Internal controls are activities that a company performs over its normal operations with the objective to minimize errors, safeguard assets and ensure the smooth flow of operations as per regulations where applicable. Internal controls are crucial for businesses to mitigate any risk arising from a company's day-to-day operations. These also help in ensuring consistency in maintaining reliable financial records.
There are three broad classifications of internal controls:a. Preventative: used to prevent any suspected irregularity b. Detective: measure to identify possible loopholesc. Corrective: actions to rectify identified shortcomings that may cause financial or reputational damage