Detective Control

Posted in Operations and Supply Chain Terms, Total Reads: 224

Definition: Detective Control

A detective control is an internal control mechanism that finds problems in a company's processes. Goals of detective control may be quality control, fraud prevention and/or legal compliance. Detective control, detects problems that already exist.

In simple words, detective controls detect and correct already occurred undesirable events.

Controls are meant to track all company transactions and assets. Internal controls are procedural measures adopted by an organization to protect its assets including accounting data, company records, etc.. These measures include physical security barriers, access restrictions, etc. An audit trail is significant in internal controls, and actions of employees are limited. Certain basic standards must be met to ensure adequate internal control systems establishment and maintenance. The salient objectives of an internal control system:

• Policy compliance and also compliance to procedures, regulations, contracts, laws, etc.

• Information reliability and integrity

• Economically efficient use of resources

• Asset safeguarding

Controls can be directive, preventative or detective. Internal controls can be preventive or detective. Preventive controls prevent errors, inaccuracy or fraud before occurrence. Detective controls uncover existence of already occurred errors, irregularities, inaccuracies/fraud, i.e they attempt to detect undesirable acts. Detective controls act as a check on preventive controls. Often a combination of both detective and preventive methods is the most viable.

Detective controls monitor activity to detect when practices or procedures are not followed, by detecting errors and irregularities, already occurred. Prompt corrections are necessary in either case. The data errors need to be corrected, controls modified and missing assets recovered in case of an untoward detection by detective controls.

Examples of Detective Controls are:

• Reviews and comparisons

• Reconciliations

• Physical inventory count

• Clerical accuracy tests

• Locks on doors and gates

• Physical controls over cash, checks

• Computer passwords, access controls, file locks, and computer usage logs

• Drug testing of employees and applicants

• Exception reporting and resolution to highlight out-of-the-norm items

• Audits (internal)

• Supervisory peer review

Advantages of Detective Controls

• Less expensive and more reliable

• Can be applied over a large number of transactions in a short time


Disadvantages of Detective Controls

• A continuous operating expense is involved which can be costly

• These controls present evidence of occurring loss, but do not prevent a loss from occurring.



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