AN OVERVIEW OF THE INTERNAL CONTROL SYSTEM, CONTROL ENVIRONMENT AND HUMAN RESOURCES MANAGEMENT FROM THE POINT OF VIEW OF INTERNAL CONTROL

Internal control is a management system consisting of financial and other control systems intended for effective and efficient implementation of activities, protection of assets and resources, correct and complete accounting, timely and reliable processing of financial data. Within the framework of the COSO model, which is the best accepted model of this system, internal control is designed to ensure the conformity of work and activities in the organization to the norms, the reliability of financial and management reports, the effectiveness of activities and the protection of assets.

According to the methodology, there are 5 main components of the internal control system, and the first of these components is the "CONTROL ENVIRONMENT". Other components are risk assessment, control activities, information and communication and monitoring.

According to the COSO methodology, the control environment creates the basis for other components of internal control by ensuring the formation of internal control consciousness of employees. The control environment is the main component of the internal control system.

A properly functioning control environment, where the goals of the organization are known, tasks and responsibilities are clearly defined, the organizational structure shows accountability and hierarchical relationships, the human resources system is formed based on objective rules, the management and personnel adopt ethical values, and the training and resources needed to increase the competence of the personnel includes a work environment in which management is provided and managers set an example for employees by following controls.

In this framework, the control environment mainly means the organizational culture, which includes factors such as the internal control awareness of the organization, values, the form and procedures of work execution, and the relations of employees with managers.

The main elements of the control environment are the following:

- Principles of personal and professional integrity

- Adoption of ethical values by management and staff

- Management support for internal control

- Organizational structure

- Professional competence and performance of personnel

- Human resources policies and procedures

- Management philosophy and work style

- Transfer of powers

Internal control is directly influenced by the historical and cultural characteristics of the organization. Each person in the organization must adopt and apply personal and professional integrity and ethical values. To ensure this, managers should implement performance appraisals that promote ethical behavior with an approach that supports internal control.

Management and staff must create and maintain a positive and supportive environment for the internal control system. The fact that management regularly monitors the internal control system, behaves in accordance with ethical rules, and sets an example for employees by observing control activities shows that they have mastered the internal control system. Evaluations carried out by managers should promote the effective and efficient implementation of activities in accordance with ethical rules. Performance evaluations should be carried out taking into account these issues.

If the internal control system is mastered by the management, the confidence of other employees in the operation of the system will increase and the foundations of a healthy control environment will be laid. If the management does not master the internal control system, the employees will be reluctant and the organization will not be able to achieve its goals. In this regard, management's support for the internal control system is very important.

In addition to the adoption of the internal control system by the management, it is also considered important that the organizational structure of the institution clearly shows the division of authority and responsibility. Along with authority and responsibilities, administrative levers and accountabilities must also be defined. The most effective tool used to ensure accountability is the reporting system. Therefore, the organizational structure is also required to show reporting relationships and hierarchical relationships.

It is of great importance for the quality of the control environment that employees know their duties and responsibilities and understand the contribution of their activities to organizational goals. It is necessary for employees to accept personal and professional integrity as a principle and adopt ethical values in terms of effective and efficient implementation of activities. Paying attention to the use of competent and qualified specialists in the implementation of the human resources system will create conditions for increasing the awareness of control.

For a well-functioning control environment, the organization's goals, organizational structure and tasks must be determined in advance, and personnel performance must be periodically evaluated.

Another factor that is considered important for the control environment is the issue of authority and transfer of authority in organizations. Thus, for good governance, the boundaries of authority should be clearly defined and communicated in writing. Delegation of authority should be carried out taking into account the importance and risk of authority.

As mentioned above, according to the methodology, 4 main standards for the control environment were defined in the internal control standards. According to the COSO methodology, the control environment standards are as follows:

STANDARD 1 : ETHICAL VALUES AND INTEGRITY

It should be ensured that the rules defining personnel behavior are known to the personnel

STANDARD 2: PURPOSE, ORGANIZATIONAL STRUCTURE AND DUTIES

The goals of the organizations, the statutes of the structures and the job instructions of the personnel should be determined in writing, communicated to the personnel, and the organizational structure appropriate to the institution should be formed.

STANDARD 3: STAFF COMPETENCE AND PERFORMANCE

Organizations should ensure the compatibility between the competence and duties of the personnel, and take concrete steps to evaluate and develop the performance.

STANDARD 4: DELEGATION OF AUTHORITY

The framework of authority and delegation of authority in organizations should be clearly defined and communicated in writing. Delegation of authority should be carried out taking into account the importance and risk of the delegated authority.

As the names of the aforementioned standards suggest, they affect a large part of the organization's human resource management system and define requirements. Organizations, in turn, should take into account the relevant requirements of the internal control system and ensure that the systems are integrated when forming their human resources systems.