Organizational culture and internal control

Abstract

The paper proposes investigating the relationship
between the organizational culture and internal control.
The approach is a qualitative, constructive one. There is
asserted and argued the thesis according to which
between the two elements there is a one-to-one
relationship, going on up to an extended overlapping
between the organizational culture and the internal
control environment. Though, our work emphasizes also
the potential differences and distortions which may
appear within the organizational activity between these
important elements.
The identification of several factors which may enhance
the synergy between the organizational culture and
internal control, respectively the description of possible
entities, processes and organizational relationships
through which there could be made corrections and
reciprocal adjustments between the two elements are
the main results of the present research, with theoretical
importance for the scientific and practical research for
the organizational management and audit.

Full text

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
628
Audit financiar, XV, Nr. 4(148)/2017, 628-643
ISSN: 1583-5812; ISSN on-line: 1844-8801
Organizational
culture and
internal
control
Sorin DOMNIŞORU,
University of Craiova,
E-mail: domnisorusorin@yahoo.com
Radu OGARCĂ,
University of Craiova,
E-mail: rfogarca@yahoo.com
Isabela DRAGOMIR,
University of Craiova,
E-mail: isabela_dragomir@yahoo.com
Abstract
The paper proposes investigating the relationship
between the organizational culture and internal control.
The approach is a qualitative, constructive one. There is
asserted and argued the thesis according to which
between the two elements there is a one-to-one
relationship, going on up to an extended overlapping
between the organizational culture and the internal
control environment. Though, our work emphasizes also
the potential differences and distortions which may
appear within the organizational activity between these
important elements.
The identification of several factors which may enhance
the synergy between the organizational culture and
internal control, respectively the description of possible
entities, processes and organizational relationships
through which there could be made corrections and
reciprocal adjustments between the two elements are
the main results of the present research, with theoretical
importance for the scientific and practical research for
the organizational management and audit.
Keywords: Organizational culture, internal control,
management, control environment
JEL Classification: M10, M14, M49
To cite this article:
Domni•oru, S., Ogarc•, R. and Dragomir, I. (2017),
Organizational culture and internal control, Audit Financiar, vol.
XV, no. 4(148)/2017, pp. 628-643, DOI:
10.20869/AUDITF/2017/148/628
To link to this article:
http://dx.doi.org/10.20869/AUDITF/2017/148/628
Received: 03.05.2017
Revised: 10.07.2017
Accepted: 11.07.2017

Organizational culture and internal control
No. 4(148)/2017 629
Introduction
The internal control and organizational culture are two
widely approached themes in the economic literature of
the last decades. Nevertheless, the concepts have not
been entirely clarified, their definition still having
debatable areas.
The concept of internal control appeared as a practice in
the USA at the beginning of the 20th century, whereas in
the economic literature it began to be extensively
approached after the ‘50s (Hay, 1993).
In 1992 the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) issued the
document “The Internal Control - General Framework”,
which, up to a certain extent, has brought a certain
global alignment of practice and literature on this
concept. Apostolou and Crumbley (2008) consider that,
following this report the internal control (a much older
concept strictly within the field of accounting) has
extended its boundaries from the financial and
accounting function to the entire entity.
The financial scandals at the beginning of the 2000s
(Enron, Worldcom, Parmalat, etc.) led to the occurrence
of the Sarbanes-Oxley law, which focuses on the
efficiency of the enterprise’s internal control system and
on its rigorous/responsible assessment. This fact
emphasizes the idea that the concept of “internal control”
and the system of internal control should be clearly
defined. Ambiguities should be eliminated also in respect
of the implementation and assessment of the internal
control system (Lakis and Giriunas, 2012).
In the last half of the century, especially influenced by
the recent regulations mentioned above, the concept of
“internal control”, in some authors’ view, “has gone out of
haze” (Renard, 2016). In our view, it does not mean that
there has been reached an unchangeable definition, but
rather that a nucleus can be retrieved from all definitions,
both form professional bodies, and researchers.
On the other hand, the organizational culture became a
research theme for the researchers in the organizational
field around the 1970s. According to Teehankee (1994),
the first authors who used and/or tried to define the
concept of organizational culture were: Margulies (1969);
Beckhard (1969) – who uses the concept but does not
define it; Schein (1968) – he used the phrase
“organizational socialization”, but the given definition could
be considered close to that of organizational culture.
In the ‘80s, on the background of Japanese firms’
spectacular performance growth, paralleled by the
decrease of American companies’ performance, and the
review of some managerial theories under the influence
of these developments, respectively, a series of authors
investigated the manner in which the organizational
culture contributed to the organizations’ performance
(Ouchi, 1981; Peters and Waterman, 1982; Deal and
Kennedy, 1982). The success of these papers turned the
organizational culture into a widely approached topic in
the professional literature related to organizations
(Plakhotnik and Tonette, 2005).
Generally, the relationship between control and
organizational culture has been in its turn widely studied
(Andersen and Lueg, 2016). In these papers culture is
seen as an element generating particular forms of
organizational control. Thus, Ouchi (1980) speaks about
the clan type control (accompanied by two other control
mechanisms - market and bureaucratic control), based
on common values and beliefs. Jaeger (1982) identifies
two control styles within the multinational companies:
formal, bureaucratic control – based on clear rules and
regulations; and informal, cultural control – based on the
existence of an implicit culture within the organization.
Ray (1986) identifies three approaches of organizational
control: bureaucratic (based on the control of
compensations); humanistic (based on group social
relationships) and the control through culture (based on
the manipulation of the organization culture aimed at
gaining attachment towards the organization and its
objectives).
Rather surprisingly, the papers addressing the
relationship between the internal control (as defined by
the international professional bodies in the field) and the
organizational culture are less visible.
Pfister (2009) encloses the most substantial approach of
the relationship between organizational culture and
internal control. The author identifies two challenges for
his research: capturing the effect of organizational
culture on the internal control efficiency and capturing
the manner in which the internal control mechanisms
influence the organizational culture. In order to answer
these two challenges, the author proposes a control-
organizational culture framework. Unlike the researches
within the accounting field, Pfister (20019) points out that
in his approach culture is a variable which might be
influenced by top-management, and not a contextual
variable.

