What is internal control software?
Organizations use internal control software to reduce fraud and keep the company’s assets safe. The system manages the internal control structure, including the accounting system, control environment, and control activities.
The Internal Control-Integrated Framework is a landmark internal control guidance used by companies worldwide. Developed by the Committee of Sponsoring Organizations (COSO), the framework aims to address issues related to deficiencies in an organization’s accounting and operations systems. Internal control management software addresses the practical aspects of the Internal Control-Integrated Framework. It consists of policies and procedures that ensure:
- The appropriate use of assets
- The proper functioning of the accounting system
- The maximum efficiency of organizational operations
- The security of assets
- Employee compliance with corporate procedures and policies
A well-designed internal control system doesn’t eliminate the risk of loss, but reduces it. Organizations face different threats, and without proper internal control software, there are more chances for fraud, asset misuse, and workplace corruption.
Internal control software keeps a company’s assets safe, prevents the company from violating any laws, and records the company’s financial activity. Proper accounting records are necessary for evaluating a company’s operations, from employee activities to company processes.
Internal control systems do more than assess accounting records; they also uncover inconsistencies between accounting records and company operations. Effective internal control management software is essential to your business no matter its size, as it allows you to monitor your employees and protect sensitive customer data.
Table of contents
1. Why use internal control software?
1.1. Streamline business goals
1.2. Mitigate risks
1.4. Secure internal operations
1.5. Boost confidence in your financials
1.6. Lower external audit fees
1.7. Faster certification process
2. What are the three types of internal controls?
3. Using Lumiform as internal control software
Why use internal control software?
Well-designed internal control software is an essential risk mitigation tool that helps your business continue to run without interference. The software improves several business functions and makes life easier in a variety of ways
Streamline business goals
Internal controls help you achieve operational objectives by improving the effectiveness and efficiency of business operations, making financial reports more accurate and reliable, and ensuring compliance with laws and regulations.
Mitigate risks
Effective internal control software ensures that employees use company resources for their intended purposes. It also makes processes more transparent and guidelines better defined, which improves compliance.
Improve accountability
Specific team members in your company are responsible for overseeing Internal controls. These individuals must monitor and perform internal control best practices throughout the year, not only during an audit.
Secure internal operations
Internal control software provides C-level executives better control and visibility of company internal operations and processes.
Boost confidence in your financials
Internal control management software supports Sarbanes-Oxley (SOX) compliance, indicating a more robust investment. By showing the public you have a sound internal control plan, your company avoids problems during a sale, and stakeholders will be more confident in your financials.
Lower external audit fees
Internal control documentation software makes the external auditor’s job easier and smoother, reducing time spent on audits and fees you need to pay. Organized internal control also makes revamping programs easier after an external audit.
Faster certification process
Obtaining business certifications opens up more opportunities. Business certifications can give you access to more resources and perks, helping you grow your business faster and get ahead of your competitors, but you must go through audits before you get certified. Passing a certification audit is easier if your company uses internal control management software.
What are the three types of internal controls?
The three basic categories of internal controls are preventive, detective, and corrective controls. An internal control software will have features that facilitate all types, because they all have critical roles.
Preventive controls
Preventive controls reduce the chances of errors and fraud before they happen. This type of control focuses on separation of duties, and includes the following:
- Travel authorizations and other transaction pre-approval mechanisms
- Passwords, authentication processes, and different ways of controlling access
- Locks, money safes, and providing physical control over assets
- Employee screening and training
Detective controls
Detective controls aim to find errors or problems after a transaction. Detective controls are essential because they guarantee that preventive controls operate as required. They can also discover irregularities after a transaction happens.
Examples of detective controls include:
- Monthly reconciliations of departmental transactions
- Review of organizational performance
- Physical inventories
Corrective controls
Sometimes, preventive controls are not enough on their own. That’s why you need detective controls in place. Corrective internal controls are controls needed after detective controls find a problem to improve upon previous shortcomings. These include:
- Software patches or modifications
- Disciplinary action
- Reports filing
- New or improved policies replacing inefficient or insecure practices such as password sharing or employee tailgating
Using Lumiform as internal control software
The Lumiform mobile app and dashboard can make your internal control processes smoother. Using the digital tool to facilitate your internal control system gives you:
- Completeness – You can use a checklistto record all transactions and ensure nothing is omitted.
- Accuracy: Ensure that all transaction records are accurate and recorded promptly
- Validity: Include checklist items that align with applicable laws, and require a manager to sign off on every record
- Physical safeguards & security: Restrict access to checklists by user type, safeguarding physical assets and information systems.
- Error-handling: Reporting and correcting errors detected by preventive and detective controls is easy thanks to analytics that are automatically created when you complete a checklist.
- Separation of duties: Divide responsibilities to ensure no single individual has complete control over the transaction and recording functions.