Internal control: the key to secure financial systems ?

Internal-control--the-key-points

Last modified on January 18th, 2023

Reducing risks to a minimum is a wish shared by all companies. Accidents, mistakes or criminal acts have no place in businesses. This is true when it comes to protection at work, but also when it comes to protecting company sites from unauthorized access by third parties. While the same rules and measures can be implemented for these rather tangible aspects, it is more difficult to guarantee the quality of the financial system or management. This is why many companies establish an internal control system. They have to make sure that everything works the way the company wants it too. Discover some examples of preventive, detective and corrective internal control in this article.

What is internal control?

Internal control is a method of evaluation carried out (in general) by an enterprise’s internal audit department, in order to ensure that processes are properly implemented and to identify potential risks. We can also talk about a security system, consisting of means and resources adapted to the company, whose various objectives are:

  • Make optimal use of company resources;
  • Control his activities;
  • Make all of its operations more efficient;
  • Identify risks (financial, operational, compliance or security) that may compromise the achievement of its objectives.

Logically, the larger the company, the more consistent the internal control processes. In addition, internal control concerns all the company’s staff, not just the managers. On the other hand, it is up to the management of the enterprise to define and monitor internal control processes according to the activity of the enterprise.

Roles and principles of an internal control system

The principles of internal control are the concepts that require management to put in place procedures to ensure the protection of corporate assets. In other words, these are the principles that management uses to establish the means to protect the company’s assets. Fundamental principles of internal control include:

The subject of internal controls is constantly expanding, and this non-exhaustive list of principles is likely to expand in the future as well.

Types of internal controls

Controls can be first, preventive, deterring fraud and error, or second, detective, identifying problems after they occur. By working together, they can stimulate ongoing business activities by solving existing problems and preventing future problems.

Preventive detective and corrective controls examples include reconciliations, authorizations, approval processes, performance reviews and audit processes. An integral part of the control activity component is the segregation of duties.

Preventive Internal Control

Preventive control operations, include detailed documentation and authorization standards. Their main purpose are to prevent errors or frauds from happening in the first place. A fundamental element of this process is the separation of duties. This ensures that no one is able to authorize, record and have custody of a financial transaction and the resulting assets. Authorizing invoices, verifying expenses, limiting physical access to equipment, inventory, cash and other assets are preventive and detective controls examples.

Internal control detective

Detection control refers to a type of internal control designed to detect problems in a company’s processes once they have occurred. Detection controls can be used for many different purposes, such as quality control, fraud prevention and legal compliance. Preventive and detective control examples: physical inventory, which can be used to detect when actual inventories do not match those in accounting records.

In small businesses, internal controls can often be implemented simply through management oversight. In large companies, however, a more elaborate system of internal audits and other formal guarantees is often necessary.

Corrective Internal Control

Designed to ensure that appropriate measures are taken to reverse the effect of adverse events or to avoid their replication in the future. This control assumes that the detective control has worked well. Thus, the corrective controls aim to correct detected errors or reduce their impacts.

Other examples of preventive controls and detective controls include identifying causes of irregularities and modifying the treatment method to minimize future occurrences.

SaaS Solutions to Support Internal Control

Internal control is a first barrier to identify risks, set up adapted processes to secure the actions performed by the finance teams, or take preventive measures.

To go further and support the Internal Control teams, ensure a follow-up of actions over time and keep proof of controls and regulatory actions performed, Trustpair supports you.
Trustpair’s third-party risk management platform, specialized in B2B payment fraud prevention, secures the entire Procure-to-Pay process, from the addition or editing of a third-party to the payment, including the monitoring of the data in the vendor master file.

Contact Trustpair experts to know more about the Trustpair platform.

TRUSTPAIR _ FRAUD PROTECTION SOLUTION

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