Internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives.^[1] It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). At the organizational level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal control refers to the actions taken to achieve a specific objective (e.g., how to ensure the organization's payments to third parties are for valid services rendered.) Internal control procedures reduce process variation, leading to more predictable outcomes. Internal control is a key element of the Foreign Corrupt Practices Act (FCPA) of 1977 and the Sarbanes-Oxley Act of 2002, which required improvements in internal control in United States public corporations.

 

Internal control within the firm is important because,without it, the firm or any parties affected by the firm are suscetible of being defrauded.

 

Internal control can help a company's success by preventing the company from being defrauded

and indirectly by giving the investors in the company more confidence that they are investing in

a safe investment. 

 

Internal controls can hinder a company's success when there is too high a level of internal control

such that the costs of ensuring that level of internal control outweigh the benefits.  For example if a company has too many policies, rules and regulations it may be the case that this level of IC is cutting into the company's profits by taking up too much of their time and too many of their resources.  

 

Hope this helps!

 

Jonathan