Internal controls

Gaining business advantage through controls optimisation

Business advances that have offered growth and opportunity in the recent past have also delivered unforeseen consequences, including inefficiencies in many major businesses as information systems and processes have been adapted to meet increasing complexity and transaction volumes. Some processes have also been outsourced, off-shored or moved to shared service centres. In addition, the relentless search for cost saving has put further pressure on fewer skilled resources. These challenges have, in some cases led to problems with the efficiency and effectiveness of business and financial reporting processes, and a lack of business control.

Recent Sarbanes-Oxley s404 projects have offered an unprecedented insight into how financial reporting processes and internal controls operate. At the time, though, many of these projects were regarded as a costly compliance burden that addressed only financial reporting risks and not broader operational risk.

The challenge now is twofold:

• Firstly, to achieve sustainable Sarbanes-Oxley s404 compliance in a cost effective and efficient way
• Secondly, to use the learnings from Sarbanes-Oxley s404 projects to achieve real business benefit, whether or not the company is US listed. The goal is now to look for opportunities to simplify and standardise financial reporting processes and controls and to extend the mindset beyond financial reporting into operational processes. Leading businesses will be those with transparent, efficient business processes, supported by a sensible, known, set of key internal controls that are operating effectively. Achieving this goal will truly increase shareholder value.

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Ensuring a quality and effective internal audit function

With ever more demanding Audit Committees and focus on the important role internal audit plays in supporting a robust corporate governance framework, organisations are increasing looking to answer the question: 'How effective is my internal audit function?'

As part of this, management needs to be confident that the work of internal audit is high quality and reliable, that the internal audit team has appropriate skills and that the function overall makes a difference in their organisation.

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Demonstrating good internal controls

Good internal control is the primary indicator of good management. Developments in corporate governance are driving organisations to be increasingly transparent about their internal controls to their customers (both current and future), regulatory bodies and, in some instances, their suppliers. If you supply goods and services to others through outsourced operations or shared service centres, you may be required to provide assurance to those who rely on that service about the quality of your internal controls. This may be required by regulation. Alternatively, in addition to meeting their expectations, you may volunteer to give your current and future customers the confidence they seek over your internal control environment as a commercial decision to help you remain competitive in your chosen markets.

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