Role of Internal controls in risk management

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.