Types of Internal Control System | Integrated Communication for Banks

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Content
1. Intergrated communication Meaning
2. Need of Integrated Network
3. Types of Internal control system
4. Download PPT

1. Integrated Communication Network Meaning

MEANING:- Integrated communication network is a network or system which helps to integrate all the technology into one system. This integration helps banks to increase security and control. ICS is a hardware device or a set of hardware that allows communications protocols/interfaces to interact seamlessly.

EXAMPLE:- Bank uses this system to collect data from branches and process centrally, It record all transactions, check all system in money laundering case, etc. Flipkart uses this type of technology like they accept payments through banks, credit cards, and other ways.

2. WHY DO BANK NEED INTEGRATED COMMUNICATION SYSTEM

Banks are exposed to many risks in their activities relating to the management of funds, banking services, Credit cards, and other e-banking products/services. Which are associated with the use of IT tools, channels, platforms. Banks should have a good and effective control system to handle IT-related issues and risks. Like Shift Technology

SWIFT TECHNOLOGY:- Swift technology is used by banks to improve transaction operation or run smoothly. SWIFT helps to send codes in encryption forms to other banks for online transactions. Like for OTP codes and used to identify the transaction movement. For more info about this technology- click here

  3. Types of Internal Control system

1. Preventive Controls: This type of control stops errors or irregularities. Good design/ screen layout reduces or stops the errors at the time of coding data or entering data from the source document.

2. Detective Controls: Identification of errors or irregularities that happen after they occur. For example, An input validation program identifies data input errors.

3. Corrective Controls: These types of controls remove or reduce the effects of errors and irregularities after they have been identified. If any data is corrupted during transmission the communication software (with inbuilt control) may request for re-transmission of information data.

4. Physical Controls: In a computerized environment, the control of access is very important given the confidential and sensitive information/data which are being processed/stored at the data processing centre.

5. Access Control:- Access assists the organization and users in restricting entry to authorized persons only to the computer room and also allowing access to computer media, computer components, data, documentation, etc. Unauthorized persons should not be allowed to undertake repairs/ maintenance of computer hardware.

6. Output controls: Hard copies of all important reports generated should be preserved properly as per the bank’s record maintenance policy. As part of disaster management, the computer room, data centres need to be checked for the proper functioning of fire extinguishers, smoke detectors, and other devices.

7. Internal Controls: To ensure that the accounting data and other sensitive customer information are accurate and reliable and also to protect the assets of the bank, a system of internal controls is built in the computerized systems. An effective and efficient internal control would assist the bank management to run the bank’s operations in a better-controlled environment.

8. Accounting Controls may be in the form of (a) dual controls and authorizations (b) validation checks on data (c) other controls on access to the software applications. Some other controls include validation of each transaction against limits and balances, stop payments, post-dated and stale-dated cheques, etc.

9. Operational Controls: Operational controls are embedded in software whereas access controls can be enforced by the system software and application software at different levels. The operational controls are usually provided in the application software to ensure data integrity and processing. To ensure operational controls, some tools like audit trail, checksum, and data encryption are used.
The audit trail maintains a record of processes that update the data and information.
A checksum is a number calculated based on certain key information in the system. The checksum is generated to ensure data integrity stored in a computer file.
Data Encryption is the process of systematic encoding of data before transmission to protect the system from unauthorized access, and an unauthorized person cannot decipher it. End-to-end encryption protects the integrity of data passing between a sender and receiver.

10. Information System Audit (IS): This audit is carried out through the IT systems with the assistance of CAATTs and CMITTs. These tools are used to carry out the information system audit. The information system audit covers various controls like preventive, detective, and corrective controls and their effectiveness in protecting banks’ information systems. Information System audit assesses the strengths and weaknesses of the bank’s information system.

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