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Types of Internal Controls - Finance & Accounting

There are two main types of internal controls - preventive and detective controls. Preventive controls aim to reduce errors and fraud from occurring in the first place through separation of duties, pre-approval processes, access controls, and employee training. Detective controls are designed to identify errors or issues after they have happened, such as reconciliations, performance reviews, and inventories. Both preventive and detective controls are important for an effective internal control system, as they serve different but complementary purposes.

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108 views

Types of Internal Controls - Finance & Accounting

There are two main types of internal controls - preventive and detective controls. Preventive controls aim to reduce errors and fraud from occurring in the first place through separation of duties, pre-approval processes, access controls, and employee training. Detective controls are designed to identify errors or issues after they have happened, such as reconciliations, performance reviews, and inventories. Both preventive and detective controls are important for an effective internal control system, as they serve different but complementary purposes.

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3/24/23, 4:57 AM Types of Internal Controls – Finance & Accounting

Home > Knowledge Base > Internal Controls and Quality Assurance > Internal Controls >
Internal Control Fundamentals > Types of Internal Controls

TYPES OF INTERNAL CONTROLS


OVERVIEW
There are two basic categories of internal controls – preventive and detective.  An effective internal
control system will have both types, as each serves a different purpose.  As you perform routine
processes, or when you are thinking of implementing a new procedure or process, it is important to ask
the following questions to help determine the appropriate control:

• What could go wrong?

• What steps have been taken to ensure that something does not go wrong?

• How can you verify that nothing went wrong?

The answers to these questions will enable you to better target the type of control that is needed.

PREVENTIVE CONTROLS
Preventive controls aim to decrease the chance of errors and fraud before they occur, and often
revolve around the concept of separation of duties. From a quality standpoint, preventive controls are
essential because they are proactive and focused on quality.

Examples of preventive controls include:

• Separation of duties

• Pre-approval of actions and transactions (such as a Travel Authorization)

• Access controls (such as passwords and Gatorlink authentication)

• Physical control over assets (i.e. locks on doors or a safe for cash/checks)

• Employee screening and training (such as the PRO3 Series to increase employee knowledge)

DETECTIVE CONTROLS
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3/24/23, 4:57 AM Types of Internal Controls – Finance & Accounting

Detective controls are designed to find errors or problems after the transaction has occurred. 
Detective controls are essential because they provide evidence that preventive controls are operating
as intended, as well as offer an after-the-fact chance to detect irregularities.

Examples of detective controls include:

• Monthly reconciliations of departmental transactions

• Review organizational performance (such as a budget-to-actual comparison to look for any


unexpected differences)

• Physical inventories (such as a cash or inventory count)

LAST REVIEWED
09/30/2022: reviewed content

TRAINING
PRO303: Internal Controls at UF

CONTACTS
University Controller’s Office: (352) 392-1321

Related Articles

 Internal Control Framework Key Terms

 Understanding Internal Controls

 Documentation

 Standard Control Procedures

 Shadow Systems

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