Internal Control: Compliance, Operational and Financial

 Internal control is a process for assuring of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies1. Internal control involves everything that controls risks to an organization.

There are different types of internal controls, such as preventive, detective, corrective, directive, and compensating controls. Preventive controls aim to deter errors or fraud before they occur, such as segregation of duties, authorization, and physical security. Detective controls help to identify errors or fraud that have already occurred, such as reconciliations, audits, and reviews. Corrective controls are designed to correct errors or fraud once they are detected, such as backup systems, contingency plans, and recovery procedures. Directive controls guide employees to perform their duties in accordance with the organization’s policies and procedures, such as training, manuals, and codes of conduct. Compensating controls are alternative controls that are used when the primary controls are not feasible or cost-effective, such as supervision, monitoring, and reporting

Internal controls are important for ensuring the integrity of financial reporting and regulatory compliance, as well as preventing fraud and improving operational efficiency. Internal audits play a critical role in evaluating and testing the effectiveness of internal controls and providing recommendations for improvement. The Sarbanes-Oxley Act of 2002 made managers legally responsible for the accuracy of their financial statements and the establishment and maintenance of internal controls