Objectives of Internal Control

by David Ingram; Updated September 26, 2017

Internal controls are techniques employed by managers to ensure that specific control objectives are continuously met. Controls can be implemented to protect anything of value to a company’s economic performance or continued sustainability. Common objectives of internal control systems include the propriety of transactions, reliability of information, compliance with regulations, security and efficiency.

Propriety and Reliability

An important objective of internal controls is to ensure that all monetary transactions conducted by the organization are in line with the company’s operational activities. Controls in this area are focused around accounts payable and accounts receivable, ensuring that money is not being lost, stolen or posted to erroneous accounts. Division of a cash payment and receipt-related tasks among several employees is a good way to control these errors, as is the use of internal auditing software.

The timeliness and reliability of information is another key concern addressed by internal controls. Management relies on information gathered throughout an organization to make critical decisions, so it is vital that incoming information is accurate. Internal controls of information should provide transparency and accessibility throughout all levels of your organization to ensure that key decision makers have access to the same primary data at the same time.

Compliance

Compliance with government regulations can require significant investments of time and money. Implementing internal controls to maintain compliance with applicable laws can help you avoid costly legal consequences as well as greatly reduce the costs associated with compliance-related activities.

Efficiency

Efficiency is very important to the achievement of competitive advantage and the maximization of profitability. Effective internal controls can ensure that all tasks are being completed according to standards and that all quotas are being met. Performance reviews, best-practice operational procedures and the use of kanbans are effective internal controls of efficiency.

Safety and Security

Safety plays a large part in any system of internal controls. Rules and procedures play a vital role in maintaining a safe atmosphere for your employees and customers. Policies such as hard hat requirements, two-person ladder operation and “wet floor” sign usage help you and your business avoid devastating lawsuits.

Security is very important to organizations such as banks that keep valuable assets in employee work areas. Physical controls such as locks and logged keycard access points are highly effective in this area. Policies such as requiring anyone entering a bank vault or handling money to be directly supervised can also play a part in controlling security.

Considerations

There are many strategies available for creating and implementing an effective system of internal controls. Physical controls, policies, organizational structure, division of task components and internal auditing are all vital tools to aid you meeting your objectives. Consider your specific objectives when deciding which types of internal control methods are the most effective and cost efficient for your organization.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.