ORGANIZATION FOR

ADMINISTRATION AND CONTROL

Budget
-A budget is a financial plan for a defined period, often one year. It may also include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash
flows. 

Control
-is a device or mechanism used to regulate or guide the operation of a machine, apparatus, or
system. Control in a business setting, or organizational control, involves the processes and
procedures that regulate, guide, and protect an organization. It is one of the four primary
managerial functions, along with planning, organizing, and leading.

*Administrative Controls
-controls that alter the way the work is done, including timing of work, policies and other rules,
and work practices such as standards and operating procedures (including training,
housekeeping, and equipment maintenance, and personal hygiene practices).

Accounting controls 
-are a set of procedures that are implemented by a firm to help ensure the validity and accuracy
of its own financial statements.

The purpose of implementing accounting controls in a firm is to ensure that all areas in an
organization avoid fraud and other issues, improve efficiency, accuracy, and compliance.

Types of Accounting Controls

-Detective Controls
The controls in this category are meant to seek out any current practices that don't align with
the policies and procedures in place. The goal here is to find any areas that are not functioning
as they ought to, if employees are accidentally or purposefully practicing incorrect or illegal
actions, or detecting any errors in systems or accounting practices.
Examples of detective controls would include inventory checks and internal audits.
 -Preventive Controls
Preventive controls are simply the controls that have been put in place by an organization to
avoid any inaccuracies or incorrect practices. These are the policies and procedures that all
employees must follow.
Example of a preventive control would be limiting management's involvement in the
preparation of financial statements. Sometimes it's helpful for management to be involved
since they generally know the company better than anyone. But final say on numbers should be
in the hands of an accountant because management may have the incentive to distort numbers
to inflate the company's performance.

-Corrective Controls
As the name suggests, corrective controls are put in place to fix any issues found through
detective controls. These can also include remedying any issues made on accounting books
after the audit process has been completed by an accountant.

Organizational control
is an important function because it helps identify errors and deviation from standards so that
corrective actions can be taken to achieve goals. The purpose of organizational control is to
ensure that a specific function is performed according to established standards.

Benefits
Organizational control has many varied benefits, including improved communication, financial
stability, increased productivity and efficiency, help in meeting annual goals, improved morale,
legal compliance, improved quality control, and fraud and error prevention.
Controls help to better define an organization’s objectives so that employees and resources are
focused on them. They safeguard against misuse of resources and facilitate corrective
measures. Having good records means management will better understand what happened in
the past and where change can be effective.
All businesses need controls. Even sole proprietor businesses must keep records for tax
reporting. Public companies are legally required to have extensive controls to protect
stockholders, and good controls help a company to raise funds through stock and debt
issuance.
Employee morale may be higher when workers see that management is paying attention and
knows what it is doing. As an earlier module discussed, better morale means better
productivity. Better controls can mean more freedom and responsibility for employees.
Management is able to step back a little, knowing that the controls will flag any exceptions.
 Disadvantages
Even the simplest control is an added expense. Some systems can be very expensive, so
management must weigh the cost versus the benefit for each control. Banks spend billions on
controls, but it is worthwhile for the large banks, because they handle trillions and their profits
are still in the billions.
A control mentality can lead to overstaffing and unsustainable costs for some businesses.
Community banks, for example, feel the burden of new regulations on the banking industry
more heavily than the largest nationwide banks. Research from the Federal Reserve Bank of
Minneapolis, Minnesota, and quoted in the New York Times “suggests that adding just two
members to the compliance department would make a third of the smallest banks
unprofitable.”
A less obvious expense is maintaining the controls. Systems need continuous updating as the
organization changes. If they are not maintained, the controls may become ineffective.
Controls can become a blind spot for management. Overreliance on controls may lead to
relaxation in supervision and allow manipulation of accounts and assets. Employees tend to
follow the letter of rules, not the intent, so management needs to check in regularly on how
controls are actually operating.
A rigid implementation may lead to a slowdown in the operation of the business. At Freddie
Mac, a financial services company, the new product approval process required 25 signatures
and took more than a year. The new opportunities in the market disappeared before products
could be approved.
The wrong controls may expose the firm to more errors and fraud. And employees will be
frustrated if the controls are cumbersome.