8 Reasons Why Internal Control Is Important In Business


The following are 8  reasons why Internal Control is important for your business:

  • Can help you to protect your cash
  • Enable you to monitor debtors accounts
  • Track your creditors accounts
  • Can help you to track your bank account(s)
  • Help you to monitor your fixed assets
  • Enable you to track your stocks/inventory
  • Monitor your payments
  • Help your business to run smoothly

Internal control is concerned with protecting all the assets of your business.

You cannot afford to lose your investment because you did not install internal control systems in your business.

Remember that it do not matter the size of your business, internal control is a must.

This article is, therefore, focusing attention n how you can use it to protect your assets and grow your business.

Here we go!

Internal Control:  protect your Cash

One of the reasons you need to install internal control in your business is that it can help you to protect your cash.

As you are probably aware, cash is very tempting. And it is very easy to steal.

Cash is the hub of your business. It deserves greatest possible attention you can provide.

Therefore, internal control can help you to ensure that all monies leaving your business comply:

  • with all financial instructions,
  • rules
  • and regulations put in place by management.

Furthermore, internal control can allow you to know why, when, how and by whom cash is leaving your business.

Most importantly, remember that fraud thrives where there is little or no internal control.

Therefore, you can not afford to run your business without internal control systems.

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Accounts Receivable

There are several reported cases where employees steal money via accounts receivables.

So internal control for debtors can enable you to track your money with customers.

For instance, a dishonest employee can simply change figures in a debtor’s account by:

  • Not debiting the debtor’s account with the actual value of the goods supplied to the  customer.
  • Deliberately reducing the balance in a debtor’s account without your knowledge and approval

More importantly, you can need to set credit credit limits for select customers who have shown track record of doing business with you.

When a customer’s account hits the credit limit, he should not be supplied further stocks.

He can only get further more suppliers if he pays in money to reduces his debt to the credit limit set for him.

Therefore, you can actually use effective internal control systems to prevent, detect fraud and avoid losses.

Accounts payable

Another reason you need internal control is that it can help you to monitor how your business is owing suppliers.

Beyond that, it is important that you closely so that you can prevent possible frauds, errors and omissions from their end.

Additionally, you can use the same tool to discover errors on your side.

Moreover, if there any disagreement in your figures and those of your suppliers, you should fix it immediately.

This is because. in all financial matters, accuracy is the key.

Can help you to track your bank account(s)

Yet another reason internal control is important in your business, you can use it to monitor your transactions with your bank.

The need to monitor your transactions with your bank is that a lot of bank employees, sadly enough, now take money from customers’ accounts.

Consequently, you need to reconcile your bank Accounts with your cash books monthly so that if there errors. they can be fixed  quickly.

Therefore, you must allow smart guys to get access to your accounts.

Internal control for fixed assets

 In the same vein, internal control system can help you to monitor the fixed assets of your business.

Fixed assets can include, Motor vehicles, Plants and Machinery. Others are furniture, fittings and equipment, computer and software.

Internal control measures can help you to ensure that:

  • all plants and vehicles are serviced regularly as recommended by the manufacturers
  • Drivers maintain log books for their vehicles
  • you are able to block all leakages in your system.
  • all assets are safe and secure in their various locations
  • And that they are in good working condition.

Internal Control: over stocks/inventory

You need internal control for your stocks and inventory.

This is because, like most other small business, your investment in stocks and inventory can be quite substantial.

In other words, stocks and inventory are the engine room of your business.

As a matter of fact, customers come into your shop because of stocks.

So internal control over your stocks/inventory is an important role you should not treat with kids gloves.

Consequently, it can help you  to ensure that:

  • Goods delivered to your shop are physically counted.
  • goods are immediately entered into their respective bin cards or computer system.
  • Dishonest employees or customers do not make away with your stocks.
  • Stock records are balanced automatically at the end of every transaction
  • That the store keeper is not issuing out more goods than what the customers paid for.
  • You block all ways through which dishonest employees can steal stocks from your business.

Most importantly, you can use quantitative methods such as Economic Order Quantity (EOQ). Economic re-order level is the minimum level your stocks must reach before you place order for new supplies.

Track your payments

Effective internal controls will help you to track your payments.

For example, it will help you to ensure that

  • All payments are verified and approved before money leaves your business
  • The right amount is paid to the right person at the right time.
  • Receipts are obtained for all payments your business makes.
  • Such receipts are filed away for future reference.

Related: 10 Ways Poor Financial Management Can Hurt Your Small Business

Finally, you must continually review and update your internal control systems.

This is because changes occur fairly rapidly in business.


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By Samuel Ijenhi,

B. Sc. Accounting (University of Benin)

Benin City, Nigeria.

Founder: Ijenhi Business Solutions


About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
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