22 Nov Internal Control Definitions
Internal Control is the methods and procedures instituted by a business to control operations and safeguard assets. It is important to note that safeguarding the assets includes informational assets such as: customer lists, price lists, proposals, Accounts Receivable records, etc. Controlling operations includes how the flow of paperwork and data entry into an accounting software package has been designed. Safeguarding assets includes procedures to discourage waste, fraud, and theft.
In a large business segregation of duties is easier based on a larger number of employees. In small businesses, the owner commonly controls everything by personal supervision and participation in all aspects of the business. As a business grows, the tendency is for the owner to begin delegating functions of business operations without adequate internal controls in place. The thought is that the employee is trust worthy, which very well may be the case, until opportunity is present and the temptation becomes too great. Internal controls help to encourage compliance with management policies, protect company assets, improve operational efficiency, and ensure accurate accounting data.
When evaluating internal controls, do not overlook other potential risks such as hard drive crashes (http://www.4luvofbiz.com/quic_news_59.html), viruses, deleting a file, lost passwords (http://www.4luvofbiz.com/quic_news_39.html), computers that are lost or stolen, etc.