Types of Internal Control

• Detective: Designed to detect errors or irregularities that may have occurred.
• Corrective: Designed to correct errors or irregularities that have been detected.
• Preventive: Designed to keep errors irregularities from occurring in the first place.

Principles of Internal Control

Internal control is based on the following principles:

1.     Principle of Separation

Financial and accounting operations must be separated, i.e., handling of cash and the recording of the movement thereof should be done by different persons.

2.     Principle of Responsibility

Responsibility for the performance of the job must be clearly stated so that there may be no room for doubt or confusion subsequently.

3.     Principle of Skepticism

Too much confidence should not be pinned on one individual. Nearly all frauds have been committed by trusted officials or employees.

4.     Principle of Rotation

The rotation principle relating to the transfer of an employee from one job to another should be the inflexible guiding rule.

5.     Principle of Review

The work should be so arranged that work done by one employee should be promptly checked by another independent employee.

6.     Principle of Clarification

Clear and well-defined rules should be laid down and practically followed, relating to dealing with cash, ordering, receiving and issuing goods, etc.

7.     Principle of Documentation

The arrangement of the work should be in such a manner that a written record of the part played by each employee should be maintained, and the work should pass through several hands in a well-defined manner.