What are detective checks?

Detection controls are measures that a company uses to identify irregularities so they can be corrected, preferably as quickly as possible. Laws such as the Sarbanes-Oxley Act of 2002 mandate the use of internal controls to address common accounting and ethics issues, and companies also want to use controls to prevent waste, fraud and other problems they may encounter in the course of doing business. Counter detection controls are corrective controls, which are measures to prevent problems from occurring in the first place.

An example of detection control is an audit. Most companies perform regular internal and external audits to review financial statements, review departments and determine if there are any irregularities. This can include signs of embezzlement and fraud within a company, as well as activities that suggest an attempt to hide financial problems from investors, regulators and the general public. Companies can use surprise audits as another form of detective control, so people never know when to expect an assessment.

Other detection controls may include triggers for certain types of activity, such as alert alerts that will appear when people make financial transactions that appear to be irregular. If a department always writes a check to the same supplier for the same amount, a sudden change could be cause for concern and a detection control could be set up to notify the accounting department when variations like this occur so they can find out what happened and why.

Companies can use measures like mandatory reporting forms so they can identify irregular activity early, often in the form of financial statements that don't match what a person or department is actually doing. These detective checks can involve things like automatically submitting data to accounting for review, providing ongoing auditing so people can spot anything unusual almost as soon as it happens. Accountants and attorneys can work together to develop appropriate and effective controls.

The law establishes some screening controls and companies must demonstrate that they are using them and that they meet regulatory standards on how to use these controls. Others are considered part of generally accepted standards and practices and, while not explicitly required, are a good idea. Companies that deviate from accepted practices can be a target of concern and suspicion, as people will want to know why they are not keeping up with other companies in terms of accounting practices. Other controls may be optional but recommended for legal or ethical reasons.

Go up