An ideal internal control system of an organization is the one that ensures the following points:
Internal controls help an organization to operate in effective and efficient manner by considering the finances, work force and business procedures. It also helps the company to make future projections and how to prevent the losses.
Internal controls ensure that the business transactions are taken place after compliance with the procedure determined by the higher-level management.
Internal controls ensure that the financial statements are prepared in accordance with the accounting concepts and the principles.
Internal controls make sure that the assets of the company are not misused and for that, the physical security system like surveillance, cameras, are considered to provide the protection to the assets.
Internal controls ensure the best usage of the resources.
Internal controls assist in showing the loopholes that are present in the organization and provide solutions to correct them.
Internal controls make the process of reporting more accurate.
Internal control ensures that all the rules and regulations of the company are being complied with. This includes compliance like labor laws, branding.
Types of Internal Control System
Preventive Controls: These types of internal controls are implemented in the firm to minimize the errors and irregularities and taking care of the fact that all the departments in the organization are meeting their goals and objectives. For example, the management team should look whether the organizations inventory, stock, assets and other items are up to the mark or not.
Detective Controls: These types of internal controls are implemented to reveal errors and irregularities when they are committed. Its objective is to detect the reason for the problem and irregularities within the organization. It includes comparing the previous yearâ€™s information with the current year, forecasting, making a budget. Thus, detective controls keep an eye on the company’s performance.
Corrective Controls: These types of internal controls are formed to take corrective measures in order to get rid of the errors and regularities once they are detected. For example, the IT department of a company would recommend installing software that back up the data in real time and if the data crashes, then, retrieval of the data will be possible. This type of control includes both the detective and preventive controls.
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