Lesson: Compensating Controls

In this lesson, the concept of compensating controls is discussed. Compensating controls are used when there is an inability to establish adequate segregation of duties due to limitations such as a small department or limited number of employees. Although compensating controls are not as desirable as prevention or segregation of duties, they can help prevent and detect misstatements and issues by providing additional oversight. Examples of compensating controls include having a leader review reconciliations or swapping reconciliation duties between small units. These controls should be viewed as a last resort and not take the place of separation of duties when staffing allows. The lesson also touches on the considerations for auditors when encountering compensating controls during substantive procedures.