Internal Control Activities – A Comprehensive Guide 

Gowsika

Gowsika

Nov 08, 2023

Internal Control Activities - A Comprehensive Guide

Businesses today constantly face security risks, and safeguarding your cyber security posture and protecting your valuable data seems challenging. Enterprises integrate processes into their systems to effectively manage and mitigate potential risk, and one such significant process is internal control activities.

Internal control activities play a vital role in managing your internal control framework. They help you safeguard your digital assets and facilitate your achievement of objectives that align with your business processes.

This blog will give you an overview of internal control activities and their significance.

What is internal control activity?

Internal control activities are the set of processes designed to support the security policies and procedures set in place by your compliance team. It ensures appropriate directives and corrective action plans, enabling the organization to meet its security goals. This includes a range of activities such as authorizations, verifications, reviews and approvals, security of assets, and so on.

Types of internal control activities

Internal controls can be personalized based on the risks you want to mitigate. 

Here are the three main types of internal controls that are classified based on the time they act on:

Types of internal control activities


Preventative controls:

As the name indicates, these controls are established to prevent any security mishaps or an incident from occurring. Examples of preventative security controls include built-in checks in web applications, verifying identification credentials, segregation of duties, restricting unauthorized access, firewalls, server backups, training programs, and routine testing.

Detective controls:

Detective controls act as the next line of defense in case the preventive controls fail. These detective controls are used when an incident occurs. This allows you to characterize the incident and helps you prevent such security incidents in the future. 

Checkout: A Complete Guide on Security Incident Management

Examples of detective controls include alerting the desired security personnel about the event. From a business perspective, detective controls can be internal audits, performance reviews, monthly reconciliation of financial transactions.

Corrective controls:

Corrective controls are utilized after the incident occurs and are intended to limit the extent of the damage. The control activities here include security modifications, reporting, refined policies and procedures, disciplinary actions, inculcating best practices, and so on.

What impact do internal control activities have on business?

Organizations spend time establishing external security controls and providing significant protection from the outside. But what are the chances of your data breach stemming due to internal violations? Yes, Internal controls have a significant effect on your overall security posture and are essential to ensure compliance. 

Let’s look at some of the benefits of having Internal controls in place. 

Safeguards data: Internal controls create a reliable system in the control environment to protect sensitive information from data breaches and reduce the cost that might be incurred during such security incidents. 

Prevents suspicious activity: Internal control systems create an efficient process for your daily business operations and protect you from any fraudulent activity. For example, the SOX (Sarbanes-Oxley Act of 2002) annual audit work requires you to submit accurate reports of financials, procedures that prevent fraud, and uncertainties they have addressed.

Ensures compliance: Internal controls have compliance procedures in place that enable you to comply with federal, state, and local laws and also with mandatory and voluntary regulations such as GDPR, ISO 27001, and SOC2. This boosts your customer confidence and improves your credibility in terms of data security and integrity.

Unleash the Sprinto advantage: Sprinto seamlessly automates your desired security frameworks and aligns your systems with different compliance requirements.

Check out how Happay boosted their compliance efficiency with Sprinto

Improves efficiency of business operations: Internal controls help organizations reduce complexity and standardize operating styles and processes, resulting in more effective business operations. 

How do you determine internal control activities based on your requirements?

Internal control activities can be tailored based on your specific needs and the risks your organization might face, considering objectives in terms of operations, finance, and compliance.

The first step would be to develop a standard methodology or common language for controls to:

  • Assess the existing internal control activities and enhance the risk identification and categorization process.
  • Understand and identify your regulatory requirements, such as industry standards, policies, and laws that apply to your industry.
  • Improve reporting structure, enhance business performance, and inform decision-making.
  • Reduce reliance on external audits and insights and stay up-to-date with relevant risks and controls.

The second step would be leveraging tools and technologies to integrate the internal control activities. You can customize your internal control activities based on your assessment of risks and domain, but generally, an organization should choose internal controls that:

  • Ensures compliance with laws and regulations
  • Promotes greater accountability and improves operating conditions
  • Ensure functions attain their desired outcomes
  • Provide accurate insights and informed decisions on reporting
  • Conducts risk assessments and follows up with corrective actions
  • Assists external auditors with their requirements

Key internal control activities to monitor

Strong internal controls are crucial for organizations to operate effectively and remain compliant. Some of the most important internal control activities that should be continuously monitored include:

Access control: Monitor and restrict access to sensitive data, systems, servers, and digital assets. Ensures authorization is in place to access these data and also a validation system to ensure employees have only access to resources that match their role.

