Strong Internal Controls Make Good Business Sense

Internal controls are not just a box on a checklist; they are a trust-building tool. 

When HR leads with transparency, integrity, and strong processes, it sends the message that the organization values trust and accountability. Internal controls can also protect against errors, fraud, and damage to its reputation. Internal controls support fair hiring, secure data management, and consistent documentation, helping HR stay aligned with laws, privacy standards, and compliance expectations. 

What are internal controls? 

Internal controls are an organization’s procedures, policies, and processes. They ensure: 

• Compliance with laws, regulations, and policy 
• Accuracy in reporting 
• Overall efficiency and transparency in operations 

Internal controls include setting out approval authority, role-based system access, audit trails, and segregation of duties. Once your controls are in place, continuous monitoring them further reduce risk by identifying issues early and providing timely feedback on areas where additional training may be needed. 

Examples of HR internal controls and why an accountant might consider them important 

Hiring 

• Background checks ensure individuals hired to handle sensitive data don’t have histories of financial misconduct 
• Signed employment agreements support key inputs into the payroll process and can serve as audit documentation 
• Approval workflow for hiring decisions help prevent unauthorized payroll expenses 

Payroll 

• Segregation of duties between the person hiring and the person setting up payroll can prevent conflicts of interest and fraud 
• Reconciliations of payroll reports with HR records help ensure records match the source data, which supports accurate financial reporting 

Compensation 

• An assignment of authority for employee events (e.g., salary change, promotions) ensures changes are authorized and reduces the risk of unauthorized payments 
• Supervisor approval on timecards ensures information sent to payroll is accurate 

Employee records 

• Secure employee records ensure payroll, benefits, and compensation figures used in financial reporting are reliable and safe 
• Tracking changes made to records provides a trail for internal and external auditors 

Policy and compliance 

• Key company policies requiring an employee’s signature can mitigate financial risks and ensure employees are expected to be aware of an organization’s policies 
• A whistleblower policy provides a mechanism to uncover fraud or misappropriation of an organization’s assets 

Access and data controls 

• Role-based access to systems limits access to financial systems and reduces the risk of data manipulation 

Monitoring controls 

• Exception reporting (e.g., duplicate payments) supports quick identification of errors and accuracy of financial reporting 
  
• Internal HR audits help ensure HR-related financial activities have proper controls and the controls are working as designed 

By having an HR department that designs and implements internal controls, you are creating a stable system of checks and balances, minimizing risk in more ways than you might expect! 

About the author:

Kristy Mielke CPA, CA fosters the professional growth of Alberta’s 32,000 Chartered Professional Accountants (CPAs) as the Director of Professional Development and Learning at CPA Alberta. She has previously worked in public practice and internal audit, and in addition to being a CPA, she is a Certified Internal Auditor and Certified Fraud Examiner.