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
630
Carata• et al. (2013) consider that, to maximise the
organizational profit, the internal control should “match”
the organizational culture, and that the organizational
culture could be seen as the cornerstone for a sound
internal control.
Lu and Wenchang (2015) analyse the relationship
between organizational culture and internal control in
terms of corporate governance mechanisms,
approached from a humanistic perspective; the study
emphasise the idea that the integration of the internal
control and organizational culture may contribute to the
sustainable development of the organization.
Gamboa Poveda et al. (2016) take inventory of the
Spanish literature approaching the relationship between
the organizational culture and internal control. The three
authors’ observation is that there are few articles having
organizational culture or internal control as a main topic
(in the title, keywords or abstract). The conclusion after
reading the aforementioned literature is that, in the
relationship with the internal control, culture may have a
mediator effect (similarly as it has in the relationship with
leadership and knowledge management, which are both
variables used to extended the search).
Although Hernandez et al. (2016) limit their research at the
level of small businesses, they come to a similar
conclusion: internal control is a necessary, but not
sufficient condition for good business management,
performance measurement and profit increase. Moreover,
the internal control system must be connected to the
organizational culture.
Thus, we find out that the literature approaching the
relationship between internal control and organizational
culture is not very wide and, in addition, some of the
papers mentioned above are limited to emphasizing the
need of “matching” the two organizational elements,
without going in-depth with the analysis.
In this context, the objective of our paper is to deepen
the analysis of the interactions between the internal
control and organizational culture, emphasizing the
factors which might amplify the synergy between the two
concepts and the sources of potential inaccuracies.
1. Methodology of scientific
research
The development of the article is based on a descriptive,
qualitative research which resorts to an interpretative
process of the subject matter under consideration. The
paper considers the views from the professional
literature on the meanings of the two concepts whose
interconditionality is intended to be emphasized.
Combining the authors’ theoretical vision and experience
in management, control and governance, an attempt
was made to bring into the theoretical area both the
undesirable corporate events regarding the incapacity,
disinterest or ignorance of the correlation between the
internal control system and the organizational culture,
and the good/leading examples of a balanced
interlocking of organizational culture and internal control.
By study and comparison, there have been pointed out
the similarities, discrepancies, and mostly subtle
interpretations regarding the mentioned concepts with
the purpose to show the importance of the relationship
between them, without raising the claim of an exhaustive
work.
2. Review of the relevant
professional literature
The interest for the organizational culture and internal
control was recovered along with the famous corporate
failures (brought to the public’s attention by thedot.com
crisis, during 1999-2000, and later on, during the global
financial crisis that started in 2007), as a desire to
accomplish an ample examination of the causes which
generated them.
The common basis of these events was the lack of
responsibility at all the organizational levels, the
remuneration systems encouraging unsustainable short-
term approaches, self-satisfaction induced by the long
periods of prosperity, the rigidity and lack of proactivity,
and last but not least, the human greed (Association of
Chartered Certified Accountant, 2008).
Basically, the analysis of these events directed the
attention, among other things, to the internal control and
risk management, with an impact on the organizational
culture, but all
related to governance.
Therefore, in these cases the issue came up regarding
the lack of ethical culture, supported by the
management. Taking this fact into account, all
recommendations for preventing similar situations also
consider the organizational culture. Biegelman and
Bartow (2012) state that only a culture of compliance not
only with the law, but also with the principles of honesty
and integrity represent the proactive solution for

