An internal control is a procedure or policy put in place by management to safeguard assets, promote accountability, increase efficiency, and stop fraudulent behaviour. In other words, an internal control is a process put in place to prevent employees from stealing assets or committing fraud.
An internal control is a business practice, policy or procedure that is established within an organization to create value or minimize risk.
In other words – “An internal control is a business practice, policy or procedure that is established within an organization to create value or minimize risk.”
General Objectives of internal control are as follows:
1. To ensure the orderly and efficient conduct of business in respect of systems being in place and fully implemented. Controls mean that business processes and transactions take place without disruption with less risk or disturbance and this, in turn, adds value and creates shareholder value.
2. To safeguard the assets of the business. Assets include tangibles and intangibles, and controls are necessary to ensure they are optimally utilised and protected from misuse, fraud, misappropriation or theft.
3. To prevent and detect fraud. Controls are necessary to show up any operational or financial disagreements that might be the result of theft or fraud. This might include off-balance sheet financing or the use of unauthorised accounting policies, inventory controls, use of company property and similar.
4. To ensure the completeness and accuracy of accounting records. Ensuring that all accounting transactions are fully and accurately recorded, that assets and liabilities are correctly identified and valued.
5. To ensure the timely preparation of financial information which applies to statutory reporting (of year end accounts, for example) and also management accounts, if appropriate, for the facilitation of effective management decision-making.