Internal Control Components in Real Life

The following example is not intended to be all-inclusive; instead, it is intended to help the reader apply a real life example of the five components of internal control.

1. Control environment - referred to as “tone at the top” includes leading by example.  Integrity, ethical values, adherence to policies and procedures, etc. has a trickledown effect.  Employees are much more likely to embrace the culture being fostered by their supervisors.

2. Risk assessment - involves determining departmental goals and considering what could go wrong that might jeopardize those goals from being reached.

Goal:  Attend training out-of-town at 10 AM tomorrow.

Risks:  Oversleeping, heavy traffic

Whatever action taken to prevent the risks identified will depend on the probability of the risk occurring and what effect that risk would have on achieving the goal of attending the training:

If you never oversleep, you may “accept the risk” and not take any additional action to ensure you do not oversleep.  If your training is in Atlanta, you may decide heavy traffic is highly likely and choose to take appropriate action to “mitigate” or lessen this risk.

3. Control activities -the actions taken to help prevent risks from occurring.

To prevent heavy traffic from interfering with your training attendance, you decide to leave early to give yourself extra commute time.  Leaving early is the control activity you put in place to ensure your timely attendance.

4. Information and communication - involves “communication” from your supervisor that the training is important to your employee development; to meet your goal, you would use the “information” provided by road signs, maps, radio, news, etc. to take the best route to your destination. 

5. Monitoring - involves taking a step back to see if the actions or “control activities” put into place are effective and efficient.

If you overslept the morning of the training, the next time you might set a second alarm.  If you had to wake up and leave at an unrealistic time to attend the training, you may decide to stay in a nearby hotel for the next training you attend.