Types of Internal Audit Controls


Internal audit controls are also known as internal controls. Companies rely on these policies to safeguard operating assets against the risks of theft and obsolescence. They also chart these norms to run efficient businesses, improve client service and grow sales. There are three types of internal controls: preventive, detective and corrective.

The Internal Audit Function

  • Internal auditing helps a company weed inadequate or inefficient processes out of its operations. This practice allows the business to cut costs where needed, remove complexities in the way it operates, and hand-segment personnel the tools to increase productivity and sales. Most importantly, the internal audit function enables companies to continually review and update operating policies -- so that personnel can effectively perform tasks without the outdated restrictions that may come from erstwhile procedures. The internal audit occupation encourages professional certification and lifelong learning, and most experienced auditors hold such designations as certified public accountant and certified internal auditor.

Preventive Controls

  • Preventive controls represent the first barrier that shields a company from significant operating losses resulting from specific incidents. These include technological malfunctions, operating errors, fraud and negative regulatory pronouncements -- such as debarments, fines, penalties and temporary suspensions. Preventive policies keep errors from occurring in the first place. Examples include having two or more employees sign all checks with amounts exceeding $10,000; requiring accountants to review all journal entries, memoranda and financial notes that bookkeepers post in general ledgers; and directing quality-assurance managers to inspect a sample of products to prevent bad items from slipping through the manufacturing process.

Detective Controls

  • Detective controls help business managers uncover errors or irregularities that have already happened. Here the goal is to put into place appropriate tools and methodologies to run random sting operations in specific locations or work streams. Internal auditors can be useful in the process, as they usually test risky processes when performing corporate reviews. For example, internal reviewers may screen a statistically significant sample of journal entries and determine whether bookkeepers posted debits and credits to proper accounts. Examples of detective controls include randomly selecting products to gauge quality, comparing monthly bank balances and cash amounts reported in corporate books, and sending periodic surveys to personnel asking for such sensitive issues as sexual harassment incidents and discriminatory practices in the workplace.

Corrective Controls

  • Corrective controls give corporate personnel the "firefighter tools" necessary to stop operational fires and the metaphoric smoke coming out of bad processes, lower employee morale and inefficient production mechanisms. Simply put, these policies help the business remedy operating damages that result from inadequate mechanisms or weak controls. For example, the U.S. Occupational Safety and Health Administration levies a hefty fine on a company for lack of security policies in its manufacturing sections. To correct the deficiency, corporate management may direct department heads to create a clear policy book and provide safety training for personnel on a periodic basis.

Related Searches


Promoted By Zergnet


You May Also Like

  • What Are the Types of Audit Reports?

    There are four primary types of audit reports auditors create. The auditor's report choice is determined by how easily she can access...

  • Importance of an Internal Control Audit

    Internal control audits have always been important but in recent years new emphasis has been placed on internal controls by the government...

  • Describe the Importance of Internal Control in Business

    Internal controls are the standards and rules used by companies to ensure that they achieve their stated goals in the marketplace. Profitability...

  • Examples of Internal Controls

    Internal controls are policies and procedures companies use to help prevent errors and fraud, which can include theft, embezzlement, favoritism or math...

  • Types of Audit Procedures

    Auditors put into place sound, specific procedures to ensure that subordinates review corporate processes efficiently. Audit procedures enable corporate reviewers to get...

  • Types of Auditors

    Auditors carefully examine financial records so they can evaluate an entity's financial position and the authenticity of its data. This requires experience...

  • Types of Audit Risks

    A company’s senior management is responsible for its financial statements. Under generally accepted auditing standards, auditors are required to obtain reasonable assurances...

  • What Are Preventive Internal Controls?

    Internal controls at companies are based on three phases. Preventive controls are put in place before there are errors, loses or fraud...

  • What Are the Types of Internal Controls?

    Internal controls are the policies and procedures that a business puts into place in order to protect its assets, ensure its accounting...

  • Types of Internal Controls in Accounting

    The Worldcom, Enron and HealthSouth accounting scandals, among others, have heightened the importance of internal controls for companies everywhere. The Sarbanes-Oxley Act...

  • A Checklist for a TS 16949 Internal Audit

    Automotive suppliers need to maintain quality specifications for sending in supplies to automotive manufacturers. The International Organization for Standardization has issued an...

  • Types of Internal Control Reporting Options

    Internal reporting options are vital in keeping employees, regulators and investors up-to-date. The format must be understandable for managers, leaders and investors....

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

Is DIY in your DNA? Become part of our maker community.
Submit Your Work!