What Is Internal Control?

by Tara Dooley; Updated September 26, 2017

Internal control is a term typically heard in a business setting and is broad in its scope. Internal controls can encompass many different aspects of a business and are meant as a way to secure the business from wrong doing. All companies usually have some form of controls in place and those that don't will more than likely pay the price for it some day.

Function

The purpose of internal controls in a business is to keep the company running smoothly without any wrong doing by its employees. These wrong doings may be intentional or unintentional, but having steps in place to catch mistakes or calculated activities can help a company save money, inventory, time, or even reputation. Internal control means that they are safe guards that the company itself has put in place to watch for incorrect procedures. The employees of the company are the control.

Types

Internal controls can be placed anywhere in a company. You will find most controls where the money is. Whether it is in accounting or inventory areas, companies want to make sure they are not losing money. They will create controls to ensure that theft of any type is very difficult. Other controls fall into categories of quality to insure the product is meeting company expectations, customer service to make sure employees are treating customers in the manner required, and safety to insure its employees are not injured.

Identification

An example of accounting controls might be a separate employee signing the checks than the one that printed them. Also, most companies will have more than one person sign a check that is over a certain amount of money. Payroll might be processed by one employ and another may look at the reports. A company might even bring in auditors from a different location to look at the overall books to insure there is no wrong doing. Inventory controls will make sure that all product is counted correctly. This not only keeps someone from walking off with product, but also insures that the inventory is correct for reporting on financial statements. One inventory control is the inventory count. Some do this only once a year while others will do it monthly. Quality controls involve employees that will inspect random product to make sure it is up to the company standards. Customer service employees might have their conversations monitored to watch for mistakes in communication or employee errors. Safety controls are usually throughout a company. Most will create an environment where any employee can remind another that they are not doing something in the proper way. Rules are set up for safety and employers usually encourage employees to turn others in that refuse to follow safety protocol such as wearing safety shoes, safety glasses, or even not walking through a certain area.

Benefits

The benefits of internal controls are many. From making sure that the company does not lose money because of different types of theft to making sure that employees are safe and unharmed, controls can save a company a lot of headache, cost, and time in the long run. Legal fees, court appearances, paperwork, injury pay, loss of customers, and non productive employees can all be avoided by having the proper internal controls in place to keep an eye on the process as a whole.

Warning

Internal controls should be put in place in all business work environments, but a company should make sure that they are set up in a way to make the employees feel like they are contributing to the operations as a whole. If they are setup wrong, they could come across as a feeling that the company does not trust its employees or that they are setting the employees against each other. An employee might not feel like they are helping the company but rather tattling on a co-worker or friend.

About the Author

Tara Dooley has written for various websites since 2008. She has worked as an accountant, after-school director and retail manager in various locations. Dooley holds a Bachelor of Science in business management and finance.