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Internal Control System

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The intent of this report is to justify the need for the internal control system when controls are in place with insurance and portfolio approaches. An internal control system is described as a way to better regulate an organization, to minimize the risks, to reduce the losses, and to achieve the organizational goals. Many organizations rely on insurance and/or portfolio approach to manage a business risk, while some organizations rely on the benefits of an internal control system. The two types of approaches that are used in the organizations are insurance and portfolio approaches.
The insurance approach is mainly used where the insurance is acquired to transfer certain risks that could affect employees, business property, or other business assets. This type of approach becomes more like a tool to prevent business losses. Also, this approach is more a financial risk tool than a risk management tool. The insurance approach mitigates the impact of the losses, rather than protecting the business assets from the potential losses. Thus, making this approach more reactive, than proactive.

Portfolio risk management is more complex and structured approach, which provides processes and procedures during decision making time. The main goal of this approach is to minimize risk while maximizing the return on investment. Portfolio risk management approach should help the organization to assess its risk tolerance while optimizing business operations. The organizations that use this approach should be able to evaluate the risk in a deeper level and determine how the risk may fit into its risk tolerance. This approach gives the organizations the options to view how to reduce risks and how to develop the techniques to identify and analyze the risks.

An internal control system sets the policies and procedures to ensure that the organization has a full protection of its

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