A quick guide on the benefits of maintaining an internal controls program

Whether you are an auditor in a privately-held company on the path to an IPO or planning your SOX roadmap for the upcoming year, part of an auditor’s responsibility is to influence and convince management on the importance of internal controls compliance. Internal controls play a vital role in ensuring your organization’s operational, strategic, compliance and reporting objectives are met. As you meet with different control and process owners - whether they are new to their role or have been a control owner for many years - or look for support from upper management, here are seven reminders on why internal controls compliance is so important:

How does an internal controls program affect your business?

  1.  Achieve operational objectives. First and foremost, internal controls are designed to provide reasonable assurance regarding the achievement of operational objectives, such as the effectiveness and efficiency of operations, accurate and reliable financial reports, and compliance with applicable laws and regulations.

  2.  Mitigates risk and improves process performance. An effective internal control environment ensures an organization’s resources are used for their intended purposes, minimizing the risk of misuse. It also allows for greater efficiencies when clear processes and guidelines are outlined.

  3. Improves accountability among business and process owners. Controls are owned by key members of your organization. These individuals are responsible for monitoring and performing internal controls throughout the year, not just during an audit.

  4. Stabilizes internal operations and business functions. C-level executives will now have better control and visibility into how the company is operating and what processes are being followed.

  5. Indicates a stronger confidence in your financials. Buyers will have more confidence in your financials. Internal controls and/or Sarbanes-Oxley (SOX) compliance indicates a stronger investment. By implementing internal control structures prior to going public or being purchased, the company can save costs and reduce the amount of challenges during a sale.

  6. Reduces external audit fees. Organizations with established internal controls may be able to reduce the external auditor’s scope, time, and fees. Also, by having internal controls in place early on, you will reduce the need for revisions and rebuilding the program after an external auditor review.

  7. Speeds up the certification process. If your company is private, it is becoming increasingly common for lenders and other businesses to require companies to sign off on specific internal controls as part of their periodic certification process. Be ready. If your company already certifies controls then managing PBC requests and certifications can be time consuming if not given the appropriate attention.

If you’re just starting your program, how do you prepare for internal controls?

Start with a thorough risk assessment and determine where your key risks and operational concerns exist. Preparing for regulations like SOX early on will reduce the need for revisions and rebuilding the program the subsequent year. It’s like building a house. You can build it from the ground up, or you can find the right framework that will help you set a solid foundation.

By the numbers

Sadly, between 70% to 85% of companies still manage their internal control procedures on spreadsheets, creating a number of inefficiencies in version control, administrative work and file management. Consequently, 70% of the 5,000 to 10,000 hours spent on these programs annually are spent on administrative tasks - mainly reconciling and managing spreadsheets. Fortunately, 30%+ of those costs can be eliminated by incorporating an effective software tool.

Adopt the right technology environment

Throughout implementation, the IPO process, and as your company matures, your organization will need a single source where your internal controls environment lives and evolves. You will also need to manage PBC requests, certifications, documentation, audit trails, and more. Not only does AuditBoard come with a library to help kickstart your internal controls program and a team of audit experts, but our Workstream solution manages all the coordination and data collection between process owners and auditors. To learn how AuditBoard can help you manage and streamline your internal controls program, contact us below.