One way of minimizing risk is to incorporate internal
controls into a company’s systems and procedures.
Internal controls are any mechanisms built into a
company’s systems and procedures to reduce the risk of error or
fraud.
In other words, internal controls are a means of minimizing
risk. They may not be able to:
But they may be able to:
• One person checking another person’s
work.
• Locking vital documents in a safe.
• Restricting access to places with
security systems.
• Restricting access to information
and systems held on computers through passwords etc.
• An internal audit department which
checks that procedures and systems are operating as they should.
• prevent an earthquake destroying a
factory
• prevent a competitor coming up with
a product which makes your product obsolete.
• reduce the risk that financial
statements contain material errors
• reduce the risk of theft of the
company’s assets
• reduce the risk that your business
secrets might be handed over to a competitor.