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Internal Corporate Governance Control

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Discuss about the Corporate Governance and Ethics.



The internal control is concerned with the practices and the procedures which ensure that the particular organization would achieve the targets which are set within their strategy. It strives to use the organizational resources in an economic manner (Oppong et al. 2016). An effective as well as reliable internal control is the foundation of compliance with judicious business practices (Oppong et al. 2016). The internal control also takes care that the risk management procedures are arranged in an adequate manner. It focuses on the greater control over the custody of the client assets as well as protection of the individual property. The internal control ensures that there is conformance with the regulations as well as approved principles concerning ethics. The Board of Directors increasingly understands the evolvement, practical application as well as the implementation of the internal control in the organization.

This paper would demonstrate the development of the internal control as well as the risk assessment in a real organization. The organization selected for the purpose of study is Barclays Bank, which is headquartered in London, United Kingdom. The associated scandals of the Bank would be discussed which is helpful in contributing to the subject matter. The implementation of the risk assessment and the internal control in the UK and USA would be discussed and any major differences between both the countries would be outlined. The concluding part of the paper would discuss the implementation of the internal control as well as risk assessment in the companies belonging to both USA and UK.


The internal corporate governance control is one of the prominent issues in the UK as well as USA as there have been major accounting issues in these countries. The United States of America has adopted sufficient steps to modulate the internal control systems of the organizations (Blackwell and Kochan 2013). This has been done with the help of “Sarbenes-Oxley Act of 2002”, which aims to protect the investors from the several fraudulent activities of the different corporations (Blackwell and Kochan 2013). This has increased the accuracy as well as transparency in the financial reporting in the US organizations. UK has adopted more “market-regulated” approach to increase the internal control in the organizations. It is important that the listed companies implement effective risk management strategies as well as internal control so that they can be transparent to their shareholders.

The internal control in the organization serves a variety of purposes. It is one of the primary tools of the company in order to identify the probable risks. It is also helpful for the company to safeguard the investments made by the different shareholders as well as protect the assets of the company (Speklé and Verbeeten 2014). The internal control improves the business operations and enhances the effectiveness of the internal as well as external reporting (Speklé and Verbeeten 2014). An internal control system is helpful in the detection of the fraud as well as support management and checks whether these adhere to the laws and regulations made by the organization. The internal control system focuses on the financial controls as it helps in the management as well as detection of financial risks in the organization (Speklé and Verbeeten 2014). The organization should be able to adapt to the ever-changing “risk” profile which would happen if the internal control system of the organization is evaluated on a regular basis (Speklé and Verbeeten 2014). The avoidance of risks by the internal control system is outside the purview of the internal control systems, however, these try to assess as well as detect the material risks of the company. This also helps the management to handle these exposures in an appropriate manner.


Barclays Bank is one of the largest multinational banking as well as financial services organization, which is headquartered in London, United Kingdom ( 2017). The Bank has its operations in the wholesale, retail as well as investment banking operations. It also operates in the wealth management, credit cards and mortgage lending ( 2017). The Bank has its operations in more than 50 countries and serves more than 48 million customers ( 2017). The Bank has been involved in several scandals such as “Libor-rigging” scandal, “forex” scandal and “brazen” currency ( 2017). These incidences indicate that the company has lack of internal control. There is also lack of involvement of the board of directors which results into lack of organizing of the internal control functions.

The company personnel at Barclays Bank were accused of manipulating the “Libor interest rates”. On investigating into the matter, the jury members found out that the conspirators were involved in the fixing of the rates so that the Bank could make more financial gains (Duffie and Stein 2015). There were nine investment bankers (drawing highest package) of Barclays in New York and London, who were involved in the conspiracy. During the trial, the accused claimed that the bank used to act in the commercial interest when they were engaged in the daily submissions embedded in the process of “Libor setting” (Fouquau and Spieser 2015). When the court cross examined the evidences, they found out that the labors were not reflecting actual cost of the money. The actual cost of the money was higher than the ones presented in the official documents (around 5 to 15 points). The prosecutors agreed to the fact that the Libor manipulation has been some international issues and this has been a subject of the extensive cooperation within the UK and USA authorities (Duffie and Stein 2015). The Bank has reached the around $100m settlement with approximately 40 USA states (Duffie and Stein 2015). This was due to the fact that the bank was involved in the anticompetitive as well as fraudulent activities which were directly related to the “Libor rigging scandal”. The organization faced strict fines as a result of manipulating the “benchmark” interest rates.

The Board of Directors should take the responsibility of properly organizing the internal control by implementing effective control principles in the organization (Simons 2013). The executive management as well as the managing director of the company should be accountable for the execution of the internal control in their own departments so that the duties are well segregated among the employees (Duffie and Stein 2015). The centralized Compliance functions, Finance, Treasury and Risk management entities ensure that the internal control process is effective.

