Internal controls

Question 1

Definition

Answer 1

Internal controls are measures that an organization takes to ensure the integrity and reliability of its financial information, and they play an important role in the prevention and detection of fraud.

Question 2

Preventative Control

Answer 2

Preventative controls are proactive and designed to reduce risks of errors and fraudulent activity before they occur.

Question 3

Examples

Answer 3

Checks and balances, separating duties so that no one person is in complete control of decisions
Requiring pre-approval of transactions or two signatures on checks
Securing assets by restricting badge access, safes, or locks
Controlling access by setting permission levels and assigning passwords
Employee screening, such as conducting background checks, running credit reports, and reviewing social media accounts

Question 4

Detective Control

Answer 4

Detective controls are intended to uncover errors and fraudulent activity after they have occurred

Question 5

Examples

Answer 5

Reconciliation statements to compare bank records and company records
Physical inventories of cash and other assets
External audits