Objectives of Internal Control

by Andra Picincu; Updated June 04, 2018

Whether you have your own business or you're planning to start one, it’s crucial to perform internal controls. Their role is to ensure the achievement of objectives within your organization. These processes are a fundamental part of good corporate governance as they help identify and manage the risks that keep your business from growing.

An internal control audit is typically conducted by a company's management team, the board of directors and other industry experts. It consists of accounting and administrative controls that help prevent and detect fraud, theft, misuse and human error. Your company's success depends on it.

Types of Internal Controls

There are different types of internal controls, and each has a specific purpose. They all aim to improve a company's efficiency and performance while mitigating risks. These include:

  • Preventive controls
  • Corrective controls
  • Detective controls

Preventive controls have the role to keep errors from occurring in the first place and ensure that all the departments are meeting their objectives. For example, your management team can check the organization’s inventory, security systems, equipment and other assets, authorize employees to perform specific tasks and approve various procedures.

In case any errors or irregularities have occurred within your organization, you can request detective controls. Those who perform this type of audit will identify the problem and assess its impact on the company’s processes. They can also compare information about current performance to forecasts, budgets and previous results to determine the extent to which your company is meeting its objectives.

As their name suggests, corrective controls aim to correct errors. For example, your company's management team may recommend backing up data in order to recover essential information in the event of a crash or security breach. This type of audit usually includes detective and preventive controls.

Why Are Internal Controls Important?

The objectives of internal controls go beyond preventing fraud and theft. When done correctly, they can help reduce risk, waste and abuse. These audits prove a company's compliance with applicable laws and regulations, protect its resources against loss due to mismanagement and maintain reliable financial data.

Any company, big or small, can benefit from internal controls. They allow you to see what you're doing well and what needs to be improved. Depending on your organization's needs, you can perform administrative, accounting or operational control audits.

Accounting controls, for instance, are designed to ensure the completeness of accounting data as well as the security of your accounting systems. During an administrative control, your management team will assess the efficiency and effectiveness of administrative processes. Operational controls help ensure that your employees do their work correctly and follow the procedures.

The Benefits of Internal Controls for Small Businesses

Small business owners often overlook the importance of internal controls. However, internal control processes are just as crucial for small businesses as they are for large organizations. Small businesses are more vulnerable to fraud and experience higher median loss compared to established companies. Corruption, employee theft and data omission from financial records are common. For this reason, small business owners need to perform internal controls on a regular basis.

These internal control procedures will ensure that financial reporting is accurate and compliant with the law. They also help safeguard the company's assets and prevent fraud. Furthermore, internal controls make it easier to keep your data organized, leading to higher productivity and fewer errors.

About the Author

Andra Picincu has been offering digital and content marketing / copywriting services since 2009. She holds a BA in Marketing and International Business and a BA in Psychology. Her interests include health, fitness, nutrition, and everything business related.

Cite this Article A tool to create a citation to reference this article Cite this Article