The internal audit in Barclays Bank is responsible for making the group level auditing which involves the objective as well as independent assessment, consulting and the assurance activities (Knechel and Salterio 2016). The internal audit team helps the internal financial team to incorporate a systematic as well as disciplined approach in the evaluation as well as effectiveness of the risk management, governance and supervision processes (Alzeban and Gwilliam 2014). The internal audit should be conducted according to the good internal auditing principles (Duffie and Stein 2015). The planning, reporting and implementation of audit is considered as an independent function. One of the most important components of the internal control is the internal audit (Alzeban and Gwilliam 2014). The internal audit operates as separate unit which works under the supervision of the CEO as well as the board of directors.


The Board of Directors of Barclays as well as the Audit Committee is responsible for the actual implementation of the internal control in the organization (Minto and McCormick 2014). The financial reporting results should be monitored regularly and any anomalies should be given due importance. It would also help the management to detect the reporting errors so that accurate information can be gathered regarding the finances of the company (Minto and McCormick 2014). The internal audit concentrates on the various risks that are faced by the organizations and how the organizations should respond to them. In this process, there is inclusion of both the financial as well as non-financial processes along with the reputation of the company.

The external audit of the Bank is usually concerned with a third party organization that is free to examine as well as assess the organizational framework. This type of audit focuses more on the finance job function and the key business risks of the bank (Minto and McCormick 2014). There can be credit risks, operational risks, market risks, liquidity risks, reputational risks and others which should be considered by the Bank from time and again (Bouvatier Lepetit and Strobel 2014). The external audit is usually performed at an annual basis and this document is a reflection to showcase how the company performs from a financial point of view. The internal control system is being evaluated by the external auditors in order to ensure that they are working effectively.

The basic purpose of the audit committee is to review the financial reporting system of the organization, audit process, internal control systems, compliance with laws and others (Brennan and Kirwan 2015). The audit committee of Barclay’s reviews the accounting as well as reporting issues in order to understand the potential impact on the financial scenario. It takes into account the way financial information is required for the smooth functioning of the organization. The committee is engaged in reviewing the results of the audit with the external auditors and the management team (Ishak 2016). This also includes the scrutiny of the financial information, which should satisfy the predetermined standards. The audit committees are actively engaged in the reviewing of the internal controls of the organization and assessing their effectiveness. The committee reviews the available management information, financial information and the operational matters so that they can understand the level of internal controls prevailing in organization (Brennan and Kirwan 2015).

The management of the compliance risks forms an integral part of the internal control. It is also one of the prime important factors in the effective “corporate governance” practices (Elgammal et al. 2016). The senior management of the bank has the responsibility of regulatory compliance. The compliance function is associated with the assisting of the senior management as well as executive management (Brennan and Kirwan 2015). It also helps in the assessment of the risk management priorities of the organization. The compliance risks should be taken into account while formulating the strategy of the organization.

The internal control of the organization also encompasses the risk management function. The purpose of the risk management as well as the capital adequacy management is to ensure that the organization has adequate risk-bearing capacity (Al-Hassan et al. 2013). This also helps in the checking of the liquidity of the organization so that the business continuity can take place in a smooth manner (Cummings and Durrani 2016). The risk bearing capacity of the bank encapsulates the effective risk management of the firm with respect to the complexity of the operations as well as the availability of the capital resources of the firm (Al-Hassan et al. 2013). The Bank engages in moderate degree of risk taking which is spread across all the business operations. There are a number of risks for the company such as operational risks, strategic risks, concentration risks, underwriting risks and others. The risk management as well as the “internal capital adequacy process (ICAAP)” involves several steps (Cummings and Durrani 2016). This includes the identification, measurement, assessment and the mitigation of the risks. The second step includes the reliable determination and the fixing of the degree of liquidity as well as capital required for the purpose of mitigating various kinds of risks (Cummings and Durrani 2016). The last step involves the allocation of capital as well as liquidity systematically as per the current risk-taking activity of the business unit.

There are several types of internal controls which are used in the organization. They can be- detective control, corrective control and the preventive control (Mohammad et al. 2014). The detective control is concerned with the detection of errors which have already occurred in the organization. The corrective controls are designed to correct irregularities which have already been detected in the organization (Cummings and Durrani 2016). The preventive controls are implemented in such a manner that the proactive action can be taken regarding the deformities so that they do not occur in the organizations.


The risk disclosures of the Barclays go through period of significant credit crisis. It is important to implement risk reporting in the organization as the uncertainties area n integral part of the modern-day businesses (Olso and Wu 2015). The shareholders as well as the investors of the bank would be able to understand the current as well as future risk position of the organization if the company personnel engage in adequate risk disclosure. In UK, there has been more priority to the risk management function, risk appetite framework and subsequent risk reduction through the process of diversification (Cummings and Durrani 2016). There is no inherent immunity from the various risks; however, they can be managed if proper attention is given to internal control.

 The COSO framework is a non-profit organization which has the objective of finding out the different factors that has led to the corrupt financial reporting (Pett Blomster and Wallace 2015). The “Committee of Sponsoring Organizations of the Treadway Commission” was founded in the year 1985 and it is funded by the accounting associations (Pett Blomster and Wallace 2015). The internal control of the organization comprises of several elements such as management philosophy, established values, responsibility assignment and the leadership provided by the senior management.

