Lecture Video 1
LECTURE 1: WHAT ARE INTERNAL CONTROLS?
What are internal controls? What is the purpose of internal controls?
Controls are processes that are going to guide or force people to do what we want them to do. Controls are required at every level, every day, everywhere. Wherever there’s a risk or objective; there’s going to be a control. Controls are about making sure that people or things or whatever works the way that they should in terms of reaching a particular objective. Forget about auditing, forget about all this boring business stuff, let's just take it back to basics.
Think of parenting. When you see a child misbehaving; having a screaming tantrum, whatever the case is; not doing what they're supposed to do. Do you blame the child or do you blame the parent? Most of us, we kind of look and go, “Well, your child wouldn't be doing that if you provided the environment, or you control your child properly.” How many times have you heard people say, “Can you not control your children?” Because we understand that that child or baby doesn't necessarily know what it should or shouldn't be doing; what's best for it, therefore the parents are there to guide, control, force the kid to do what they're supposed to be doing. Whatever that means, okay, whatever their process is.
Different parents will use different processes. Some people, some parents will allow their kids to carry on screaming until eventually, they run out of breath and they realise that this is just not going to work. Some parents will shout at the kids; some parents will hit their kids, some parents will talk to their kids and just keep talking until they eventually understand why this is bad behaviour. Whatever the case is. Whatever that is, those are different ways that you could control your child. Those are different ways that you could solve the problem of that child having a temper tantrum. But which one’s right?
We don’t know. That’s this massive argument - should you hit your children or not; should you shout at them or not; should you talk to them or not; should you just ignore them or not? Nobody knows.
Those are controls. We cannot necessarily say that one way is right or wrong, but the idea is how do you guide that child or how do you guide that particular process in terms of reaching the objective of raising a well-balanced, decent human being at the end of the day.
So, wherever there is anything in life that has an objective, it has a control. And when we look at controls we're saying the people that this applies to or the things that this applies to, don't necessarily control themselves. The child cannot control themselves, okay, because they don't understand any better. When they grow up into adults, we imagine that that adult will control themselves, and won't have a temp tantrum when things don't go their way.
We imagine that as an adult they can control themselves, but as a child, they need someone or something to guide them.
So controls are any kind of processes that will guide or force people or things to do what you need them to do in order to achieve a specific objective. In that case, it's very important that we then understand the objective. We have to understand what it is we're trying to achieve so we can then pick the right process that's going to help us achieve that, and unfortunately keep in mind for auditing that may not necessarily be the same thing.
One process that works for one company may not necessarily work for another company. Which is why you're going to need to learn how to apply the processes that we're going to look at in different situations.
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