Although they are essential to governance, many companies still have controls scattered across spreadsheets, documents, systems, and procedures that are not interconnected.
This creates a significant challenge:
The company has controls in place, but it lacks a clear understanding of which controls exist, which ones are working, and which ones need improvement.
A mature internal control framework enables the organization to know:
- What risks need to be addressed;
- What controls are in place;
- Who is responsible for each control;
- How often is the check performed;
- What evidence proves that it was carried out;
- Which controls have flaws;
- What actions need to be taken.
In this article, you will understand What are internal controls, what types are there, how do they work, what benefits do they provide, and how can they be structured in practice?.
What Are Internal Controls?
Internal controls are policies, procedures, activities, mechanisms, and practices established by the organization to help prevent or reduce risks and increase the reliability of processes.
A control may exist for:
- Prevent a problem;
- Detect a failure;
- To correct a situation;
- Reduce a risk;
- Ensure compliance with a rule;
- Protect assets and information;
- Improve process reliability.
In practice, a control answers a very important question:
“What does the organization do to prevent a particular risk from occurring or to quickly identify it when it does occur?”
Examples of Internal Controls
Controls are present in virtually every area of a company.
Some examples include:
- Approval of payments;
- Segregation of duties;
- Bank reconciliation;
- System access control;
- Contract review;
- Supplier qualification;
- Asset inventory;
- Backing up information;
- Document review;
- Transaction monitoring;
- Audits;
- Operational checklists;
- Periodic inspections;
- Evidence management.
The type of control required depends on the risk and the process the organization wishes to protect.
Why Are Internal Controls Important?
Companies are exposed to financial, operational, regulatory, technological, and reputational risks on a daily basis.
Without proper controls, small problems can turn into significant losses.
Internal controls help the organization to:
- Reduce risks;
- Prevent fraud;
- Identify flaws;
- Improve processes;
- Improve the reliability of information;
- Strengthen Compliance;
- Comply with regulatory requirements;
- Prepare for audits;
- Protect information and assets;
- Increase operational efficiency.
For this reason, internal controls should not be treated merely as a bureaucratic requirement.
They are part of the company's management infrastructure.
What is the relationship between risk and internal control?
Risk and control are directly related.
Risk represents the possibility of an event that could affect the organization's objectives.
Control is one of the methods used to address this risk.
We can represent this relationship in a simple way:
Risk → Control → Evidence → Monitoring
For example:
Risk: an improper payment to a supplier.
Control: Approval of payment by a person other than the one who made the entry.
Evidence: record of approval.
Monitoring: Periodic test to verify that the control is working.
This connection is essential for structured risk management.
What are the main types of internal controls?
Preventive Controls
These are controls designed to prevent a specific problem from occurring.
Examples:
- Access block;
- Prior approval;
- Segregation of duties;
- Information validation;
- Approval limits.
Detective Checks
They are used to identify problems that have already occurred.
Examples:
- Audits;
- Reconciliations;
- Monitoring;
- Exception analysis;
- Periodic inspections.
Corrective Actions
They are used to treat identified problems and reduce the likelihood of recurrence.
Examples:
- Action plans;
- Case review;
- Updating procedures;
- Training;
- Implementation of new controls.
What is the difference between preventive and detective control?
The difference lies mainly in the point at which the control takes effect.
| Type | Objective | Example |
|---|---|---|
| Preventive | Avoiding the problem | Approval Before Payment |
| Detective | Identify the problem | Recovery After Surgery |
| Concealer | Fix the problem | Action Plan Following a Failure |
A mature organization can use all three types of controls in a complementary manner.
What is effective internal control?
Having a documented control does not necessarily mean that it is effective.
An effective control must be appropriate for the risk it is intended to address and must function consistently.
To evaluate a control, the organization may consider:
- Purpose of the control;
- Related risk;
- Owner;
- Frequency;
- Procedure;
- Evidence;
- Evaluation criteria;
- Test results.
This makes it possible to distinguish between:
“There is control”
from:
“There is a system in place that works, and we’ve been able to prove it.”
What is a risk and control matrix?
A Risk and Control Matrix It is a tool used to link the organization's risks to the controls in place to address them.
