Simply defined, internal controls are those procedures you perform everyday to get your job done. For example, completing a form, having it signed and approved, and making a copy for your records, is a procedure and a control all at the same time.
A system of controls (or procedures) reduces business risk, which is the probability that certain exposures will lead to loss or adverse business conditions. Good control systems include:
- Individual accountability
- Independent monitoring
- Approval and authorization
- Separation of duties
- Comprehensive policies and guidelines
- Joint custody of assets
A review or audit of your department will determine whether your internal control system can provide reasonable assurance that:
- Management data is reliable,
- Assets are accounted for and properly safeguarded,
- Operating practices are sound and ensure compliance with policies, laws, and regulations, and
- Resources are used efficiently.