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controls must also
be applied 
properly and honestly
. 
(a) 
Internal controls depending on 
segregation of duties can be avoided by the collusion 
of two or 
more people responsible for those duties. 
(b) 
Authorisation controls can be abused 
by the person empowered to authorise the activities. 
(c) 
Management can often override the controls they have set up themselves. 
 
3
Internal audit and internal control 
3.1 Internal audit 
Internal audit 
has been defined as: 
An independent appraisal activity established within an organisation as a service to it. It is a control 
which functions by examining and evaluating the adequacy and effectiveness of other controls. The 
investigative techniques developed are applied to the analysis of the effectiveness of all parts of an 
entity's operations and management. 
The work of internal audit is distinct from the external audit which is carried out for the benefit of 
shareholders only and examines published accounts. 
Internal audit is part of the internal control 
system
. 
3.2 The need for internal audit 
The role of internal audit will 
vary
according to the 
organisation's objectives
but is likely to include 
review 
of internal control systems, risk management, legal compliance 
and
 value for money
.
The UK Corporate Governance Code (FRC, 2018) states that companies without an internal audit 
function should provide an 
explanation for the absence
, describe how 
internal assurance is achieved
, 
and how this affects the work of 
external audit
. 
The need for internal audit will depend on: 

The