Common Issues on Which Businesses Have Internal Policies?

Do you know why do businesses have internal policies? There are much more reasons for it. In this article, we are telling the policies of Businesses.

For the purpose of conveying to employees what is expected of them during their tenure of employment, organizations have organizational policies or internal policies as commonly referred to, which may be jointly drafted by the HR and Finance team as deemed fit.

Any well-written policy makes it very clear to the employees about the “do’s and don’ts” leaving the managers’ free to focus on management priorities.

Common points necessitating internal policies in an organization? 

Some of the contributing factors necessitating internal policies in an organization are:

(i) Internal Control Factor

An organizational policy can be seen as a control mechanism for the execution of different activities.  Typical examples for this aspect could be policies on delegation of authority and segregation of duties.  It is essential that such policies related to internal controls are enforced through an auditing mechanism in order to check its effectiveness at prescribed intervals.

While on the topic of internal controls, one major aspect would be to providing proper guidance to employees for appropriate behavior at work.  Policies from Human Resources cover these aspects and in general, are meant to protect both the business interests of employers and its employees.  Some of the key points that are typically covered in a HR Policy are listed below:

Hiring Forms, Checklists for Hiring of Personnel, Employee Handbook, Health, Safety and Environment, Employee Ethics Code, Employment Discrimination, Employee Harassment, Training, and Development, etc.

(ii) Risk Management

Organizational policies play an important role in addressing the risk management. A well drafted financial management policy could cover all or many of the below-listed aspects that could have a financial impact to the effective running of the business:

The purpose of the policy, Financial Responsibilities and Accountabilities, Conflict of Interest, Budgeting Process, Financial Statements, Cash Management, Auditing Process, Approval of Expenditure, Compensation and Payroll, Travel and Expenses Reimbursements, Document Retention, Confidentiality of Records, Tax Reporting, etc.

(iii) Corporate Governance

Corporate governance provides a framework of rules and practices by which the management board ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders, both internal and external, namely, customers, management, employees, statutory bodies and the community within which the company operates as a whole. This framework provides for the distribution of rights, responsibilities and rewards, procedures for reconciling conflicting interests of stakeholders in accordance with their roles, responsibilities, and entitlements and also procedures for supervision, control and flow of information, which serve as an effective system of checks and balances. A high level of corporate governance in any organization helps in maintaining a high reputation of the company in the market and thereby increasing its brand equity. Organizational policies support a company in maintaining a degree of accountability in the eyes of internal and external stakeholders.

Another good example of Corporate Governance could be explained by the administration practices of “Corporate Social Responsibility” (CSR) defines Corporate Social Responsibility (also called corporate conscience, corporate citizenship or responsible business) as a form of corporate self-regulation, integrated into a business model.

Conclusion

While discussing contributing factors necessitating internal policies in an organization, we discussed three important factors, namely, (i) Internal Controls, (ii) Risk Management and (iii) Corporate Governance. Even though these are seen as separate factors, in essence, they are all interdependent and complement each other. A case in point would be that corporate governance would also serve as risk mitigation. When Corporate Governance is executed effectively, it can help prevent corporate scandals, fraud and the civil and criminal liability of an organization. If corporate governance is compromised, then there are possibilities for corners being cut in important decisions leading to management complacency and corruption. On a final note, properly documented policies and procedures can support management and employees in effectively aligning to the vision, mission, and strategies set forth for the organization and also in strengthening its value system.

 

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