A basic structure may include:
| Risk | Control | Person in Charge | Frequency | Evidence |
|---|---|---|---|---|
| Improper payment | Independent approval | Finance | Per transaction | Approval Record |
| Unauthorized access | Review of Access Points | IT | Quarterly | Access Report |
| Hiring an unsuitable supplier | Due Diligence | Compliance | By contract | Evaluation Report |
This matrix helps the company identify whether there are risks without adequate controls.
How can you tell if a risk has adequate controls?
A company may have several controls in place and still have a risk that is not adequately addressed.
Therefore, it is necessary to evaluate the relationship between:
- Risk;
- Impact;
- Probability;
- Existing controls;
- Effectiveness of controls;
- Residual risk.
For example, a risk classified as high may have a control in place, but that control may not be sufficient to reduce the risk to an acceptable level.
In this scenario, the organization may need to implement additional controls.
What is residual risk?
Residual risk It is the risk that remains after controls have been implemented.
This is because no system of controls can completely eliminate all risks.
The purpose of controls is to reduce exposure to a level that is acceptable to the organization, given its risk appetite and strategy.
Therefore:
Inherent risk → Application of controls → Residual risk
Who is responsible for internal controls?
Internal controls are not the sole responsibility of the Compliance, Audit, or Risk departments.
The primary responsibility usually lies with the departments that carry out the processes.
This means that:
- Managers are responsible for the processes;
- Employees carry out tasks and perform controls;
- Compliance can support requirements and monitoring;
- Risks can aid in identification and assessment;
- An audit can assess effectiveness;
- Senior management monitors the results.
This division of responsibilities is important to prevent the organization from treating controls as an isolated activity.
Internal Controls and Compliance
Compliance and internal controls are directly related.
The Compliance department seeks to promote compliance with applicable laws, regulations, policies, and standards.
Controls help translate these requirements into operational mechanisms.
For example:
Requirement: A particular activity must be approved.
Control: The system blocks execution without approval.
Evidence: record of approval.
Monitoring: Periodic control test.
Thus, control transforms an obligation into a verifiable process.
Internal Controls and Auditing
Internal Audit can assess whether controls are in place and whether they are functioning properly.
During an audit, the following may be evaluated:
- Control design;
- Responsibility;
- Frequency;
- Execution;
- Evidence;
- Exceptions;
- Effectiveness.
When a deficiency is identified, it may result in a recommendation or an action plan.
Therefore, there is a direct connection:
Control → Test → Evidence → Finding → Action Plan
How to Document Internal Controls?
In order for a control to be monitored, it is important to document its key characteristics.
A control sheet may contain:
- Control name;
- Objective;
- Related risk;
- Description;
- Owner;
- Area;
- Frequency;
- Type of control;
- Method of execution;
- Expected evidence;
- Test criterion;
- Status.
This documentation facilitates audits, evaluations, and periodic reviews.
How to Test Internal Controls?
Testing a control means verifying that it is functioning as intended.
A test may consider:
- Definition of control;
- Sample selection;
- Evidence collection;
- Verification of execution;
- Record the result;
- Identification of exceptions;
- Evaluation of effectiveness.
The result may indicate that the control is:
- Effective;
- Partially effective;
- Ineffective;
- Not executed;
- Not applicable.
What happens when a control fails?
A control failure must be analyzed based on its severity and impact.
Depending on the situation, it may be necessary to:
- Report a nonconformity;
- Assess the risk;
- Investigate the cause;
- Create an action plan;
- Designate a person in charge;
- Set a deadline;
- Implement a new control;
- Try again.
This process prevents the organization from simply logging the failure without addressing its root cause.
What are the main benefits of internal controls?
Reduced Risk
Controls help reduce the likelihood or impact of undesirable events.
Greater operational safety
Structured processes reduce reliance on ad-hoc decisions.
Fraud Prevention
Controls such as segregation of duties and independent approvals can reduce opportunities for fraud.
Greater reliability of information
Reviews and validations help improve the quality of the data used by management.
Preparing for Audits
Documented and monitored controls make it easier to provide evidence.
Strengthening Governance
Clear controls help define responsibilities and increase transparency.
What are the most common mistakes in managing internal controls?
Having controls without anyone responsible for them
A control without a designated person in charge is unlikely to be properly monitored.
Lack of evidence
Without evidence, it may be impossible to prove that the control was carried out.
Do not test the controls
A control may exist on paper but not work in practice.
