5 Key Elements of Good Internal Controls
According to the Association of Certified Fraud Examiners, organizations lose approximately 5% of their annual revenues to occupational fraud, and of these, small businesses with fewer than 100 employees are the most vulnerable. Why? They're least likely to have internal controls in place to detect and prevent fraudulent events. Internal controls are systems and processes designed to safeguard an organization’s assets. In addition, controls create a foundation for accurate financial reporting, effective operations, and compliance with laws and regulations.
Five elements of internal controls
1. Control environment
The foundation of internal controls is the tone of your business at management level. Integrity and ethical values, management philosophy and operating style, and assignment of authority and responsibility fall under the control environment umbrella.
2. Risk assessment
Risk assessment is the evaluation of your business flow and exposure to risk. A number of risks are present for all organizations on a daily basis.
It's essential to identify and analyze these risks in order to prevent an adverse event from occurring. You should perform risk assessments continuously.