The Turnbull report 1999 focuses on the high impact as well as higher likelihood risks. It sets out the various best practices for the implementation of the internal control in the different UK listed organizations (Goh and Gupta 2016). The report focuses on the setting of the objectives, identification of the risks, assessment of the risks and the way they affect the internal control of the organizations. The recommendations of the report encourage the board of the directors of the companies to take into account various factors. These factors include- extent and nature of the risks faced by the organization, likelihood of risk materialization, types of acceptable risks, ability of company to reduce the risk impact and the cost effectiveness of the internal controls (Goh and Gupta 2016).

The Irish Companies Act 2014 proposed by Matheson, introduce several changes in the company law prevalent in Ireland (Matheson 2017). This law has enabled the companies to take care of the annual compliance as well as corporate governance among the Irish companies. The Act has introduced several changes in the existing financial structure of the companies that has decreased the degree of administrative burden. There has been implementation of a simple written process for approval such as financial assistance implemented for the purpose of share acquisition. This would also lead to the reduction of capital and placing of the organization into voluntary “liquidation”.


There are considerable differences in the risk disclosure procedures as well as internal controls of UK and USA. The shareholders are given more value in the UK than in USA. In the UK, there has been a shift in the legal developments concerning corporate governance. There has been incorporation of broader shareholder perspective in UK, unlike in USA. There are also significant differences in the auditing process followed in both the organizations. In UK, there is different perceptions of the effectiveness of internal control. There was close association between the risk management process and the internal controls. The UK companies like to identify the financial risk, business risks and the internal controls in the various risk reporting processes. In USA, the internal controls are quite limited. However, in the USA, the Sarbanes-Oxley Act is followed and this has been extended recently to the Enterprise Risk Management as well (Cavusoglu et al. 2015). The COSO internal control framework is currently dominating the control management function in the USA organizations. In UK, the risk management process is systematic and they are deeply embedded in the company procedures. The internal control was in the hands of the private companies in UK for a longer time than that in USA. UK entered into the corporate governance sector with the help of the Cadbury Committee in the year 1992 (Zalewska 2014.).

The USA and UK companies implement the internal control procedures in their own possible way. In the US, the internal controls are established for providing adequate assurance for safeguarding the assets of the firm. An increasing level of importance is being laid on the use of the proper accounting records in the organization. In the UK and Ireland, the organizations place greater importance on the mitigation of risk process and they consider this process as one of the most important components of the internal control (Mees 2015).


The UK governance code believes in the principle that that the board of directors of the company should adhere to the sound risk management tactics which is required for the greater implementation of the internal control systems. The board is responsible for monitoring risk management of the company as well as governing of the internal control systems. Management use the various internal control mechanisms to make sure that the objectives of the business are being achieved. It is clear from the above discussion that the internal control is one of the most important elements of corporate governance. This internal audit adds considerable value to the management by keeping the senior management informed about the control mechanisms. The development as well as implementation of the internal control in Barclays Bank is discussed. The various scandals of the Bank are being discussed which demonstrated that there is lack of internal control in their organization. The Libor setting scandal is one of the biggest scandals of the bank. The implementation of the risk assessment as well as internal control that is used by both USA and UK is discussed. This paper would broaden the understanding of the internal control in organizations and how they can be leveraged to meet the company objectives. The process of risk management would also be helpful, especially for the purpose of surviving in the market for longer duration.



Al-Hassan, A., Papaioannou, M.M.G., Skancke, M. and Sung, C.C., 2013. Sovereign wealth funds: Aspects of governance structures and investment management (No. 13-231). International Monetary Fund.

Alzeban, A. and Gwilliam, D., 2014. Factors affecting the internal audit effectiveness: A survey of the Saudi public sector. Journal of International Accounting, Auditing and Taxation, 23(2), pp.74-86. 2017. Barclays | Personal Banking. [online] Available at: [Accessed 15 Mar. 2017].

Blackwell, R. and Kochan, T.A., 2013. Restoring the Public Purpose to Private Corporations.

Bouvatier, V., Lepetit, L. and Strobel, F., 2014. Bank income smoothing, ownership concentration and the regulatory environment. Journal of Banking & Finance, 41, pp.253-270.

Brennan, N.M. and Kirwan, C.E., 2015. Audit committees: practices, practitioners and praxis of governance. Accounting, Auditing & Accountability Journal, 28(4), pp.466-493.

Cavusoglu, H., Cavusoglu, H., Son, J.Y. and Benbasat, I., 2015. Institutional pressures in security management: Direct and indirect influences on organizational investment in information security control resources. Information & Management, 52(4), pp.385-400.

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Elgammal, A., Turetken, O., van den Heuvel, W.J. and Papazoglou, M., 2016. Formalizing and appling compliance patterns for business process compliance. Software & Systems Modeling, 15(1), pp.119-146.

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