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European Research Studies JournalVolume XXI, Issue 2, 2018pp. 728-740Internal Control System in Enterprise Management: Analysisand Interaction MatricesElvir Munirovich Akhmetshin1, Vladimir Lvovich Vasilev2,Denis Sergeevich Mironov3, Еlena Ivanovna Zatsarinnaya4,Marina Viktorovna Romanova5, Alexei Valerievich Yumashev6Abstract:This study is aimed at the development of a guideline for analysis of the economic activity ofan enterprise to control and ensure the interaction of tasks and functions of management inthe current and strategic aspects in the conditions of innovative development. Theproprietary methodology for enterprise management control system formation is developed.The concept of matrices of analysis and interaction between the functions of the enterprisemanagement is introduced. The matrix of operational control and management, the matrix ofstrategic control and management, the matrix of integrated control and management areconsidered by the authors. The concept of enterprise management control is consideredherein.The objectives of the management control system in the modern economy are also described.The key role of control in the implementation of the current and strategic objectives of theenterprise management is substantiated.The proposals are formulated to improve the control function at the enterprise with the helpof new information technologies. Based on the proprietary methodology of matrix analysisand interaction of objectives and functions of the enterprise management system, thealgorithm for the formation of a system of integrated flexible internal control is developed.Keywords: Management, control, internal control system, strategic control, strategic controlmatrix, integrated flexible internal control.JEL Classification: M19, M49, G39.1Kazan Federal University, Elabuga Institute of KFU, Elabuga, Russia, [email protected] Federal University, Elabuga Institute of KFU, Elabuga, Russia, [email protected] State University of Economics, Yekaterinburg, Russia, [email protected] Russian University of Economics, Moscow, Russia, [email protected] Magnitogorsk State Technical University, Power Engineering and AutomatedSystems Institute, Magnitogorsk, Russia, [email protected] Sechenov First Moscow State Medical University, Moscow, Russia,[email protected]

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev7291. IntroductionCurrently, control as a function of management is recognized as determining inachieving the high quality of work of the enterprises and organizations. There is agenerally accepted logic: no control, no exact implementation of the plan, no highresult of the activity of the enterprise. In more detail, the advantages anddisadvantages of the enterprise internal control systems are studied and published inthe scientific works of Wu (2016), Martyshenko (2016), Rahim et al. (2017),Prodanova et al. (2017), Goloshchapova et al. (2017), Mullakhmetov et al. (2018)and others.However, some modern problems of organization of the efficient control in theframework of enterprise management system are observed. One of them is thedifficulty of integration of the control functions in the current and strategicobjectives of the enterprise management system. The proprietary approach to thesolution of this problem consists in the formation of a special methodology for theanalysis and interaction of the control system with the overall management systemof the enterprise. In the opinion of the authors, this analysis and interactionmethodology can be implemented based on matrix models.The problems of the internal control system of the enterprise are the relevantresearch issue. According to the scientists, the problem of internal control is the keyof success to any company (Rahim et al., 2017). The mistakes made in the currentfinancial statements, in daily production objectives, in the relationships with thesuppliers and consumers, can result in bankruptcy. The success of internal controldepends entirely on the quality of the labor resources of the company. To solve theseproblems, the COSO IC-IF internal control standard was updated. This standardenables the control risks assessment, the development of control procedures, theimprovement of the information and data management (Montaño-Ardila et al.,2017). As noted in the studies, the internal control system is in constant motion andtransformation (Wu, 2016). In this regard, it becomes very important to considernew methods of analysis to improve the internal control system (Ivanova et al.,2017).Some attempts have been made to use the matrix method in the analysis of theenterprise management system (Iorga and Scarlat, 2014). The scientists proposed touse the matrix principle to analyze business processes and improve the indicators ofthe strategy. To this end, the key performance indicators were formed into a matrixfor analysis of the market and functional areas of the company. The positive resultwas the increase in the efficiency of control over the economic indicators and theincrease in the manageability of the company's business processes while fulfilling acommon goal (Bondarenko et al., 2017).

