Internal controls are processes employed by firms to regulate their structure, authority, working flows, human capital alignments and information systems management. The processes enable the organization to direct, monitor and measure the resources of the firm in an optimum manner. The control procedures minimize the variation of the process and leads to predictability of outcomes (Bernard, 2006).
All companies need internal controls. This facility is used to prevent and detect fraud as well as protecting the firm’s resources whether physical or intangible. The physical resources taken care of by internal control include machines, finances, instruments and information systems hardware. The intangible include trade marks, intellectual property and reputation of the firm. One of internal controls is the segregation of duties which deals with separating authority, custody and record keeping roles in order to protect or minimize risk of errors or fraud by anybody. Additionally, physical safeguards can be used for security reasons and protecting property. They include physical barriers, locks and cameras (William, 1997).
To prevent slag and idleness in the firm, supervisory and monitory operations should be put in place to enhance achievement of the firm’s goals and objectives. Retention of records of substantive transactions is also a good control because of later perusal and consultations. Under the Sarbanes-Oxley Act, fraud of a corporation and tempering o f records is identified as criminal offence and is subject to specific penalties according to the sentencing guidelines. The act also mandates a set of internal procedures that ensure accuracy in financial disclosure. The controlling officers must give certification of responsibility, establishment, and maintenance of internal controls and also ensure that any material information about the firm and its subsidiaries are passed to everybody concerned especially during periodic reports (David, 2000).
Bernard Newsman (2006) Internal Controls Guide, 3d Edition. Issues in Accounting Education, Vol.21
David Willis (2000) Management Reports on Internal Controls. Journal of Accountancy, Vol.190
William Floyd (1997) Evaluating Internal Controls. Security Management, Vol.41