Internal Control System (ICS) – Necessity and Benefits

The origins of the ICS lie in the United States. Essentially, the principles were adopted and adapted by the German legislature. Particular attention is paid to the question: intent or negligence? If an error has occurred, the tax authorities are initially very keen to establish whether it was a deliberate act or merely an oversight. If the company in question has a functioning ICS, particularly in the areas of accounting and taxation, the authorities are more likely to assess the case in the company’s favour.

Furthermore, the ICS increases the likelihood of identifying the causes of errors and determining who is responsible. Fundamentally, therefore, the aim is to protect the company. The Internal Control System is practically indispensable for identifying specific responsibilities within a company’s complex processes. Who bears responsibility when something goes wrong – and who is not at fault? This, too, is an important factor in strengthening or maintaining trust amongst the workforce and within the team.

Internal Control System (ICS) – Definition: A systematic framework for ensuring that processes within an organisation are conducted properly, efficiently and in compliance with the law.

From an employee’s perspective, the ICS is often seen as a management tool. However, the ICS is not only important for the company’s management, but also for every single person within the organisation. That is why, in his work as an ICS consultant, Viktor Rebant does not merely focus on mapping processes and identifying weaknesses. He also asks other questions, such as: How are staff trained? How is the warehouse managed? Everything is interconnected.

Much of this may sound abstract to those new to ICS. We all experience a very simple example of an ICS in our everyday lives when we want to return an item and a second person comes to the till. There are control systems, including simple ones, designed to safeguard people and processes. As an ICS consultant, you need to be familiar with the industry you’re advising – otherwise it becomes difficult to understand the processes and make recommendations for action. This also involves working with data processing systems.

After all, an organisational control is completely pointless if it can be circumvented technically. A simple example: a large warehouse uses a continuous stock-taking system. The system produces a daily list so that stock levels can be reconciled. The intention is that only the owner should be able to manually record stock shortages. However, if other people also have access to the system, the organisational measure is no longer effective. This can only be ensured by technically restricting access to the owner alone.

Elsewhere, Viktor Rebant recounts a case in which a company employee helped herself to money from the till every year and successfully concealed the matter. This does not mean that mistrust alone should govern business conduct. An internal control system is intended to provide clarity, define responsibilities and also protect employees from false accusations. Ultimately, internal control system consultants can only guarantee the quality of their advice through this specialist knowledge. Rebant acquired this knowledge in a very down-to-earth way: by reading manuals.

In this context, Rebant raises the issue of point-of-sale systems, which is becoming increasingly important as a result of the Act on the Protection against Manipulation of Digital Basic Records (POS Act). What many people do not realise is that a large number of doctors fall within the scope of this legislation. Proper cash register management is therefore becoming mandatory for practitioners in the healthcare professions, such as doctors, dentists, physiotherapists, etc. According to Rebant, software providers are not yet equipped to deal with this. Failure to comply with the GoBD requirements or the Cash Register Security Regulation will inevitably lead to problems during the next tax audit.

ICS always involves process optimisation as well. Among other things, it helps the client safeguard its resources. Viktor Rebant notes that, in every consultancy engagement, he finds someone who is „helping themselves to stock“. Cash register discrepancies, whether large or small, have disappeared following the implementation of ICS measures. In one case, a cash book was kept three times independently of one another within a single company. Whilst the causes could no longer be identified, the result was a saving of time and money for the client.

But how does Viktor Rebant go about it when an ICS consultancy assignment is due? First, an on-site appointment is arranged. He then works through a checklist, whilst further topics emerge during the face-to-face discussion. Subsequently, back at the firm, he draws up a 30- to 40-page audit report containing recommendations for action. Some time later, a follow-up review is carried out to check whether the necessary measures have been implemented by the client.

An additional incentive for implementing an ICS: ICS consultancy is eligible for funding and is subsidised by the BAFA – from 50 % up to 80 % in individual cases. The BAFA is approachable, open and conscientious in this regard.

The topic of ICS naturally opens up new areas of business for tax consultancy firms. After all, nobody knows the company and its figures better. With relatively little effort, tax offices and law firms can tap into this area of business. To work as an ICS consultant, neither a lengthy degree nor years of training are required. The foundation of knowledge is usually already in place within the firms. Tax clerks who are interested in processes and are able to familiarise themselves with the subject can gain a comprehensive understanding of the field relatively quickly.

In order to provide a high standard of consultancy as an ICS consultant, it is important to acquire theoretical knowledge. In doing so, a person should specialise in one or more specific sectors. Rebant recommends the book *Handbuch Interne Kontrollsysteme (IKS)* by Dr Oliver Bungartz. In addition, those interested can book detailed e-learning courses on the subject of ICS via the hsp Community.