Lesson: Types of Internal Controls

In this lesson, Nick Palazzolo, CPA, dives into the intricate world of internal controls by discussing their types and purposes, with a keen focus on prevention, detection, and correction. By using the analogy of a multi-layered defense system, he breaks down preventive controls as the first line of defense against fraud, illustrating this with practical examples like segregation of duties, job rotation, and authorization protocols. He then explains detective controls as a system of checks designed to identify errors or fraudulent activities that preventions fail to stop. Lastly, Nick addresses corrective controls, which aim to remedy the situation when prevention and detection fall short, discussing various methods including resubmissions, remanufacturing, and disciplinary action as ways to rectify identified issues.