In most organizations, internal controls are seen as burden: a source of growing labor costs and time-consuming documentation. But for today’s top-performing finance departments, this couldn’t be further from the truth. By integrating a standardized risk and control framework into their day-to-day activities and reporting processes, industry leaders have transformed these functions into critical value-added tasks.
“Studies have shown that strong risk management and systems of internal control have a positive impact on long-term business performance and earnings potential.”
- The 5 essential building blocks
Look beyond simple documentation routines, and use these five key pillars to regularly reassess and optimize your current internal control structures:
- Control environment: Is everyone in your department consistently aware of key risks including fraud, manual errors and spreadsheets?
- Risk assessment: Have the prioritized risks been sufficiently analyzed and aligned with core strategic and financial objectives? Potential risks include fraud, manual errors, shared spreadsheets, unclear overviews or roles and responsibilities, or weak policies and procedures.
- Information and communication: Have all finance personnel been informed of the true purpose of each control activity?
- Monitoring: Are your IT systems purpose-built for financial close process monitoring, making it possible to continuously monitor, adapt and refine your processes?
- Control activities: Are transaction matching processes, manual routines, audit trails and access limits clearly defined and automated?
- Stay ahead of known risks
Once you’ve confirmed the quality of your internal control framework, it’s time to think like an external auditor. Start by taking a look at the most common audit standards and ask yourself: What’s the risk that our balances and transactions are non-compliant with known risks? Is all inventory recognized in the balance sheet? Have all recorded transactions actually taken place? Have all transactions been recorded in the correct accounting period? Purpose-built Record to Report software can give you a fully automated audit trail with customized controls, making the answers to these questions far easier, and faster, to find.
- Strengthen your controls
A comprehensive update to your internal financial controls may seem like a daunting task, but there are plenty of ways to get started today. A few ways we’ve received from financial experts would apply to any organization:
- Prepare and implement a Risk and Control Matrix to better define risks, materiality and scope
- Bring your controls to life by embedding them into day-to-day activities, documentation and service agreements
- Automate your controls and integrate with your ERP system
- Monitor your control performance continuously to enhance routines and ensure compliance.
Find out how Trintech’s Cadency solution allows you to ensure corporate and regulatory compliance including SOX, HIPAA, FERC/NERC, security standards, sustainability projects, and more by implementing your financial governance model throughout the entire Close process.