Organizational culture and internal control
No. 4(148)/2017 631
preventing some organizational mistakes. Similarly,
IFAC speaks about the need to develop a culture to
stimulate the organization’s members to act in
accordance with the risk management strategies and
internal control policies, where the personal example of
top-management has an important role (IFAC, 2012).
The organizational culture, figuratively speaking,
represents the DNA of an entity, the “compass” orienting
the attitude and conduct of the entity’s employees. The
employees are not “cells” left to chance; on the contrary,
they are guided by the managers in their actions to
achieve the entity’s objectives. Given these conditions, a
real challenge for leadership is setting up values and
beliefs at the entity’s level, in line with its advancement
(Tabuena, 2016). Inevitably, the leaders permanently
want to be sure that their guidance efforts do not deviate
from the entity’s path to success, so they need levers to
assist them. In this respect, we consider the internal
control, in the modern sense, as the system that
consistently contributes to the entity’s well-being, due to
the fact that, among others, it facilitates the decision-
makers’ access to good quality information.
Coming back to the unfortunate reality of the events
mentioned, there is no doubt that the failure was
generated by the leaders’ lack of ability to create efficient
mechanisms allowing the detection of (apparently
insignificant) warning signals, useful for the prevention of
disasters (KPMG, 2009).
The question arising is: “Which are the mechanisms that
have the force to assert the quality of the entity’s
systems, processes and outcomes and to sound the
alarm when monotony is established and the path is
taken towards “good pleasure” and „today and after that
dash it all!”, but, more importantly, what are the
implications for organizational culture in all these
aspects?”
In our view, the organizational culture is responsible for
creating and maintaining the perceptions among the
employees and the manner in which they agree, accept
and respect all the processes developed within the
entity, including the leaders’ authority and following their
ideas, but also the procedures and measures they
consider efficient to ensure the entity’s performance.
This vision also embodies the attention given to the
internal control with role in ensuring that the path
followed by the entity does not divert from the
achievement of its objectives.
Therefore, there is no surprise that both the professional
literature (Pfister, 2009; Carata• et al., 2013; Lu and
Wenchang, 2015; Gamboa Poveda et al., 2016), and the
various organizations/entities of international impact
(KPMG, 2009; United States General Accounting Office,
1999) considered necessary that both culture and
control be convergent and socially responsible.
For a better understanding of the synergy force of the
two elements – organizational culture and internal
control – in order to ensure an entity’s success, we
considered appropriate to expand the conceptual
framework (conceptual versions) brought into
discussion, but limited to some of the meanings of the
two concepts described into the professional literature.
The purpose of this endeavour is that of joining as much
evidence as possible to ensure the sustainability of the
research we initiated; we will point out strictly the
concepts that we consider in accord with what we want
to emphasize.
Thus, Schein (1990) defines the organizational culture
as “a pattern of shared basic assumptions that the group
learned as it solved its problems of external adaptation
and internal integration that has worked well enough to
be considered valid and, therefore, to be taught to new
members as the correct way you perceive, think, and
feel in relation to those problems”.
On the other hand, “the organizational culture consists of
interactions among critical masses of people with
different preferences and past choices that have the
capacity to wield critical influences upon each other,
both in the short and long terms, within and beyond the
confines of organizations and resource constraints” (Wu,
2008).
Mostly relevant for our research is also the idea
advanced by Gerstner (2004), who considers: “the
organizational culture is what people do without being
told to”.
By analysing and interpreting the content of these three
assertions, we can state that they capture well the
manner of running the actions within an entity and the
interconnections created within it when the employees
perform their tasks, as well as the guidance provided by
the managers.
Schein (1990) describes the manner of building the
organizational culture, its validation by the daily realities,
but also its share between the organization’s members.
Although without an express mention, we consider that it
is inhered the fact that the definition comprises both the
leaders and the internal control which strengthens the
opinions by the supplied information that the beliefs are
right (“assumptions which functioned well enough to be
considered valid”), meaning that they are in accordance

