In both personal and business settings, internal controls play a critical role in mitigating risk. For example, in our daily lives, we might check to ensure that the garage door is closed before heading to work. This is a manual control—one that we, as individuals, perform to avoid potential risks (like leaving the house vulnerable). But manual processes are imperfect; forgetfulness, distraction, or simple human error can easily come into play. And in the business world, the stakes are much higher.
Internal Controls in Business: The Current Landscape
Businesses have long relied on manual internal controls—whether it’s using sprawling spreadsheets to track segregation of duties or manually approving transactions with extensive paper trails. These processes, while functional, are prone to human error and inefficiency. As with checking the garage door, mistakes happen. And when it comes to business, even small oversights can lead to significant financial, operational, or regulatory risks.
For example, a business might rely on employees to monitor compliance with financial reporting standards by collecting and storing screenshots for quarterly reviews. This is not only time-consuming but also leaves room for errors and omissions. In today’s fast-paced business environment, where remote work has become increasingly common, these manual controls may no longer be viable.
The Rise of Automation in Internal Controls
Automation offers a solution to many of the challenges posed by manual controls. Let’s revisit the garage door analogy. If you had an automatic door that closed after 10 minutes of being left open, it would reduce the likelihood of human error. Better yet, adding technologies like cameras and motion sensors could provide additional layers of protection, helping you monitor the situation in real-time and understand why the door was open in the first place.
Businesses can adopt similar automated solutions for their internal controls, leveraging technology to detect risks, improve accuracy, and provide real-time insights. Instead of relying on manual processes that leave room for error, automation enables businesses to operate with greater efficiency and precision.
Why Internal Controls Need to Evolve
The pandemic has pushed many businesses to undergo digital transformations, especially in customer-facing activities. However, many internal, back-office functions—including internal controls—remain reliant on outdated, manual systems. A recent survey from Deloitte highlighted this disparity, revealing that only 22% of organizations are currently leveraging advanced technologies like artificial intelligence (AI), robotic process automation (RPA), and predictive analytics within their internal controls frameworks.
This lag in adopting technology has left many businesses exposed to unnecessary risk. Legacy systems and manual processes are inefficient, reactive, and often prevent organizations from identifying and addressing risks before they become significant problems. For example, in a work-from-home environment, manual controls such as printing out reports for approval are simply unfeasible.
The Benefits of Automating Internal Controls
Embracing automation as part of a future-focused internal controls strategy can provide significant benefits for organizations, including:
- Increased Efficiency and Speed: Automation reduces the time and effort involved in ensuring compliance, allowing businesses to focus on more strategic initiatives.
- Real-Time Risk Detection: Automated systems can detect risks and anomalies in near-real-time, providing actionable insights rather than waiting for quarterly reviews or audits.
- Proactive Risk Management: Rather than reacting to issues after they occur, automation allows businesses to adopt a proactive approach to risk management, identifying potential threats before they cause harm.
- Root Cause Analysis: Advanced technologies like AI can help businesses uncover the root causes of problems, not just the symptoms, leading to faster and more informed decision-making.
- Increased Resilience: A robust internal controls framework can continuously monitor risks and adjust controls accordingly, ensuring businesses are fortified against potential threats.
- Better Resource Utilization: Automation frees up valuable human resources to focus on more strategic and high-value tasks, improving overall morale and productivity.
Real-World Example: Automation in Action
To illustrate the power of automation in internal controls, consider the case of a global bank that used AI monitoring to review over 25,000 loans. The automated system rapidly identified $26 billion in commitments that did not adhere to the bank’s lending protocols. It also pinpointed contributing factors, such as the tenure of loan officers and divisions generating more exceptions, providing invaluable insights to strengthen the bank’s lending portfolio.
Without automation, manually analyzing such a vast dataset would have been time-consuming, prone to errors, and likely missed critical insights.
Charting a Path to the Future of Controls
Transitioning to a more automated internal controls framework doesn’t have to happen overnight. Businesses can take a step-by-step approach by first identifying low-complexity, high-value processes that would benefit most from automation. For instance, automating access controls to ensure that employees who leave the company no longer have access to sensitive systems is a straightforward yet highly impactful first step.
As organizations continue to accumulate quick wins, the momentum will build toward fully integrating next-generation technologies into their internal controls frameworks.
Technology is Only Part of the Solution
While automation and advanced technologies are key drivers of the Future of Controls, they are only part of the puzzle. A successful internal controls framework also relies on the right mix of people and processes. Combining human intelligence with artificial intelligence, businesses can create resilient systems that adapt to changing risks and environments.
Take Control of Your Organization’s Future
Now is the time to embrace the Future of Controls. By automating your internal controls processes, you can improve efficiency, reduce risk, and empower your team to focus on what really matters—driving your business forward.
If you’re ready to take the next step in modernizing your internal controls, explore how Connected Risk Internal Controls Management can help you streamline processes, mitigate risks, and enhance your organization’s resilience.