Internal Control System in Enterprise Management: Analysis and Interaction Matrices730The application of the matrix approach in risk analysis is the accomplishment of thelogistics tasks as: the selection of the optimal supplier, the selection of the cost andthe quality of supplies (Jawab and Arif, 2015). A positive result is the confirmationof the possibility of use of the matrix approach for risk assessment and for one of themanagement system functions. This study does not involve the use of a matrixapproach for the management system. It is proposed to solve this problem.The use of the matrix approach in the strategic aspect for the company has also beenstudied by Kokodey (2013). The presented matrix model uses three indicators: thelevel of the company's competitive advantage, the popularity in businessenvironment and time. These indicators have a market orientation and do notsufficiently consider the internal potential of the management system and theinternal control system. It seems important to examine the internal control system asan important factor in the implementation of the strategy. It is proposed to apply thematrix approach to solve this problem.The procedure for control over the current economic activity indicators and theinnovative development indicators of the company remains insufficiently studied.The application of the matrix method will make it possible to formulate a generalstrategy for the innovative development of the enterprise while maintaining thecurrent market positions.2. MethodologyIn this article, general scientific methods of study are used: analysis and synthesis,deduction and induction, the interrelationship between logical and historicalprocesses, the search for cause-effect relations, the laws of dialectics. The matrixapproach is used as a special method. This method is widely described in theliterature and it is applied for solving various economics and management problems.The proprietary vision of the application of the matrix approach is as follows. Thesystem of internal control is represented by the authors as a set of organizationalstructures, control measures, responsible executives, program activities, controlindicators and costs required for effective control. The internal control systemoperates in the enterprise management system. The authors present the system ofinternal control as a complex system. On the one hand, it is subject to the enterprisemanagement system, and on the other hand, it provides and determines theimprovement of the enterprise management system.Thus, a linear representation of the internal control system is insufficient, and amatrix approach is required. The matrix approach makes it possible to represent thecontradictory sides of one phenomenon for a common goal achievement. In thiscase, the common goal is to maintain a highly competitive market position of theenterprise in its innovation development (Korableva et al., 2018). At the same time,the contradictory factors that make up the research matrix are the stages of

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev731traditional and innovative projects, the indicators of the current and forecastedmarket strategy, the objectives of operational and strategic management.Thus, using the matrix approach, the authors attempted to build a logical system ofinternal control for the effective solution of diverse, contradictory but mutuallycomplementary and mutually reinforcing economic functions and entrepreneurialobjectives.3. ResultsThe following matrices are used to analyze the control procedure and to make theappropriate decisions in the field of enterprise management.3.1 The operational control and management matrixThe improvement of the internal control system of a modern enterprise should beassociated with the attribution of the flexibility (adaptability) properties to theinternal control system. This study implies an analysis of the organizationalmanagement and control structure of the enterprise, identifying those responsible forthe functional fields of activity and ensuring their close relationship in the process ofthe external and internal changes control. In other words, a flexible internal controlsystem should be "embedded" into the existing management system of the enterprisein such a way that the period between the violations (discrepancies) revealed in thecourse of control and the response of the management system to them would beminimal (Table 1).Table 1. Operational control and management matrixDirections ofanalysisObjectsof analysisCost and profitcentersMap of internalcontrol processesStages of ongoingproductionprojectsExample: composition,structure and dynamicsof project budgetsExample: persons incharge for control andcontrol procedures forprojectsStages ofinnovationprojectsExample: monitoringof resources andmotivations at thecurrent stage ofprojectsExample: persons incharge for developmentand implementation ofproject stagesBusiness processefficiencyindicatorsExample: laborproductivity andcost-effectivenessof projectsExample:effectiveness ofactivities andcosts by stages inprojectsFields of an effective management model of a flexible internal control systemincludes:

Internal Control System in Enterprise Management: Analysis and Interaction Matrices7321) Identification of the main parameters for the cost and profit centers in the timeprospect and in comparison.2) Analysis of each process of the model with the construction of a model of such aprocess.3) Creation of business processes and financial flows map.4) Reorganization, if necessary, of a system of interaction between variousorganizational units within the framework of adjustment of the models of theprocesses of the enterprise.In addition to control over the current indicators of economic activity in modernconditions, it is important to control the innovation development of the enterprise(Lenkova et al., 2017). The innovation activity is an activity with a high level ofuncertainty (Korableva, et al., 2017b). When we consider the stages of theinnovation process and try to control the achievement of the target indicators, first,the objective is to control the uncertainty, the level of risk of the innovation project.In this regard, the new an autonomous objective is the formation of a system ofinternal control of the risks of the company's innovation activity. For this, the stagesof the innovation project must be combined with the risk management rules inaccordance with the international standards for internal control. Risk managementshould include the following elements of the internal control standard: internalenvironment, goal setting, event identification, risk assessment, risk response, meansof control, information and communication, monitoring (Korableva, et al., 2017a).When improving the internal control system of an enterprise, it is required to linkflexibly the parameters of the tactics and strategy of the enterprise in conditions ofinnovative development and current standards for internal control. This processinvolves the assessment of the parameters for the cost and profit centers, necessaryresources and technologies for their use in the context of their linking with thepersons responsible for control in accordance with the organizational managementstructure to ensure the ability to improve the performance indicators of the enterpriseand considering the sections of the quality management system of the enterprise: management responsibility;product life cycles;resource management;analysis;change;improvement.In this case, the internal control system becomes flexible, the process of managerialdecision making after the control actions is reduced, the control function becomesdominant in the aggregate of management functions, integrating the planning,organization, motivation, analysis and accounting functions under its own control.3.2 Strategic control and management matrix

