Automating internal controls: What does it entail and what are the benefits?

Internal controls are a necessity in today’s complex, highly-regulated organizations. In the Finance function, internal controls safeguard your business against poor practice, regulatory compliance breaches and financial losses. But controls are not infallible, and they are under growing scrutiny; there are “increasing demands on the quality, speed and accuracy of information” they provide. These pressures are driving a transformation in internal controls management, particularly a move towards automating internal controls.

What Does Automating Internal Controls Mean?

Simply put, manual controls rely on human intervention, while automated internal controls are control operations performed automatically via an information system or software. Effective internal controls are an essential part of financial governance; ACCA, the global body for professional accountants, describes them as “one of the essential enablers for entities to grow with confidence and integrity in a multi-stakeholder world filled with volatility, uncertainty, disruption, and complexity.” But relying on manual controls has limitations. Any decision that relies on human intervention invites a degree of subjectivity and error. In a financial compliance context, the risk of fraud or collusion, added to the potential for human error, can make manual controls sub-optimal. Automating internal controls can be the answer to the challenge of implementing internal control components.

Common Reasons for Automating Internal Controls

Why do organizations automate internal controls? Helps to Identify Fraud Risk Automating internal controls gives you visibility across your entire operation, analyzing large data sets instantly to quickly identify areas of your operations where fraud risk is exceptionally high. This enables you to focus your controls processes and risk management tactics on high-priority areas. Spots Financial Risks Between Systems and Applications — Not Just Within Them Financial risk management often focuses on discrete systems or applications, but fraud and security risks can be highest when data moves between systems. Automated internal controls can be focused on this sometimes-overlooked interface. Improves Data Analysis Automated internal controls allow for comprehensive, aggregated data views. Data from your critical business applications is pulled into a single source of truth for the entire organization, enabling you to base your internal controls management on comprehensive and reliable information.

Benefits of Automated Internal Controls

• Real-time monitoring, easily translated into user-friendly dashboards, allows instant reporting and actionable insights.
• Task workflows ensure no actions are missed, with clear accountability and deadlines.
• Security risks within and between applications are minimized.
• Visibility is improved; if you automate internal controls, you can easily identify bottlenecks or parts of the process that aren’t working and implement change.
• Prioritizing and taking action on key risks is made far more straightforward.
• Better evidencing of controls. Controls data is automatically captured and stored, making it easier to prove that the correct process was followed, if necessary. Management reviews and follow-up actions are easily trackable.
• Internal controls processes continue uninterrupted regardless of personnel changes or changes in roles and responsibilities.
• Audits run more smoothly, improving efficiency and cost-effectiveness, as all data and supporting documentation are at hand.
• Information and communication — one of the five core components of internal controls (link to components of internal controls blog) — is improved.
• Good governance and regulatory compliance are more easily achieved, with less manual effort, duplication and cost.
• Finance, internal audit and control teams save time, money and resource by managing all internal controls on a single platform.

Examples of Automated Internal Controls

The following are examples of automated internal controls:

• Automated online forms that gather data in a standardized way — for example, with prescribed drop-down lists rather than free-text boxes.
• Automated workflows that automatically allocate tasks to the next responsible person. For instance, a requested spend above an authorized amount can flag the need for more senior approval, reducing the risk of fraud or poor financial practice.
• A centralized platform that captures controls data from across applications like Concur, SAP and Salesforce for a holistic view of risk.
• Storing controls data in a risk and control library that imports data from other sources or by using built-in frameworks.

Streamline Your Controls Framework by Automating Internal Controls

Automating internal controls is an excellent start if you want to future-proof your internal audit function. Doing so will enhance your productivity without requiring extra people or cost.

Advance your internal controls to the next level with:

• Risk and controls intel in a single, centralized library
• A laser-focused financial risk management strategy
• Up-to-the-minute, accurate data
• User-friendly reporting

Learn more about how automating internal controls via Diligent Internal Controls Management can positively impact your risk management strategy.