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Internal controls are crucial for any organization that wants to make sure its operations are not only efficient, but also meet certain ethical standards.

Essentially, internal controls limit fraud and other illegal activities. An organization puts them in place to ensure the integrity of its finances and accounting. Internal controls also help a firm meet profitability targets and maintain consistent managerial practices company-wide.

While no two companies will have identical internal controls, many basic philosophies regarding financial and accounting practices have become standard.

For example, a company should separate administrative from operational functions to deter theft. The same employee should not have access to warehouse inventory and the recording of warehouse transactions.

Companies should have an authorized party approve all purchase orders and checks. While no one person should have control over all financial activities, a board of directors or other group should oversee operations and monitor activities to ensure best practices are followed.

Internal controls can help guarantee that a company’s financial reports are accurate and timely.

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