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
632
with the entity’s philosophy and could be passed on to
the new members of the entity.
The meaning given by Wu (2008) describes the efforts of
the leaders who pursue to build real families within the
entity, which work together to achieve the same goal. In
this case there can also be seen the presence of the
control performed by leaders through their own
approaches, decision and actions, by being always
connected to the internal environment in order to know
at any moment that the personnel does not divert from
the organization’s philosophy. If the management finds
that the entity’s activity is going the wrong way, it must
take the right measures for the given situation in order to
prevent it from taking a chronic form.
In a positive, and even non-realistic interpretation if
confronted with the truth of the daily realities, of the
definition given by Gerstner (2004) reveals the ideal of
symbiosis between the organizational culture and
internal control, in the sense that: the leaders’ efforts to
create a pro-active working environment tend to be
reached, the induced state of control is one to
encourage the creativity and it inhibit the immoral or
incorrect actions as reported to the culture philosophy;
the employees develop the ability to harmonize and line
up their personal culture to the entity’s organizational
culture, knowing what to do and acting accordingly to
support the entity’s goals. If we revert to reason, we
agree that in order for the employees’ actions to bring
added value to the entity, the support of an internal
control mechanism that is discrete, and at the same time
efficient and motivating is necessary.
These approaches are interesting, but are more inclined
to emphasize the philosophic, spiritual side of the
organizational culture without bringing enough
“technical” aspects into the mix. Therefore, for a rigorous
presentation, we find it necessary to quote The Business
Dictionary, which considers the organizational culture as
being the set of values and behaviours that contribute to
the unique social and psychological environment of the
entity that expresses in its self-image, activities and
actions based on:
-the manner of organizing the activity, the attitude
towards the employees, clients, as well as towards
the entire community;
-the extent to which the controlled freedom is allowed
in the process of decision-making, encouraging the
development of new ideas and personal
presentations;
-the manner of communication, information flow and
interpersonal/structural relationship;
-the impression induced by the employment and
career management policies and practices in order to
achieve the common purposes.
Figure no. 1. The organizational culture puzzle
Source: Adaptation after Sulkovsky (2012)

Organizational culture and internal control
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As it can be noticed, all the meanings we presented
consider the organizational culture as bearing spiritual and
customary valences. We consider that the organizational
culture is not only a piece in a puzzle, but the entire puzzle,
whose composition is clear and detailed, being created
and refined over time. The power of this puzzle should not
be neglected, because it impacts the manner in which the
entity runs its activity (using the metaphor launched by
Professor Sumantra Ghosal, 2005).
For clarity, in Figure no. 1 we supplied the main and
defining elements of the organizational culture, which
are ensuring its guidance and, at the same time,
contribute to modelling the behaviours of the employees
and the systems within the entity, but, to some extent,
also influence those in contact with the entity. With
regard to the components of the organizational culture,
there are a lot of points of view in the professional
literature and quite many doubts regarding their
theoretical significance and practical scope. We chose
what Sulkovsky (2012) considers, following the review of
the most significant papers on this theme, to be a
“canon” of the organizational structure components.
Of course there could be discussed the manner in which
these elements contribute to the connectivity with the
internal control, but we will limit our consideration to one
of them, for example, habits. They may go from an
alarming passivity up to enthusiastic proactivity.
Obviously, each of these states of mind induces a
certain culture to be faced by the internal control: in the
first case it will have to fight against overwhelming
inertia, whereas in the second case it will exult in
innovation.
In our view, the organizational culture is not a shapeless
and rigid mass, but a delicate, only relatively flexible
“substance” which should grow consonantly with the
necessary changes for ensuring the development of the
reference entity. In our opinion, success depends on the
leaders’ ability to skilfully correlate/adapt/transform the
elements of the organizational culture in accordance with
the requirements of the evolution imposed by the external
environment (without neglecting the internal one) and, in
this context, their capacity to implement practical solutions
(strategies, structures, processes) so that the entity could
face any challenges. Otherwise, it is doomed to failure.
The model proposed by Gordon (1991) regarding the
development of the organizational culture under the
influence of the industry-specific environment is in line
with these coordinates (Figure no. 2).
Figure no. 2. Organizational culture - determinants and incidence
Source: Gordon (1991)
SECTOR ENVIRONMENT
Clients’ requirements
Competition environment
Society expectations
CULTURE
Values
Assumptions
FORMS
Strategies
Structures
Processes
OUTCOMES
Performance
Survival
MANAGEMENT
Dominant influence
Influence

