What is internal control?

Internal control is a process designed to provide reasonable assurance regarding the reliability of financial reporting, the effectiveness of operations, and compliance with regulations. Controls include policies, procedures, and practices that prevent errors, catch mistakes, and deter fraud.

Controls for a 10-person firm

Small firms cannot fully segregate duties. Compensate with: owner reviews all transactions weekly; bank statements are mailed to the owner's home; two signatures are required for transactions over $5,000; surprise spot checks; and credit card statements are reviewed by someone other than the cardholder.

Controls are most often missing.

Vendor setup without verification enables fake vendor fraud. Expenses without receipts invite padding. Unapproved payroll changes create ghost employees. Bank reconciliation by the check writer can conceal errors. These common gaps invite problems.