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev733From the point of view of strategic management, effectiveness, efficiency, economyand dynamism are the indicators of the internal control system efficiency. Theseindicators should be set primarily to monitor the strategic indicators grouped intosuch areas as finance, market and customers, business processes, development andhuman resources. This will allow ensuring the successful strategic (innovation)development of the enterprise through systematic control and adoption of tacticalmanagerial decisions (Table 2).The specificity of managerial information requires the provision of data according tothe current requirement – it can be both the information about the workload of anindividual object, and the progress of a certain production (innovation) process. Thisis the most appropriate for a multi-administrative project structure, including thecontrol of both traditional and innovation projects (Grynko and Gviniashvili, 2017).Table 2. Strategic control and management matrixDirections ofanalysisObjectsof analysisStages ofongoingproductionprojectsStages ucture anddynamics ofworking capitaland receivablesof projectsExample:composition,structure anddynamics ofown andborrowedcapital inprojectsMarket andcustomersBusinessprocessesDevelopmentand HumanResourcesExample:rates of salesgrowth andmarket sharein projectsExample:benchmarks andindicators forfunctional areasin projectsExample:composition,structure anddynamics ofthe wage fundof projectsExample:quantity andquality ofcontractswith potentialconsumers ofprojects’productsExample:implementationof controlmeasures forproject stagesaccording to thedevelopmentstrategyExample:indicators ofmovement,rotation andtraining ofpersonnel inprojectsWhen constructing an optimal management model of a flexible internal controlsystem, the degree of its complexity should correspond to the organizationalstructure of the enterprise, the number of employees, the number of branches and thelevel of their territorial branching, the degree of centralization of accounting, andother characteristics of the enterprise. The management model of a system offlexible internal control should use the advanced capabilities of the informationtechnology to organize the work of distributed groups and units in the enterprise.One of the communication tools of the organizational structure and control processesis the scheme of responsibility of the top managers for the functional areas of theenterprise. When changing the organizational structure, the scheme and description

Internal Control System in Enterprise Management: Analysis and Interaction Matrices734of the processes should be changed also. As the organizational structure can changeoften enough, the description of processes should be convenient for makingnecessary changes.To improve the internal control system, to increase its flexibility and adaptability,the principle of the conformity of organizational and managerial structures to theobjectives of monitoring market (internal) changes should be used. It is alsoadvisable to use the concept of "frame" – the event with certain parameters, subjectto the occurrence of which the information is submitted to the necessary functionalunits responsible for the control of the event and authorized to make the necessarymanagerial decisions. This will ensure a rapid response to the market (internal)changes, adoption of the measures necessary to solve the problem and, based on theresults of the actions undertaken, change flexibly the benchmarks of the strategic(innovation) development of the enterprise. The complex automated managementand control system based on the frame implementation of the matrix representationof the structure and modern methods of information processing and analysis willallow the enterprise to switch over to a fundamentally new level of internal control,monitoring operatively the current state of innovation processes and the productionsystem as a whole, providing the reporting and analytical data in various reviews,thereby making flexible the internal control.3.3 Integrated control and management matrixTo implement the matrix of the third type (Table 3), which makes it possible tocombine the operational and strategic objectives of the economic activity, it isrequired to develop a management model of integrated flexible internal control.Table 3. Integrated control and management matrixDirections ofanalysisObjectsof analysisStages of ongoingproduction projectsStages of innovationprojectsOperational objectives ofeconomic activityExample: ensure the placementof personnel and theimplementation of theproduction planExample: conduct a newproduct certificationStrategic objectives ofeconomic activityExample: ensure profitabilityof sales above the marketaverageExample: ensure a monopolyposition in the marketThe integrated flexible internal control (IFIC) can be defined as a permanent elementof the enterprise activity in all fields, including various forms of cost optimization onkey elements of the business model using various information technologies andmanagement technologies, where the cost optimization is a prerequisite for thefurther innovative development of the enterprise. The algorithm of the basic IFICprocedures is shown in Figure 1.