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
634
Further on, we focus on internal control. Many definitions
of internal control can be identified within the
professional literature (relevant review of the literature
on this topic could be found in Gafarov, 2009; Arwinge,
2014). The recent definitions are based mostly on the
definition developed by COSO (1992), according to
which internal control is “a process, effected by an
entity’s board of directors, management and other
personnel, designed to provide reasonable assurance of
the achievement of objectives in the following
categories: effectiveness and efficiency of operations;
reliability of financial reporting; compliance with
applicable laws and regulations”.
Considering that we pointed out enough elements to
understand both the organizational culture and the
internal control, we can move on to the development of
the relationship description between these two: the
manner in which internal control helps or does not help
the organizational culture to “face the new challenges”.
Thus, due to the fact that the organizational culture is
given by the principle of achieving things within the
entity, the internal control shows if the manner of action
has an appropriate direction in comparison with the
entity’s goals because it analyses the manner of
achieving the actions and warns on the deviations which
have occurred, or might occur, while offering the
suggestions necessary for correcting them, going up to
making all the actors socially responsible.
An interesting concept useful for our research was
introduced by Johnson (1987). He speaks about the
cultural web of the organization where he also includes
the control systems (Figure no. 3).
The paradigm brings together the beliefs and values of
the organization. It is remarkable that among the
elements of the cultural web there are included the
control systems and organizational structures which the
professional literature does not generally place within
the organizational culture frame and which are strongly
connected to it.
Figure no. 3. Cultural web of an organization
Source: Johnson, 1987
Sulkovski (2012) considers, and we agree with this view,
that including the control systems and organizational
structure into culture is equivalent to the impossibility of
treating them as organizational sub-systems, similarly to
the organizational culture. The analysis of any of the
relationships between them would become thus
irrelevant. Although the organizational structure and
control systems have an important cultural determinant,
they are not components or exclusive occurrences of the
organizational culture.
Rituals and
routines
Organizational
structures
Power structures
Symbols
Stories
Control systems
Po
ems
Paradigm

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In this respect, Allaire and Firsirotu (1984) identifies
three interconnected components within the
organization:
-The social & cultural system – comprising formal
structures (including the control mechanisms),
strategies, policies, processes;
-The cultural system – practically the organizational
culture;
-The individual actors who relate to and interact
differently with these systems in accordance with
their own capacities, experiences, personalities.
The social & cultural system and the cultural system are
found, in the two authors’ view, in a complex
relationship, which is “mutually supportive”, in “normal”
conditions, but may become very tense, particularly
when there are sudden pressures for organizational
changes. Generally, the changes that occur more easily
within the social & cultural system cannot mirror
themselves equally rapid within the cultural system, a
fact leading to dissonance and loss of synchronism
(Allaire and Firsirotu, 1984).
Finally, to better understand the relationships that may
appear between the organizational culture and internal
control, we consider that it is necessary to go back to the
theoretical and practical approaches of organizational
culture. Smirchich (1983) differentiated between the
organizational culture as a variable and the
organizational culture as a basic metaphor. In the first
case, culture is seen as a variable among many others
within the organization (structure, strategy,
communication), which can be changed by
management, as an organizational instrument to obtain
performance. In the second case, culture is represented
by a web of meanings and interpretations, socially
disseminated and shared, with an axiological role,
influencing every organizational component. Its
developments are organic, generated by the aspirations,
needs and desires of the organization’s members at all
levels, and they cannot be imposed by management. In
the first approach, there is considered that the
organization has a culture, whereas in the second one,
the organization is a culture (Smirchich, 1983). In
Figures no. 4 and no. 5 there are displayed the
interactions between the organizational culture and other
organizational systems (including the control systems) in
terms of the two approaches.
Figure no. 4. Culture as subsystem within the
organization
Figure no. 5. Culture as metaphor: fundamental
dimension entering the other systems
Source: Authors’ design

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
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Using these two figures we try to synthetically
emphasise two of the interaction mechanisms. Thus, in
the first case, culture is considered only as a common
system, whereas, in the second case, they all “stem”
from culture. Alevesson (2002) considers that the two
approaches are not the only possibilities, but they are
the extremes of a continuum, point of view to which we
subscribe and on which we will build our arguments
hereinafter. Therefore, we estimate that it is possible to
consider integrally the interactions between culture
and control only within some holistic approaches;
individually they would lose essence. Based on this,
we ascertain and assert the following ideas.
3. Results of the research
3.1. Organizational culture - the „land”
where internal control grows
Guided by the above ideas, we consider the
organizational culture as a source of control which
creates a certain type of required spirits and attitudes, in
order to teach, and even model behaviours, leading to
the achievement of the entity’s objectives. On the other
hand, the effective internal control creates the spirits
capable of “ensuring an environment dominated by
comfort, stability and trust in terms of the organizing and
functioning manner of the entity” (Domni!oru and
Vîn"toru, 2008).
All these make us estimate that while the organizational
culture has rather historical valences, coming from the
ancient past and it approaches the present rather
strategically and forecasts only the fundamentals of the
remote future, the internal control is (should be) sort of
flexible and adjustable, remarkably tactile and rather
directed towards recent history and predictable future,
as it is presented in Figure no. 6. It should not be
understood that one domain is neglected by the other,
but they are focused slightly different in terms of
chronology in order to get the same outcome: successful
achievement of the entity’s goals.
We consider the organizational culture as the most
important driving force of any of the entities, being
omnipresent in the configuration of the entity’s structure,
including in the design of the control system by setting the
perceptions and configuring the working environment.
Moreover, and more applied for our topic, as the Institute
of Internal Auditors states, as well as Pfister (2009), that
the culture of an organization is essential mostly for the
effectiveness of internal control processes and systems.
When the organizational culture is hostile, no system of
internal control can be efficient (IIA, 2014), as it will have
rigid, police-like issues inhibiting creativity and, implicitly,
the possibility of innovation. Wright (2009) points out the
fact that the organization members’ attitudes and actions
influence the internal controls, respectively the approaches
are strongly influenced by the states of mind. This fact has
cultural impacts as we consider the culture as the
strongest shaper of the individual states of mind.
Figure no. 6. Timeline of the organizational culture and internal control
Source: Authors’ design

