5 Keys to Developing Internal Audit Controls

  • Former Federal Agents
  • 100 Years of Combined Experience
  • Investigations, Compliance & Defense
Chris Quick

Former Special
Agent (FBI & IRS)

Roger Bach

Former Special
Agent (DOJ-OIG & DEA)

Timothy Allen

Former Special Agent
(U.S. Secret Service & DOJ-OIG)

Ray Yuen

Former Special
Agent (FBI)

Michael S. Koslow

Former Special
Agent (DOD & OIG)

Corporate Investigation

5 Keys to Developing Internal Audit Controls

5 Keys to Developing Internal Audit Controls

Developing internal controls is an extremely important part of a company’s compliance structure. Without them, achieving compliance with applicable laws is nearly impossible, and it can be extremely difficult to reach planned objectives that mean to streamline your company so it performs more efficiently.

Here, the internal audit professionals at Corporate Investigation Consulting summarize five keys to developing effective internal audit controls.

What are Internal Controls?

According to the Committee of Sponsoring Organizations (COSO), internal controls are procedures that are “designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.”

Essentially, internal controls are a how:

  • How to improve operational and financial performance or safeguard assets from loss
  • How to adequately report financial and other information to regulators
  • How to reach compliance with applicable laws and regulations

They are steps that everyone in a given company has a role in furthering. Precisely because there are so many people involved, though, there are numerous weaknesses in developing a good set of internal audit controls.

1. There Needs to Be an Environment of Following Internal Controls

First and foremost, everyone has to be on board with the internal audit controls that are adopted for the company. This includes the board of directors and all supervisors. If these important players in the company do not go out of their way to parrot the importance of the internal controls that have been adopted, the lower level employees who have a direct role in implementing those controls will not take their obligations seriously. If they see these workplace responsibilities as anything short of mandatory and as being crucial to follow to the letter, they are likely to cut corners in ways that undermine the effectiveness of the control process and that can expose the company to legal liability for noncompliance.

It is up to the higher level employees and partners to instill a sense of urgency in following the internal control system. Only then will there be an environment of compliance inherent in the company.

2. Internal Controls Should Be Reevaluated Regularly

This is a key to developing strong internal audit controls that many executives overlook or forget about. Just because controls have been synthesized and adopted by the company does not mean that they will always be the most efficient way of getting things done or the best way to comply with applicable laws.

Technological developments can make the current processes that are set out in the internal controls policies outdated. Should this happen, the internal controls would no longer be the most efficient way to conduct business. By regularly reevaluating those controls, they can be updated to reflect the new best practices.

The laws and regulations that your company has to comply with can also evolve over time. What were once good ways of complying with them may no longer be necessary or may no longer insulate the company from legal risk or liability. Auditing the internal controls is essential to keep them up to date.

3. Employees Need to Know That Controls Exist for a Reason, Even If They Seem to Slow Their Workflow

Similar to the first key to success in developing internal audit controls, above, it has to be pressed into employees that the internal controls exist for a reason. Many workers, particularly those who have an important role in performing the internal compliance controls but who do not directly see how it fits into the grand scheme of things, lose sight of the importance of what they do or never appreciate it in the first place. This can happen especially quickly if the internal controls prove to be a hassle for them to implement in their daily workflow.

Whether through training and retraining, a company-wide culture of compliance with the demands of the control protocol, or with education regarding the role that the employee has in the scheme and the importance of them fulfilling it, it is especially important for rank-and-file workers to uphold their obligations. In many cases, they are the ones who are most responsible for the actions that actually implement the policy.

4. Internal Controls Need to Be Monitored to Ensure Compliance

The internal controls that are adopted require consistent monitoring to make sure that they are actually doing what they were intended to do. They can fail or struggle to succeed for two reasons:

  1. Employees are not taking their obligations under the control system seriously
  2. The internal control requirements are not precise enough to solve the problem or inefficiency that they were designed to correct

Monitoring both the input and the output of the control system is essential for detecting shortcomings.

5. Determine How Selected Controls Can Be Evaded and Take Corrective Action

Effective monitoring can be supported with careful inspection of the control requirements to isolate potential practices that could undermine it. Employees who perceive that the obligations that they have under the policies are onerous and infringing on their work product may elevate their work over the demands of the internal control system. This is a very foreseeable and predictable event. Determining how those employees would go about evading their obligations is trickier. Figuring out how they would go about doing so and then patching up that possibility is a crucial part of developing a good internal audit control for the company.

The Professional Internal Auditing Control Team at Corporate Investigation Consulting

Establishing effective, but also streamlined, internal audit controls is essential for every company that intends to streamline its business practices or shore up its compliance requirements.

The auditing professionals at Corporate Investigation Consulting can help. Whether you are trying to create an effective corporate compliance program or manage risks that your company has to deal with every day, our team of professionals can help. Contact us online or call us at (866) 352-9324 so we can plan and execute the set of internal controls that will make your business even better.

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