Big4Guy

Internal Control designing is a step by step process. If correctly understood one can easily design internal controls for any process irrespective of the company. I am today discussing the brief steps for designing efficient and effective internal controls. The steps below are intended to just give an overview. I would be discussing the entire internal control design process in detail later on.

Four Steps in Designing Effective Internal Controls

Undertand the Risk - The first step in designing internal controls is to understand the risk that you are trying to mitigate. Without a clear understanding of risk, its unlikely that you would be able to design good internal controls.

Identify Control Activity - Once you have identified the risk, identify the control activity which would reduce the identified risk to an acceptable level.

Benefit Vs. Costs - In any controls design process it very important to compare cost of controls with the benefits to be derived. Controls no doubt have a cost, however, cost of controls should not overweigh the benefits. It's no point protecting an assets worth a couple of hundred dollars with a biometric control costing thousands.

Establish Internal Control - Having accomplished the above three steps, the last step is establishing the identified activity as an internal control.

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