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For a more suggestive picture, in Figure no. 7 we
described the influence of the organizational culture on
the internal control seen as “a state intended for
communicating what happens, and especially how it
happens within an entity” (Johnson, 2000), that is the
one inducing the working consciousness (better pro-
active) and the (clear) manner of action in order to give
assurance to the entity’s leadership that it does not
deviate from its objectives.
Figure no. 7. Impact/influence of the organizational culture on the internal control
Source: Authors’ design
If we provide further details, we can say that
Figure no. 7 depicts at least two aspects:
-The organizational culture is, according to Roth
(2010), the most important source of control (and
maybe even rigor) within each organization,
influencing each employee’s behaviour, guiding the
employee in accordance with the organizational
expectations (McShane and Von Glinow, 2006).
Thus, the organizations with ethical culture have less
necessity for carefully supervising the employees,
not to speak of manuals, organization charts and
formal rules, procedures and strict controls (Nickels
et al., 2011), which only stiffen, and sometimes are
obsolete in comparison with the freedom of
speaking. This idea could be briefly described as
being the control exclusively through culture, a nice
dream for the organizational practice.
-On the other hand, internal control could impact the
organizational culture, meaning that its outcomes
might transform certain elements of the
organizational culture (organizational regulations,
habits, manners of communication, etc.). In this
respect, Andersen and Lueg (2016), in the wide
professional literature review they make to analyse
the relationship between the managerial control
system and culture, quote two papers speaking
about the fact that the introduction of a new book-
keeping system within the organization, which is
more accurate, focused on control (Dent, 1991), and,
respectively, the introduction of six-sigma (Busco
and Scapens, 2011) have reshaped the culture of
the studied organizations.
The organizational culture is, without a doubt, “the
foundation” for all the components of the internal control

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AUDIT FINANCIAR, year XV
638
system, particularly for the control environment. In this
respect, we subscribe to the thesis according to which
“the control environment substitutes for the
organizational culture, state generated by the fact that
elements like integrity, ethics, system of values,
supervision, responsibility, performance assessment,
interacts with the same intensity and force on both of
them” (Japal, 2012). On the other hand, it is important to
mention that the Institute of Internal Auditors defines the
control environment, a component of internal control, as
being “the attitude and actions of the management in
terms of the importance of control within organization”
(IIA, 2014).
At the same time, Arens et al. (2016) perceive the
internal control environment as „an umbrella protecting
the other components” of the internal control. In the view
of the quoted authors, the personal example of
managers, their attitude and behaviour with regard to the
employees and third parties, the transparency they show
contribute to building an honest internal control, because
(as the American Institute of Certified Public
Accountants states in the audit guide of “Assessing and
Responding to Audit Risk In a Financial Statement
Audit”) the effectiveness of internal control cannot rise
above the values of integrity and ethics of the people
creating, managing and monitoring it. In other words, the
right tone should be given at the top (for a detailed
analysis of the concept “tone at the top” see Staicu et
al., 2013). We must also point out that, in accordance
with the COSO report from 2004 “Enterprise Risk
Management – Integrated Framework”, the tone at the
top is considered a factor of influence for all eight
components of risk management at organizational level,
particularly for the internal environment.
We subscribe to the thesis according to which the
integrity and ethical values are essential elements of the
control environment, affecting the design, administration
and monitoring of all internal control mechanisms and
processes. At the same time, the integrity and ethical
behaviour represent important determinants in the
organizational culture of the entity (Figure no. 7).
In this context, the organizational culture does not only
refer to substantiating and transmitting some values
within the group but also to the manner in which people
establish connections within the respective entity, to top
managers descending among the common people and
not isolating themselves “in the ivory tower”
(paraphrasing Renard, 2016), to the art of developing a
creative internal control, to the ability of implementing
proactive systems and working states because the
organizations that end up to be profitable are those
which grant to people importance, as well as control on
their work and trust (Peters and Waterman, 1982).
We consider that entities stand to gain as the
organizational culture succeeds in directing the
perception, conduct and attitude of the human resource
so that it could perceive internal control as a manner of
connecting to the entity’s management, by supporting
and rewarding the professionalism, promoting the best
people on real bases known by the entire personnel of
the entity, sound selection criteria, based on human
quality, morality, professionalism, encouragement of
creativity and granting freedom in accomplishing tasks,
finding solutions instead of seeking guilty people,
assessing the responsibility undertaken and increased
caution to the inclination to punish a mistake made
without intention as this could lead to systematic
disappearance of initiative and creativity.
On this background, we appreciate that, for example,
learning from mistakes might be rather seen as a
source of enriching knowledge and gaining
experience; in other words, a source of enrinching the
organizational culture. Van Dyck et al. (2005) speak
about cultural practice for a management of errors at
organizational level: quick communication in respect of
an error; analysis of error and dissemination at
organizational level of the knowledge aquired following
this analysis; control of losses. The control-learning
dualism should be treated very carefully by the
management; the managers should be extremely
careful in respect of setting up the line between the
error showing the lack of performance and the error as
a learning oportunity (van Dick et al., 2015).
To the extent to which the organizational culture is that
of the genuine empowerment culture, the control in the
sense of classical examination/inspection converges
inevitably towards zero or rather low levels. In this
respect, we consider more than interesting the thesis
supported by the Institute of Internal Auditors, according
to which the organizational culture produces an
important task in the internal control portfolio, in that a
positive organizational culture which is oriented towards
honesty and ethics has the capacity to create
behaviours opened to implementing an appropriate
control system contributing to increasing the general
responsibility, even the social responsibility.

