When a company's top executives put into place an accounting procedure or system designed to promote efficiency, assure implementation of a policy, safeguard assets, and/or avoid fraud and error, this set of procedures is considered a measure of internal control.

While the definition of "internal control" historically applied almost exclusively to the accounting profession, it has evolved over time. The U.S. Securities and Exchange Commission (SEC) has acknowledged that having proper internal controls is essential in the prevention and detection of fraud. That makes it a key ingredient in an auditor's examination of a business or government entity, and a significant component to both the Foreign Corrupt Practices Act of 1977 and the Sarbanes-Oxley Act of 2002, which required that improvements be made to internal controls within U.S. publicly-traded corporations.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO), formed in 1985 by five professional accounting associations and institutes, sponsored the National Commission on Fraudulent Financial Reporting. While its first priority was to establish internal controls for publicly-traded companies and their auditors, it also developed recommendations for the SEC and other regulators, and for educational institutions. The primary objective was to help identify the factors that cause fraudulent financial reporting and to make recommendations to reduce its incidence. In the process, it managed to help establish what is considered today as the common definition of internal control.

According to COSO, everybody in an organization is responsible in one way or another for internal control. It starts with the CEO who should ultimately "assume 'ownership' of the system," COSO says.

"More than any other individual, the chief executive sets the 'tone at the top' that affects integrity and ethics and other factors of a positive control environment," COSO says. "In a large company, the chief executive fulfills this duty by providing leadership and direction to senior managers and reviewing the way they're controlling the business."

Today fraud examiners have their work cut out for them. An increase in deregulation has left the U.S. economy rife with corrupt business practices. Fraud fighters have been asked to investigate all the major players in the economy collapse and to help prosecute the guilty white-collar criminals to the fullest extent. Greed and a breakdown of internal controls have led to a worldwide economical panic, and fraud is suspected to be the main culprit behind a large chunk of it.

When the call comes to investigate for fraud, be ready. The Association of Certified Fraud Examiners has several books and a self-study course devoted to the topic of internal control (see right panel for details). It's as good a place to start as any, and a step in the detection and deterrence of fraud.