Canada: How To Perform An Assessment Of Your Internal Controls

Last Updated: June 29 2016
Article by Candace Surette

Internal controls are used to direct, monitor and measure your business's operations and are key to your business meeting its goals. Controls should run through a business like blood runs through the body. However, controls are often only added after something has gone wrong.

If controls are so important, why isn't this article titled: "Five Internal Controls All Companies Should Implement to Eliminate Fraud and Error"? There is no perfect control. Controls can minimize risk – not eliminate it.

Internal Controls Are All About Risk

Designing internal controls requires knowledge of your business, it operations and its risks. It's is only through understanding how your business operates that you can design effective controls.
Some risks are universal, but even these risk vary from business to business. Employee theft is a common risk for companies. Jewelry stores bond their employees against employee theft, paying a significant premium for this type of insurance. On the other hand, a company that manufactures glue for industrial use (large barrels with limited resale value on the open market) has less risk from theft and requires significantly less controls.

Information about the Business is key to effective controls

Understanding how task are completed within your business is the first step to designing effective controls. How is payroll processed and paid? How are assets purchased? How are goods and services sold to your customers and payments received? We call these types of tasks internal control cycles.
Common cycles include the purchases, payables, payments cycle, revenue, receivables, receipts cycle, inventory production cycle, payroll cycle and treasury cycle.

Walkthrough the company's common transactions

The starting point to designing effective controls is understanding how a transaction is moved through your company from start to finish and documenting each step.

Techniques to document your business's processes include:

  • Flowcharts – use boxes (which describe each step in the process including any decisions being made) and arrows to follow the movement of a transaction from start to finish.
  • Narratives – create a story of the connected events that represent the sequence of steps in the transaction cycle.
  • Table – create a table that moves through the steps of a transaction from start to finish with each line representing a step. Common table headings include "actor", "description of process", "software/forms used" and "key controls".

Looking at the revenue, receivable, receipts cycle, how does a customer start the purchase process? Do they phone your business and place an order, or do they walk into your store, pick up an item and take it to the cashier for payment?

After all the information is gathered...

Completed walkthroughs should be used to perform the internal control assessment. Where are the weak points in the process? When performing the walkthrough, did you notice any errors being made? What have customers complained about?

An internal control assessment is about asking questions. If customers complain about not receiving all of the items they've ordered, can you pinpoint which part of the cycle is creating an issue? If most orders are phoned in, transcription errors (by the salesman) are the likely cause. A possible solution is having the customer review the order before it's filled. Internal controls are created at specific points in each cycle based on the occurrence of common errors from weaknesses in the cycle.

What about fraud?

Fraud requires opportunity – effective internal controls minimize that opportunity. While review your company's processes ask yourself at each step of the cycles what weaknesses exist. Sometimes minimizing fraud can be as simple as locking up cheque paper and not leaving unsigned blank cheques around. Other examples include adding a dual signature requirement for electronic fund transfers and requiring bank reconciliations be reviewed by someone other than the person who prepared them.

A common internal control weakness

A common internal control weakness occurs when one person is given control over all the steps in a cycle allowing an individual to manipulate both the information going into the cycle and the information coming out of the cycle.

Segregation of duties

Segregation of duties is the process of assigning tasks to minimize a person's involvement in all of the steps in an internal control cycle. An example of a lack of segregation is when an individual is responsible for processing mail, including mail containing customer payments, and also prepares the bank reconciliation. This gives a person the chance to both steal a customer payment and hide the theft by modifying the bank reconciliation.

It can be difficult for smaller businesses to get perfect segregation of duties because the underlying principal is breaking up processes by giving the pieces to different people. Small business don't have enough people to make segregation practical. Instead, other internal controls should be used to replace segregation.

Proactive introduction of controls

Internal controls can be used to control your company's risks and should help you protect your company's resources and assets. If you would like help in performing an internal control assessment or have any questions about internal controls Crowe MacKay would be happy to help. A proactive approach to controls can give you a competitive advantage over others who introduce controls only when something goes wrong.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions