CHAPTER 1 1. DEFINITION INTERNAL CONTROL is a process effected by people at every level of an organization, designed to provide reasonable assurance about the achievement of objectives in the – effectiveness and efficiency of operations, - reliability of financial reporting, - compliance with applicable laws and regulations. A PROCESS: it is a multiplicity of processes, a series of actions, that is integrated with the basic management processes of planning, executing and monitoring in order to enable their function and in order to monitor them. It is not added on to an entity’s activity, but it should rather be “built-in” in order to be most effective. It is also critical to the success of quality programmes and to cost containment and response time (i.e. not adding new procedures but focusing on existing one and building internal control into them). PEOPLE: internal control is effected by the BoD, management and other personnel. People establish objectives, responsibilities, limits of authority and then put control mechanisms in place. Internal control recognizes that every individual brings in different abilities, needs, priorities, which affect internal control and are in turn affected by internal control itself. The BoD does not only oversee, but it also provides directions and approves transactions and policies, so it is an important element of internal control. REASONABLE ASSURANCE: internal control does not provide absolute assurance. Limitations regard faults in human judgment, human failures, errors and mistakes; but also collusion of two or more people and overriding of the internal control system by management. OBJECTIVES: objectives can relate to the business as a whole or to specific activities within it. Objectives fall into three main categories: - Operations, i.e. the effective and efficient use of the entity’s resources; - Financial reporting, i.e.