Internal controls are pivotal in mitigating risks. These controls, whether simple or intricate, serve to prevent, detect, and address various potential threats. A relatable everyday example of an internal control is checking to ensure the garage door is closed before leaving for work—a manual task aimed at securing one’s home.
Traditionally, businesses have relied heavily on manual processes for their internal controls. These could range from using extensive spreadsheets to manage segregation of duties, to maintaining voluminous paper trails for transaction approvals, to taking numerous screenshots for compliance reporting. Much like the manual check on a garage door, these human-driven controls are susceptible to errors and inefficiencies due to natural human forgetfulness and variability.
However, the advent of automation has introduced a more reliable and efficient way to manage these tasks. Consider an automated garage door closer that is programmed to close the door if it remains open for a specified duration, such as 10 minutes. This not only provides peace of mind but also adds a layer of security. Further incorporating technologies like cameras and motion sensors can explain why the door remained open at a certain time, thereby enhancing the control system.
Similarly, businesses are increasingly embedding automated controls within their software applications to achieve the same goals. Automation, alongside advanced technologies like Robotic Process Automation (RPA), Artificial Intelligence (AI), Machine Learning (ML), and predictive analytics, is revolutionizing the way controls are managed. These technologies are not just about keeping risks at bay; they also help in understanding the root causes of discrepancies, thus enabling a more proactive approach to risk management.
The State of Internal Controls Today
The COVID-19 pandemic has accelerated digital transformation across various sectors. While front-office activities have been rapidly digitized to enhance customer interactions, back-office functions, including internal controls, often remain tethered to outdated systems and manual processes. According to recent industry surveys, only a small fraction of businesses use advanced technologies within their internal controls frameworks. This gap highlights a significant issue as existing controls can be overly complicated and inefficient, particularly in a remote work environment where traditional manual controls are less feasible.
Benefits of Automation in Internal Controls
Transitioning to automated controls, or the Future of Controls (FoC), can significantly benefit organizations by eliminating inefficiencies and enhancing security. Automated systems enable businesses to:
- Reduce the time and effort required for compliance.
- Detect risks and abnormalities quickly and in near real-time.
- Identify and address the root causes of issues to facilitate faster and more effective decision-making.
- Shift from a defensive, reactive approach to an offensive, proactive stance in risk management.
- Improve control resilience and resource utilization, allowing staff to focus on strategic and value-added activities.
For example, one technology suite enables centralized, near real-time insights into an organization’s operational health and risk posture by utilizing robotics, cognitive technologies, data analytics, and AI. Such technologies not only streamline the management of internal controls but also provide valuable intelligence that can drive business improvements.
Charting a Course to the Future of Controls
While the benefits are clear, many organizations remain hesitant to fully embrace automation. It’s crucial to take a phased approach—starting small, automating sensible processes, and accumulating quick wins—can facilitate smoother transitions into automated controls.
Technology and Beyond
It’s essential to recognize that technology alone isn’t the silver bullet for internal controls. A robust FoC strategy should integrate skilled personnel and effective processes with technological solutions. This holistic approach ensures that organizations can meet their risk management needs while maximizing their investments in controls.
As we look to the future, it’s time for organizations to back out of the garage—ensuring the door is firmly shut—and move forward, leaving outdated practices and inefficiencies behind. Embracing the Future of Controls is not just a necessity but a strategic advantage in today’s dynamic risk environment.
