What are the Three Internal Controls?

From a business perspective, internal controls have historically held their roots in auditing and accounting. As organizational security has evolved over the years, and data creation and consumption have exploded, internal controls have begun to mean different things to different people. 

A lack of effective internal controls can lead to issues in detecting misstatements or fraud in financial reporting. Having appropriate preventive, detective, and corrective internal controls helps provide reasonable assurance for organizations over-reporting reliability.

Types of internal controls

Organizations commonly categorize internal controls for an internal audit into three types:

• Preventive controls
• Detective controls
• Corrective controls

Preventive Controls

Preventive controls are implemented to help prevent incidents from happening in the first place. Most preventive controls are best practices that came from remediating detected activity or incidents

Examples of preventive controls:

• Firewalls
• Multi-factor authentication
• Separation of dut, also known as segregation of duties
• Perimeter defense and email security
• Physical controls

Detective Controls

Detective controls are intended to help an organization find problems. Many detective controls are focused on users, entities, information systems, and data.

Examples of detective controls:

• Auditing
• Logging
• Reporting
• Entity and behavior analytics
• Risk management

Corrective Controls

Corrective controls are implemented after an incident has been detected. Many organizations are reactive when it comes to incidences and excel at disciplinary action and corrective controls:

Examples of corrective controls:

• Runbooks
• Business continuity and disaster recovery plan
• Server and workstation hardening
• Control procedures
• Implementing a controlled environment

In summary, preventive controls are intended to prevent an incident from occurring by triggering capabilities such as locking out unauthorized intruders. Detective controls are designed to identify and characterize an incident by sounding the intruder alarm and alerting the proper authorities. Corrective controls are designed to limit the extent of any damage caused by the incident by recovering the organization to normal working status as efficiently as possible.

Internal controls have become one of the best defenses against cyber incidents. The goal of businesses should be to shift from a reactive organization to a proactive organization with a heavy focus on preventive controls. Risk assessments are a great way to understand better how your core internal controls are working. Organizations will save time, reputation, and resources by moving from reactive to proactive controls.

Are directive controls effective?

Directive controls like management directives and established policies and procedures are essential in directing employee behavior to safeguard assets and prevent undesirable events. When adequately implemented along with other types of controls like access controls and reconciliations, directive controls can help provide reasonable assurance and effective internal control. 

Examples of adequate directive controls include segregation of duties, information systems backup protocols, and follow-up procedures on detected issues.

By guiding universities and other organizations toward desired objectives, well-designed directive controls cost-effectively reduce vulnerabilities. However, realizing the benefits requires gaining management’s responsibility and buy-in, clearly communicating expectations, and following up to ensure compliance.

How to Implement Directive Control Effectively

Effective implementation of directive controls like management directives involves setting clear policies and procedures and then verifying compliance through audits and follow-up initiatives:

• Gain leadership buy-in at the executive level when developing key policies, procedures, and control activities. This increases alignment across the university or organization.
• Communicate directives using multiple channels to ensure all human resources and employees understand expectations and responsibilities.
• Provide training on correctly applying policies and meeting standards, mainly when changes occur. Reinforce through examples relevant to preventive and detective controls.
• Routinely verify compliance with set policies and procedures via checklists, inventories, access control reviews, reconciliation of financial data, and analyses of audit trails.
• Address gaps by revisiting communication, clarification, or additional training as needed.

These guidelines will optimize well-designed directives’ risk reduction and loss prevention benefits.

Assess Your Risks with ZenGRC

By integrating directive management and risk assessment, ZenGRC helps ensure that policies and standards mitigate relevant threats. Leadership has the data to make strategic risk appetite and resource allocation decisions. And departments can collaborate seamlessly to maintain an effective control environment.

Evaluating directive controls in the context of broader risk management is critical to ensuring they provide reliable protection that adapts to emerging challenges. ZenGRC delivers the tools to close potential gaps proactively. Schedule a demo today for more!