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev735The integrated flexible internal control (IFIC) is a whole complex of activitiesorganized and carried out in the company (organization) to achieve the bestefficiency from the professional duties execution by the personnel. The managementmodel of an integrated, flexible internal control system acts as a single point ofcontact for the user request to choose the responses to market or internal changes.The enterprise must respond immediately in the form of control to daily market orinternal changes to carry out its work. Moreover, it is required to identify, analyzeand eliminate the problems in the infrastructure of the information model of theflexible internal control system.Figure 1. Algorithm of procedures for integrated flexible internal controlConstruction of a model of flexibleinternal control processesCreation of a process map of theflexible internal control modelParameters of cost and profit centers,parameters of necessary resources andtechnologies of their useIdentification of the stages ofthe innovation process and theparticipating unitsParameters of tactics and strategy in conditions of innovation developmentAdjustment of theinternal controlmodel, adjustmentof the tactics andstrategy in termsof market changesdue to theinnovationThe proposed management model of the integrated, flexible system of internalcontrol automates the ongoing market (internal) changes and objectives of processmanagement, so that they are quickly reacted and effectively managed in the eventof violation of the vital control functions of the enterprise. Figure 2 shows theoperation of the integrated, flexible internal control system. The managementprocess is focused on identifying the root cause of the problem and on using thechange management process to eliminate the root cause.Figure 2. Relationship between the market (internal) changes and the integratedflexible internal control systemUser requestaccording to theorganizationalstructure andresponsibility for theoperational field ofthe enterpriseThe process of flexible internal control managementInvestigation of the problemControl over the internal control errorsControl over the changes to correct the internalcontrol errorsThe integrated flexible internal control (IFIC) system management process isdesigned to solve the problems at the requests of the users (the individuals,responsible for management and control) as soon as possible.The following can be the stages of IFIC system designing:

Internal Control System in Enterprise Management: Analysis and Interaction Matrices7361) Identification of subjects responsible for the implementation of the internalcontrol. This responsibility division can be based both on the fulfillment of thetraditional functional duties and on the implementation of the innovativedevelopment projects of the enterprise. In modern conditions, matrixorganizational and managerial structures begin to play a dominant role.2) The system of internal control acquires the principles, objectives, requirementsnecessary for combining traditional economic and innovation developmentfunctions. The guidelines for the internal control system are both currentanalytical notes on the state of the market, and the charter, strategy andaccounting policy of the enterprise.3) For the purposes of efficiency, the internal control system uses moderntechnologies, tools and management methods. Personnel job descriptions specifythe boundaries of responsibility and the control parameters (Gapsalamov, et al.,2017; Ling and Yumashev, 2018). An approach is applied to the organization ofthe internal control system based on three levels of protection.4) According to the chosen tactics and control strategy, considering traditional andinnovative development objectives, the necessary economic resources aredetermined. In job descriptions, the authorities and the necessary economicresources are in line. It is important to allocate human, information, financial andtime resources required for the effective operation of the internal control system.5) Based on successfully developed functions of the internal control system, thestandards are compiled. In terms of constant market changes and innovativedevelopment objectives, the internal control system standards should be able tochange and acquire the flexibility.6) The final stage is the functional and structural integration of the internal controlsystem into the enterprise management system. This considers the requirementsof flexible changes in internal control standards. The establishment of the internalcontrol department, the procedure for internal and external audits, the distributionof control functions between the structural divisions of the enterprise occurs inconditions of combining (integrating) the traditional and innovative objectives ofthe enterprise. Thus, the integrated flexible internal control system is beingformed.7) The next stage in the establishment of the integrated flexible internal controlsystem of an enterprise is the selection of personnel.4. DiscussionThe comparison of the results of the matrix approach application to the solution ofthe economic and management problems revealed the following. The choice of theopposite criteria or indicators to find the optimal solution is effectively realizedusing the matrix approach (Kryvoviaziuk, 2013). In our case, these opposite criteriaor indicators are the operational and strategic objectives of the enterprise, as well asthe stages of ongoing production and innovation projects (Vasilev, et al., 2017).When combining the operational and strategic objectives and ongoing productionand innovation projects, the control measures and installations are controversial.

