What is Internal Control?
Internal control is the system of policies, processes, and procedures put in place by management to provide reasonable assurance regarding the safeguarding of assets, the reliability of financial reporting, the effectiveness of operations, and compliance with applicable laws and regulations. The COSO framework is the most widely adopted reference.
How It Works
- Control environment: tone at the top, ethics, governance.
- Risk assessment: identify and evaluate risks to objectives.
- Control activities: approvals, authorizations, segregation of duties, reconciliations.
- Information and communication: timely, accurate, accessible information flows.
- Monitoring activities: ongoing and periodic evaluations of control effectiveness.
Saudi Context
Saudi listed companies follow CMA Corporate Governance Regulations requiring board-level risk and audit committees overseeing internal control. SOCPA-aligned audits assess control design and operating effectiveness. ZATCA’s e-invoicing and Phase 2 integration push businesses to harden controls over invoice issuance, VAT calculation, and electronic archival.
Example
A trading company implements segregation of duties so the person who approves purchase orders cannot also receive goods or post invoices, reducing the risk of fraudulent vendor payments. Combined with monthly bank reconciliation and supervisor review, this strengthens internal control over the procure-to-pay cycle.