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No. 4(148)/2017 639
Similarly, we come back to emphasise a phrase from
The Business Dictionary, including in the organizational
culture the “controlled freedom”. This, in our opinion, is a
common challenge both for the organizational culture
and the internal control and a reflection of the
organizational ambidextrousness. In support of this
thesis there comes the philosopher Gabriel Liiceanu,
who states in his work “On boundary” that: “human
freedom is interpreted as a cluster of boundaries which
are the condition of its exercise”. In other words,
freedom does not mean that anything could be done, or
that the freedoms of others can be infringed, etc.
Extrapolating, we state that ensuring the achievement of
the proposed objectives cannot be done but directing
human actions towards accurate goals which are
good/reasonable in general and/or social views.
Moreover, we can say that controlled freedom cannot be
achieved without the concerted action of at least the two
elements under consideration and harmonised by the
internal control adapted to the organizational culture.
There can be created the premises for a necessary
balance at the organizational level between the
autonomy and control (see also Xiao, 2017).
For a better consolidation of the stated theses, we
attempt to present some eloquent aspects. Thus, if we
speak about European countries and their national
culture (mainly their legislative and institutional nature),
we can mention that during 1991-1995, since the start of
migration from Eastern Europe towards the West, it was
observed that Western people did not have the
necessary laws to solve some problems, which should
penalize the obviously illegal actions in Eastern Europe.
Due to the evolution of culture, the
(organizational/national internal) control of occidental
type “had wound down” in this area, other forces
compensating for it. In this respect, the conclusion is that
internal control, according to the level of culture, could
be rather sanctioning (in the East) but mostly the
promoter of the idea of correctness and, specifically,
normality (in the West).
Similar, but in another field, is the situation within the
business/patrimony entities. The control is developed in
a certain manner in a culture where any idea is
considered, without understanding that it is automatically
brought in, but it is at least analysed, even tested for
plausibility and performance, regardless of who it may
have come from, which indicates that both
organizational culture and internal control are proactive,
encourage creativity and involvement as opposed to the
ritual organizational culture (very canonical…) in strict
compliant relationship with internal control and nothing
else. We could say that the proactive culture implying a
sensitive internal control is the best form of controlled
freedom.
On the other hand, an organizational culture that drifts,
loses direction and allows the development of a rigid and
chaotic control system, characterized, for example, by
the reign of a small group’s pleasure, will only generate
conflict, personal insecurity and work simulation states
and attitudes, which consequently will keep the entity off
its goals. In this respect, the following question arises as
pertinent, “How could internal control avoid the
philosophy of the organizational culture and influence
it?” The answer to this question occurs as the internal
control is in opposition with the culture of the entity
where it was born, driving at subordonating/dominating
it. This situation is possible in all the cases when the
general environment inside the entity is characterized by
stress and incapacity, fear and tiredness etc. It is the
context when internal control is oriented towards aspects
losing connection to reality and noble objectives.
Practically, such anomalies might occur when the
organizational culture, for a period of time, forgets about
the control call, the entity’s defence and restoration
system, which does not allow it to fall into desuetude
and lets dishonest, obscure people build sub-cultures
within itself, trying to take over as much power possible
and to annihilate the mother culture. In other words,
another culture can be generated, correlated to
accomplishing the personal egoist objectives, appealing
for this to techniques of insidious manipulation,
diabolically combined with welfare praise.
Almost on the same line, Padilla et al. (2007) speak
about the so called “toxic triangle” for any of the
organizations, connecting a destructive leadership,
susceptible employees and a conducive environment for
distortions. The destructive leader (Ken Lay from
ENRON is a leader in the business world) characterized
by: charisma used for personal purpose; need/desire of
power; narcissism; promoting a hatred, intimidation,
conflict ideology (the example here is the ex-CFO of
Enron, Andrew Fastow, who had always on his desk a
cube with the following inscription: “When ENRON says
it’s going to ‘rip your face off’… it means it will rip your
face off#”). The susceptible employees are described to
have: basic unmet needs (including social needs);

