5.

70 Role of Board of Directors in Internal Control

Christine Joyce G. Raquedan
BSAT 4A

1. It is the role of the board of directors to hire the CEO or general manager of the business and
assess the overall direction and strategy of the business. An effective board must act as a
brake on poor decision-making. A competent audit committee must ensure that sound
internal controls and risk assessment and management are in place, and that the accounts
give a true and fair view of the company's affairs. The board should encourage compensation
packages that focus on long-term achievement and penalize poor performance, to reduce
the incentive to increase short-term earnings at the expense of the long-term health of the
company. The board can also check and review the budget to the actual expenditures to
monitor the transactions made by the management as well as its reasonableness. Legislation,
as manifested by Sarbanes-Oxley, will do little to prevent future failures as it cannot address
the underlying causes. It will not prevent companies pursuing flawed strategies or making
poor acquisitions. Nor will it reign in an overly ambitious and greedy CEO. Only a strong and
challenging board can do that.

2. The board can prevent abuse by creating an internal audit function that will report directly to
the board. The board should also require a detailed listing of expenses related to marketing,
entertainment, representation and travel. The board could also strengthen the policies
regarding the protection of those employees who would report violations made by the
management. All budgetary concerns and issues must be discussed among the members
and a detailed minutes of meeting must be made with the corresponding information about
the costings and if additional expenses is needed, if material, would need to be approved and
accounted also. Audit trail is also very important and the board should establish policies
regarding safe-keeping all the documents to support transactions.

3. External auditors are responsible of giving reasonable assurance that the financial
statements are free from material misstatements. In the audit procedures, certain fraud risk
assessment is made, like inquiries of management and observation, and If red flags appear of
such abuses then the auditors may add procedures to obtain more evidences. In addition,
review of internal controls should also be performed to ensure that controls are functioning
accordingly.

4. The Board should audit the requirement for credit cards. If necessary, an approach should be
produced on the utilization of credit cards and the survey methodology that should be
expected of Directors and in addition Board individuals. All repayment demands made by
representatives or board individuals for endowments ought to be recorded in an essential
and basic way with a clear depiction of why the cost of doing business is specifically
identified with the business.