What is an example of an internal control?

Implementing procedures for approving large cash transactions is an example of an internal control because it establishes a systematic approach to managing financial transactions, which helps reduce the risk of errors, fraud, or misappropriation of assets. Internal controls are designed to ensure the integrity of financial reporting and compliance with laws and regulations. By requiring specific approvals for significant cash disbursements, an organization can enhance oversight and accountability, ensuring that funds are used appropriately and in alignment with the company’s policies.

In contrast, setting a budget for the marketing department, estimating future debts for better cash flow, and producing monthly financial statements for management, while all important aspects of financial management and operational planning, do not directly serve as internal controls. Budgets help with planning and monitoring performance, estimates assist with future financial forecasting, and financial statements provide information on past performance. However, they do not inherently contain the control mechanisms necessary to safeguard assets and ensure the accuracy of financial reporting like the approval procedures do.