
4.           Establish a diagnosis and recommendations on the state of internal control capacity in the company.

 Step 4. Define maturity indicators using the evaluation form (table N ° 1)

Table N° 1. Evaluation Form

Source: Own elaboration as from Standard Model of Internal Control in Latin-American Countries

Content: The Prevention and Control Committee in its evaluation and monitoring role, specifies the dimension of the ICS assessment process and presents compliance with the general procedure for the implementation of the instrument in Table 1, using the methodology established by the authors in Table 2, with each of nineteen norms and five components and three phases of the SCI, generating its observation and recommendation, this evaluation is carried out according to the qualification ranges (table 3).

Table N° 2. Jerarquization for the evaluation of Internal Control

Sourse: Own Elaboration

Table N° 3. Steps of maturity status

Sourse: Own Elaboration

The calculation of the indicators is determined as follows (Equation 1):
          Equation 1

Nmad: level of maturity components and / or type of control and / or internal control
Pi: Degree of maturity granted by standards and / or components and / or type of control
Ni: number of standards and / or components and / or type of control

Step 5. Define the Efficiency indicators

Content: In a similar way we proceed to calculate the level of effectiveness of the internal control elements, the requirements for compliance with the management indicators have been strategically located at the maturity levels: achievement of the SCI objectives, attending to the requirements of Table 4 and similarly using Equation 1:

Table N° 4. Efficiency  States

Sourse : Own Elaboration

Stage III. Evaluation and improvement

Step 6. Analysis of indicators of the level of maturity and effectiveness

Content: To carry out the evaluation, the level of maturity of each of the phases or types of control, of the components and of the standards is determined, once the matrix has been filled out by the management team.
Once the weights are obtained, the level of maturity of the internal control will be sought, according to the derivation rules established in the procedure. In a similar way, it is done for the level of efficiency, as explained in the previous stage. Assessing the gaps between the current state and the desired state that is based on the highest level.

Step 7. Projection of improvement actions

Content: The program of implementation of the improvements must be specified, for which the action plans or specific programs are established, as well as the technical and organizational means necessary for their effective execution. The different specific programs become projects, which must be programmed and deployed in a time horizon that ranges from the short to the long term. For each improvement program implemented, a control system must be established, with the aim of adopting corrective or preventive actions to minimize the deviations found. The methodology in Table 5 is recommended

Table N° 5. Strategies for improvement actions

Sourse: Own Elaboration

Evaluation of the level of maturity and effectiveness of internal control in a hospital entity

• Within the business entities, the hospital entities are an important component of the health care system, they demand to improve their control system and therefore their socioeconomic model. These health institutions for the development of their operations have medical personnel and other organized professionals, facilities for the admission of patients, offer medical and nursing services and other services with an uninterrupted work regime. Recent studies demonstrate the importance of perfecting this system (Morasso 2013).

• Specifically in the territory under study there are thirty-nine thousand two hundred and forty workers linked to the health sector, and it has fifteen hospital entities, broken down into eight, three surgical clinics, one pediatric, one maternal and two psychiatric and most of these services are located in the hospital entity under study. The management team was established by the top management of the hospital entity. The results of the evaluation are shown in table 6 and 7.

Table N°6: Analysis of the level of maturity in the Hospital

Sourse : Own Elaboration

• Correspondingly, the entity’s management designs and implements its SCI in compliance with the provisions of the governing bodies in this matter, this entity implements the SCI rules, but with deficiencies.

Table N° 7.Efficiency Analysis  of efficiency level in the Hospital

Sourse : Own Elaboration

The SCI model is fulfilled satisfactorily and effectively, that is, with deficiencies in terms of documentation, continuity and systematic compliance, poor fidelity with the activities actually carried out, the implementation of the guide must be continued effectively, of self-control issued for hospital entities. The deficiencies must be resolved urgently, so that the system is efficient. The main gaps are shown in Figure 2 and 3. A set of measures evidenced in the Action Plan is proposed in Table 8, where all the rules and components of the ICS are taxed, by way of example those measures are shown. Critical elements of the system patented in documents for justification and inspection.

Figure N°2. Breaches for maturity level of the SCI elements
Sourse: Own Elaboration

Figura N° 3. Breaches of maturity level of the SCI components
Sourse: Own Elaboration

Table N° 8. Evidences of Measures Plan

Sourse: Own Elaboration

In recent decades, the evaluation of internal control has been carried out through the Self-Control Guide and various control reports, which although they are relevant tools are limited exclusively to the identification of compliance with the elements associated with their components and the determination of a value of compliance with standards. It is the authors’ criterion that the proposed tool solves the previous deficiencies by allowing the critical points for internal control to be identified in the critical components and in the norms that compose it. The use of this tool helps determine the level of management of internal control, reduce hidden costs to add value to the effectiveness of the entity through the SEAM and allows the development of objective and concrete action plans, through the detected weaknesses, which will focus on integral solutions that impact simultaneously on various elements of internal control within organizations.

CONCLUSIONS

1.      The tool presented for the evaluation of the level of maturity and effectiveness of internal control is a novelty in the management of this and enriches the conception of SEAM by impacting on the reduction of hidden costs in the entity.
2.      The application of the proposed procedure in the organization under study, demonstrated its feasibility allowing concluding that they did not have the necessary elements to fully implement the elements of internal control. The diagnosis of the level of maturity and effectiveness of the internal control was classified as satisfactory and effective.

BIBLIOGRAPHCIAL ABSTRACT

Please refer to articles Spanish Biographical abstract.

REFERENCES

Please refer to articles in Spanish Bibliography.

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