Do not update the controls
Processes change, and controls must keep pace with those changes.
Keep track of everything in spreadsheets
Spreadsheets may work for small-scale systems, but they tend to cause problems as the number of controls increases.
Failure to link controls to risks
Without this connection, a company may have many controls in place and still fail to adequately address its key risks.
How to Set Up an Internal Control Framework?
A structure can follow this flow:
1. Identify the risks
Identify the key events that could affect the organization's objectives.
2. Identify the controls
Identify which mechanisms already exist.
3. Evaluate the controls
Check whether they are appropriate for the risks.
4. Assign responsibilities
Determine who will carry out the task and who will monitor it.
5. Define evidence
Determine how compliance will be verified.
6. Test
Check to see if the control works.
7. Correct
Develop actions when deficiencies are identified.
8. Monitor
Continuously monitor the progress of the controls.
Internal Control Indicators
Metrics help management understand the status of controls.
| Indicator | Objective |
|---|---|
| Total number of checks | Understand the existing structure |
| Effective controls | Assess effectiveness |
| Ineffective controls | Identify deficiencies |
| Audits without supporting evidence | Identify documentation gaps |
| Tested controls | Measuring Test Coverage |
| Nonconformities | Track issues |
| Action Plan Management | Track corrections |
| Overdue Actions | Identify critical open issues |
How does technology help with internal control management?
As the organization grows, the number of controls, responsible parties, records, and tests that need to be tracked increases.
When this information is scattered across spreadsheets, documents, and emails, management loses visibility.
A GRC platform can centralize:
- Risks;
- Controls;
- Owners;
- Evidence;
- Tests;
- Nonconformities;
- Action plans;
- Metrics.
This allows the company to see the entire cycle:
Risk → Control → Evidence → Test → Result → Action → Monitoring
How does Triskle help with internal control management?
A Triskle GRC It allows you to centralize information related to risks, controls, evidence, audits, nonconformities, and action plans.
The platform can help your organization:
- Map controls;
- Link controls to risks;
- Assign responsibilities;
- Centralize evidence;
- Monitor tests;
- Record nonconformities;
- Create action plans;
- Track deadlines;
- Generate indicators;
- Present information on executive dashboards.
The goal is to replace a fragmented management structure with one in which the organization can see the big picture What risks are being addressed, what controls are in place, and what are the key areas of concern?.
Frequently Asked Questions About Internal Controls
What Are Internal Controls?
These are policies, procedures, activities, and mechanisms used to reduce risks, prevent or detect failures, and increase the reliability of processes.
Why are internal controls important?
They help reduce risks, prevent fraud, improve processes, strengthen compliance, support audits, and increase the reliability of information.
What are the types of internal controls?
Controls can be classified, among other ways, as preventive, detective, and corrective.
What is a risk and control matrix?
It is a framework that links the risks identified by the organization to the controls used to address them.
How can you tell if a control measure is effective?
It is necessary to evaluate the design, implementation, frequency, accountability, evidence, and results of the tests conducted.
Who is responsible for internal controls?
Responsibility is distributed among the departments and managers who carry out the processes, while functions such as Compliance, Risk Management, and Audit may play advisory, monitoring, or evaluation roles, depending on the organization’s structure.
Are internal controls mandatory?
The specific needs and requirements depend on the industry, size, applicable laws, corporate structure, and context of the organization. Regardless of whether they are required by law, controls are essential for proper risk management.
How to Map Internal Controls?
The process typically begins with mapping processes and risks, followed by identifying existing controls, defining responsible parties, gathering evidence, conducting tests, and developing action plans. The next article in this series delves deeper into this process.
Internal controls are one of the cornerstones of a mature organization.
They help turn identified risks into concrete actions for prevention, detection, and correction.
But having controls isn't enough.
The organization needs to know:
- What controls are in place;
- What risks do they cover;
- Who is responsible;
- If they are running;
- What evidence is there;
- If they are effective;
- Which ones need to be improved.
Controls that are not monitored may exist only on paper.
Therefore, maturity lies in the ability to link risks, controls, evidence, tests, and corrective actions into a continuous process.
When this structure still relies on spreadsheets and scattered documents, the organization may lose visibility into precisely the most important controls.
The next step is to understand how to turn this concept into a practical framework.
In the next article, we'll show you how to map internal controls step by step.
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