Check and balances have been an important process for American society since its founding. Our country's system of checks and balances has carried over to many sectors of the business and organizational world. Checks and balances help keep our financial sectors honest and our large publicly held companies operating smoothly and responsibly. Checks and balances help create an honest and accurate business organization and establish trust and productivity.
Importance of Check and Balance for Honesty
Checks and balances help keep organizations and departments honest by filtering information through several different parties and/or individuals. Financial and accounting departments utilize many forms of checks and balances to reduce the amount of fraud and inaccurate information. Checks and balances can prevent individuals or small parties from tampering with official numbers and benefiting from the "error".
Most companies utilize a system of multi-department authorization for final figures and, in many cases, require the signature of the CEO. Financial integrity is an important aspect of business; every business must rely on a correct ledger to operate efficiently. An honest financial system is also paramount in gaining the trust of investors.
Accuracy Reasons for Checks and Balances
After the many financial frauds that have taken place in the American economy, the government has implemented a system of checks and balances to protect the public from inaccuracy. The most notable enactment of this nature is known as the Sarbanes Oxley Act of 2002, which requires that publicly held organizations keep track of financial documents and restrict access to them.
Reporting accuracy is greatly increased in a system that will have open access to auditing. Heavy penalties are issued to companies that do not adhere to the legislation. Accuracy in the business world is a very important key for success. To keep investors confident, organizations must be solid and truthful. A market that is constantly fluctuating due to poor financial accuracy will quickly fail.
Aligns the Company with Stakeholder Interests
The checks and balances process in a successful organization keep the company running in a way that is aligned with stockholders' and management's designs, department heads must submit to a hierarchy. Decisions that are made follow through an approved chain of command that supports the decisions based on the company's goals. Checks and balances are one of the only ways a company can keep the various departments operating in a way that aligns with the overall mission of the company.
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