What are internal controls?
Internal controls comprise the plan of organization and all the coordinated methods within an organization to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. Internal controls extend beyond those matters which relate directly to their functions of accounting or finance.
Internal controls are nothing more than policies or procedures put in place to safeguard an asset, provide reliable financial information, promote efficient and effective operations, and ensure policy compliance. For example: When you came to work this morning did you lock the doors to your house? If so, that’s an example of an “internal control” you used to protect the assets you own. Generally there are three types of control: • Preventative Controls – are designed to discourage errors or irregularities from occurring. For example: Processing a requisition only after it has been properly approved by the appropriate personnel. • Detective Controls – are designed to find errors or irregularities after they have occurred. For example: Reviewing the monthly Statement of Account for activity in your area’s general ledger MFK’s. • Directive Controls – are designed to encourage a desirable event. For example: written policies and training seminars assist in the accomplishment of area goals
Internal controls encompass a unit’s entire set of methods and procedures that are used in the day-to-day activities of the unit. These methods and procedures safeguard the unit’s assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed policies. Effective internal control systems are designed to ensure that resource use is consistent with laws, regulations, and policies, and to safeguard resources from waste, loss, and misuse.
Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and efficiency of operations • Reliability of financial and management reporting • Compliance with applicable laws and regulations