Sorin DOMNIŞORU, Radu OGARCĂ, Isabela DRAGOMIR
AUDIT FINANCIAR, year XV
640
negative auto-assessment: low psychic maturity;
personal ambitions (exploited by the destructive leader);
values and beliefs identical to those of the leader;
unaccepted values at social level (greed, egoism). The
conducive environment for such distorted behaviours
refers to: instability; perception of imminent threats; the
culture in which there is grown the avoidance of
incertitude, collectivism, far distance from power; lack of
a balance system (checks and balances) between the
centres of power. Within such organizations, the internal
control systems are used to discourage opinions and
approaches opposed to those expressed by the leader,
to undermine the members’ trust in their abilities, to
create an insecure environment.
A final aspect of the relationship between the
organizational culture and internal control might be
related to the following question: “What happens in this
relationship when the leader changes?” Generally, the
relationship between the organizational culture and
internal control is a friendly one in which the
organizational culture is the pacemaker and the internal
control tunes up. Though, when the management
changes or is essentially modified, this relationship is
likely to become turbulent, in the sense that, althgough
the organizational culture have the same almost
temperate attitude, the internal control could become
aggressive, it could push things and actions, systems
and processes, even the organizational culture,
succeeding or not, but affecting the organizational
culture, sometimes even producing serious injuries,
difficult or even impossible to be cured.
Conclusions
Overall, we concluded that between the two analysed
institutions there is a one-to-one relationship. Of course,
culture is the basis where there are created, developed
and sometimes vanish the other elements of an entity,
including the internal control at a given time, but
sometimes leaving “tracks”. We consider desirable that
in the course of its existence and functioning, the
innovative internal control should create as many
elements as possible which are worth being included in
the ethical organizational culture.
No doubt, organizational culture produces and reshapes
behaviours, generates attitudes and determines states
of mind, but, at the same time, it influences the manner
in which there are configured the systems and the value
attributed to them, including to the internal control. In this
respect, there comes the idea according to which, by its
content, the organizational culture is a source of control,
a soft control – efficient and motivating (to the extent to
which we discuss about a culture developing
empowerment and compliance and it is not affected by
certain pathologies), discrete or assertive, capable to
correlate the approaches of the entity’s employees with
the ones desired by the organization in which the
employees work.
On the other hand, it is unquestionable that internal
control ends up influencing the organizational culture.
This is mainly the result of the fact that internal control
detects among others the prospect flaws of the
organizational culture’s value system. From another
perspective, internal control could negatively affect the
organizational culture, that is by taking advantage of
some of its weaknesses and becoming possessive, for
example, affecting up to annihilation any form of genuine
positive leadership. It could also change the direction of
the organizational culture, even by altering its
substance.
Nevertheless, we consider that vigilance and balance of
both institutions, transparency and attention to the
feedback from the individual culture of the entity’s
employees and all stakeholders are elements worth
being taken into consideration to prevent or correct any
deviation from the constructive-positive non-connection
of internal control and organizational culture.
The main limit of our research is the lack of
completeness, respectively the focus on a low number of
organizational cases and aspects. Nevertheless, we
believe that the paper may be considered a sound basis
for future research, such as emphasizing the synergies
between the organizational culture and internal control
or quantitative analysis of congruences and differences
between the organizational culture and internal control
environment.
Also, we believe that a future direction of interesting
research might be the analysis of the relationships
between the two elements, paying a higher attention to
other factors which contribute to the configuration and
changes of the organizational culture, in addition to the
leadership we focused on within this article, such as: the
dynamics of the business environment; pressures
exercised by the business environment; the features of
the local business environment; characteristics of the
company’s employees (Kuznetsov, 2014), national
culture (Sim, 2009), etc.

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