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev737While the current (operational) activity requires controlling the cost reduction andquality improvement, the innovation (strategic) activity requires controlling theincrease in costs and obtain the uncertain quality with the likelihood of high demandin the market. In these terms, the problem of effective control integration should besolved.Other well-known economic methods and management tools are used by the authorsapart from the matrix approach to the solution of this problem. The approach to theorganization and control of the operational activities, based on the identification ofcost and profit centers, internal control process maps and business processperformance indicators is used (Kurbanova et al., 2018). In this case, this approachis applied to the formation of the operational control and management matrix. Thisallows the authors to develop the recommendations to improve the internal controlsystem at the operational level.The approach to the enterprise management based on the balanced indicators is alsoused (Vasilev et al., 2013). This approach includes such analytical fields as finance,market and customers, business processes, development and human resources.Herewith, the studies are known where the matrix approach has been successfullyapplied to improve the system of balanced indicators (Korableva and Kalimullina,2016). In this case, the system of balanced indicators is used to form the strategiccontrol and management matrix. This makes it possible to develop therecommendations for improvement of the internal control system at the strategiclevel.One of the complex modern problems of any enterprise is to ensure the integrationof the implementation of strategic and operational economic objectives in selectingthe current market positions or risky innovative projects. In this case, the objective isto increase the internal control flexibility in solving the problems of the enterpriseinnovative development. To solve this problem, the results obtained by the authorsin previous studies are used (Akhmetshin et al., 2018). Ultimately, the use of theproprietary experience and the principles of innovative management make it possibleto form the integrated control and management matrix in the enterprise managementsystem.Thus, the most successful economic methods and management tools (matrixapproach, balanced indicators system, innovative management) are used based ontopical research and development of the world level in the field of improving theinternal control system, and the proprietary model of integrated flexible internalcontrol of the enterprise is proposed.5. Inferences

Internal Control System in Enterprise Management: Analysis and Interaction Matrices738Currently, the problems of improvement of the internal control system are relevantfor any enterprise. The complexity of solution to this problem is due to the nonlinear nature of the control activity. The internal control system performs both asubordinate and a leading role in the overall management system. The effect of theinternal control system improvement is synergistic.Herein, an attempt is made to improve the internal control system using the matrixapproach. Three matrixes of analysis and interaction are developed: the operationalcontrol and management matrix, the strategic control and management matrix, theintegrated control and management matrix.First, with the help of a matrix approach, it is possible to control and manage theoperating activities of the company during implementation of current production andinnovation projects. Wherein, the cost and profit centers, the internal controlprocesses maps and business process efficiency indicators will serve as themanagement factors.Second, with the help of the matrix approach, it is possible to control and managethe strategic activity of the enterprise during the implementation of currentproduction and innovation projects. Wherein, the management factors will befinance, market and customers, business processes, development and humanresources.Third, using the matrix approach, it is possible to integrate the control andmanagement of the operational and strategic objectives of economic activity inresolving the contradictions of support or current production or innovative projects.In this case, a management model of the enterprise integrated flexible internalcontrol is proposed by the authors. When working with the user requests to solve theproblems related to the improvement of the integrated, flexible internal controlsystem, the following recommendations should be implemented:1) Priority setting, so that the external (market) and internal changes, which cause asignificant risk for the organization, for example, a fall in sales or a stoppage inproduction activities, are first recorded; this approach makes it possible to savethe resources and to use them where they are most needed.2) Consecutive recording of user request details. This information is then madeavailable to other units. This means that the records can be found, analyzed andsubmitted to work throughout the enterprise.3) Integration with the management system of the enterprise. The informationobtained on the basis of the results of the integrated flexible internal controlsystem can be used to solve the immediate production objectives and theobjectives of the innovative development of the company.6. Conclusions

E.M. Akhmetshin, V.L. Vasilev, D.S. Mironov, Е.I. Zatsarinnaya, M.V. Romanova,A.V. Yumashev739In conclusion, it should be noted that the complex automate

The internal control system operates in the enterprise management system. The authors present the system of internal control as a complex system. On the one hand, it is subject to the enterprise management system, and on the other hand, it provides and determines the improvement of the enterprise management system.