The term internal control system (ICS) basically covers all processes and activities in which a high quality of data and results is to be ensured by comparisons and analyses. The requirement for the implementation of an internal control system results from the Joint Stock Corporation Act (Aktiengesetz), while the requirement for credit institutions has been tightened even further within the framework of the Minimum Requirements for Risk Management (MARisk).
In the context of accounting, ICSs are further subdivided into comparisons and analyses:
Comparisons – ICS in the Narrower Sense
Comparisons are understood to be all processes in which information from source systems is compared with information from target systems. The aim of the comparisons is to ensure that values from source systems have been transferred completely and correctly to further processing systems. As a rule, these are technical reconciliation steps with an expected value of a “zero difference.” Typical examples are general ledger/subledger, subledger/subledger, or calculator/subledger comparisons. Especially for banks, this part is of particular importance due to the long and complex supply chains from the inventory management front office system to the general ledger.
Analyses – ICS in the Broad Sense
Analyses are defined as reconciliation steps in which plausibility checks, time series comparisons, comparisons with expected values or other qualitative/technical checks are used to ensure the consistency and correctness of values (usually) within a system. Analyses are therefore mostly downstream processes that need to be compared, since the first step is to ensure correct delivery, in particular completeness. Typical examples of analyses are interest plausibility checks, hedge results, hidden reserves and charges, development or reconciliation of results.
Data Quality Assurance through ICS Processes
A suitable ICS process means that any occurring deviations can be corrected promptly, and this ensures the high quality of the result data. Each correction should be made in the source or system in which the “error” or need for correction arose. This serves to avoid having to repeat the correction again and again in the future and to ensure the data quality not only at the result level but already at the source and thus also to create added value for other users – for example from controlling or reporting.
Disregarding the principle of origin can cause:
- there to be different levels of information when data is distributed to downstream systems.
- corrections to have to be made in multiple places or systems to ensure a consistent level of information.
A comprehensive ICS is ideally embedded in the ongoing accounting process of the credit institution and, in addition to reporting and correction processes, represents an essential component for the quality assurance of the data. A suitable ICS system is also characterized by the fact that the process is streamlined and almost fully automated, i.e. no multiple reconciliations of the same circumstance by manual activities are necessary. A streamlined ICS system thus leads to time savings and an associated cost advantage with high data quality.
FAS AG Support in the Introduction of an ICS
FAS AG will support your clients in defining suitable ICS steps and embedding the necessary reconciliation processes in the ongoing reporting processes. The focus can be both on the new introduction of a (partial) ICS (for example in the context of the conversion of a front office system or the general ledger) or on the adjustment of an existing ICS due to changes in accounting and reporting requirements. FAS AG also offers a pure analysis and optimization of an ICS. It is possible to take advantage of potential here by eliminating unnecessary partial steps and standardizing processes, comparisons and analyses.
If you are interested or have any questions, please contact us.