Internal controls overview

Internal controls are processes designed to help safeguard an organization and minimize risk to its objectives while fostering the efficient execution of operations. Internal controls should minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and support adherence to industry best practices and regulations. However, internal controls are only effective if they are selected and adopted with a holistic plan to ensure that these processes will work seamlessly with the systems in place and the people who are performing the tasks.

Establishing a governance framework

The process of instituting an optimized governance framework involves several steps that might include consultation with an experienced auditor (assurance services) to ensure the controls and practices will best address the key areas of compliance and risk for your organization. A thorough approach to establishing a governance framework might include the following internal control components:

1. Perform an initial risk assessment based on the scale and operations of the organization.
2. Establish internal controls and business processes that are the right fit for your organization size and operational complexity.
3. Review the internal controls and business processes with your auditor, validating risk assessment and materiality.
4. Configure your systems to match the agreed upon internal controls.
5. Establish an effective control environment with a culture of compliance and clearly communicated expectations that all employees operate with integrity, ethical values, and competence.
6. Engage in ongoing monitoring.

During an audit, auditors use internal control reports to assess whether the company’s internal controls comply with compliance mandates and work to ensure the reliability of the financial statements. Auditors categorize internal controls into various types, objectives, and techniques.