Separation of duties (SOD): Ensures that control responsibilities are separated such that no personnel has excessive access to critical processes.

Information security controls: Continuously monitor and conduct risk assessments on information security controls to protect data and your systems from breaches and cyber threats.

Compliance monitoring: Regularly assess compliance with various laws and regulations and update policies and procedures on a regular basis.

Vendor management and third-party controls: Establish controls for third-party entry points, vendor selection, payment approval, and transactions and procurement processes.

Physical Security: Monitor physical access controls such as equipment, inventories, surveillance, checks, and visitor management to safeguard physical assets.

What happens if your controls fail?

When internal control activities fail, it can lead to the following consequences:

Loss of data: Failure of security controls can result in data breaches or violations that lead to data loss or exposure of sensitive information, leading to legal consequences.

Regulatory Non-compliance: Failure to adhere to regulatory requirements results in legal consequences, fines, and even resulting in business failure.

Reputational Damage: It can result in security breaches and violations that will harm your organization’s reputation. You will also lose the trust of your customers, clients, and investors.

Disruption in business continuity: Ineffective security controls can disrupt your business operations and can cause delays in processes such as transactions and inventory management.

Additional costs: When security control fails, you might need to initiate necessary internal audits and compliance efforts, resulting in increased costs to resolve the issues.

How can you automate your internal control activities?

Having strong internal controls is vital for every organization to maintain the integrity of its systems and to promote ethical values and transparency. These internal activities enhance control consciousness, identify risks, and help mitigate them on an acceptable level. Hence, having robust internal controls improves your overall operational efficiency, thereby minimizing risks. 

From choosing internal controls based on your organization’s requirements to performing risk assessment and incident response plans, Sprinto’s compliance management solution provides an automated solution for each step of your compliance process. 

You can reduce the time and effort you put into creating and integrating your internal controls by choosing a Compliance automation platform like Sprinto. Sprinto’s compliance automation platform integrates internal audit management and compliance frameworks and gives you a real-time view of controls to mitigate risks effectively and maintain efficiency in operations.


Features to help make life easier for your security team:

  • Automated Evidence Collection
  • Built-in automated workflows
  • Continuous Compliance Monitoring
  • Anomaly Detection
  • Training and awareness modules    
  • Real-time intuitive dashboard


Sprinto has been recognized as Leader of Security Compliance by G2 and has topped the charts in G2’s Spring 2023 across 8 different categories.  

Get guidance on setting up and automating your internal controls. Talk to our experts today!

FAQs

What is an example of an internal control activity?

An example of internal control activity in the case of a business can be dual authorization for financial transactions. This makes two individuals approve the transaction, thereby reducing the risk of fraud and unauthorized payments.

What are the three main objectives of control activities?

The three main objectives of control activities are:

Simplify Operations: These control activities enable effective business operations. Examples of control activities pertaining to operational objectives are segregation of duties, business performance reviews, physical safeguards, etc.

Enable Reporting: Examples of control activities pertaining to reporting objectives include financial reporting, authorization, verification, etc.

Ensure Compliance: Internal control activities help organizations comply with the desired laws and regulations. Examples of control activities pertaining to compliance objectives are policies and procedures, reviews, education and training, etc.

How to measure the effectiveness of internal control activities?

The effectiveness of the internal control activities can be measured using checks such as compliance with frameworks, audits, regular risk assessments, and incidence response evaluations. These measures allow you to ensure that your control objectives are aligned with your operational goals and the risks will be mitigated appropriately.

Gowsika

Gowsika

Gowsika is an avid reader and storyteller who untangles the knotty world of compliance and cybersecurity with a dash of charming wit! While she’s not decoding cryptic compliance jargon, she’s oceanside, melody in ears, pondering life’s big (and small) questions. Your guide through cyber jungles, with a serene soul and a sharp pen!

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