Protect Your Organization with an Effective Control Environment

At a glance:

• The main takeaway: Establishing strong internal control frameworks is crucial for avoiding error and fraud in any organization, and that starts with the tone set by the overall control environment.
• The impact on your business: Effective control environments allow organizations to accomplish their objectives and create more accurate financial statements for their management and stakeholders.
• Next steps: Organizations should ask and answer the questions listed in this piece and leverage those insights to establish more effective control environments. Schedule a consultation with Aprio’s Risk Management Advisory team today.

The full story:

All organizations need to have some type of underlying internal control framework or system of internal control. Even very small non-profit organizations with just a few employees have processes that could contain reviews and/or approvals by management before transactions are entered into and posted to the accounting records. To be effective, every internal control framework must have the following five components. These five components are ubiquitous in accounting literature. The risk of error and fraud is significantly increased without each component in place and operating effectively. This is a series of five articles which discuss the entity’s five components of internal control.

1. The control environment
2. The risk assessment process
3. The process of monitoring internal controls
4. The information system and communication
5. Control activities

It starts with the tone at the top or the control environment. Organizations need to consider the following questions:

• How seriously are we taking this?
• Does upper-level management set a positive example for employees to follow, which includes integrity and adherence to ethical values?
• Do we have a strong sense of control consciousness?
• Are there established standards of conduct and oversight of responsibilities from the board of directors?
• How competent are the staff? Do they understand our objectives and strategy? Are there clear reporting lines, as well as a sense of authority?
• Are we enforcing accountability for the carrying out of internal control responsibilities?

Organizations that are less structured and do not have established policies and procedures in place tend to have a weaker control environment, which is the foundation of internal control. Establishing an effective control environment will allow an organization to accomplish its objectives and will result in the creation of more accurate financial statements for the entity’s management and stakeholders.

If you or someone at your organization needs help with establishing a system of internal controls, please reach out to Brett Williams at Aprio.

Brett Williams | Information Assurance Services | Assurance Partner | SOC Reporting Leader
Direct: (770) 353-7118
Brett.Williams@aprio.com