In the context of business, we often talk about internal controls in the context of regulatory compliance or risk management. We talk about the design of controls, their operating effectiveness, how they mitigate risks, and the policies and procedures that back them up. But outside of an audit or risk assessment, how can an organization manage controls on a day-to-day basis and gain reasonable assurance that controls are operating as designed and intended?
This is where controls management comes in. Controls management is the way in which a company approaches its day-to-day business activities and protocols in order to reduce organizational risk, increase business resilience, and meet organizational goals. The procedures a company follows and the actions employees take in order to achieve the desired results of the business — including the guidelines and cultural norms they comply with — are all parts of controls management.
Today’s business uncertainties include risks from wartime hackers, global supply chain disruptions, and the security weaknesses inherent in an at-home workforce, to name just a few top concerns. In volatile times, it’s more important than ever to build a strong and effective controls management system for your business.
What Is Controls Management?
Controls management is the means by which the actions of individuals or groups within a company are directed — as well as which actions are avoided or advised against — in order for an organization to maintain norms and reach their goals. Controls management is also a system of checks and balances that ensures team members adhere to a company’s rules and culture. In doing so, controls management functions as the guardrails, keeping employees in line with both external regulations and internal standards.
Controls management is important because these rules and requirements work to keep a business within regulatory compliance and also provide safety and security for a company regarding their reputation and brand image. If employees across the company are aware of the organizational controls and adhere to them — either explicitly or implicitly, due to management culture — it builds a solid foundation for the organization. In turn, this results in a consistent, quality output of the products and services the company sells.
Management controls and management control systems are often used interchangeably with the term controls management. Management controls, like the function of controls management, are the processes by which leadership or management of a business achieve and direct teams to achieve organizational goals and objectives.
What Is the Role of Controls Management?
Controls management is put in place to guide team members in adhering to a company’s norms and rules in order to reach company goals. The role of controls management varies from explicitly outlining policies and procedures — sometimes involving external regulatory requirements — to more subtly displaying company expectations through an organization’s cultural norms and standards. Control processes and management processes are both evaluated and the necessary adjustments are made to meet business objectives in a good management control system.
Unfortunately, not all team members are willing or able to act in the company’s best interest. Implementing controls helps to prevent material mistakes from going unnoticed and steers team members away from taking intentional actions that are bad for business. Internal controls management helps to safeguard controls in place, ensuring that they are designed and operating effectively. Any issues identified are then subjected to corrective actions, like adjusting the control to better mitigate risk, or developing compensating controls as needed. Management controls minimize deviations in product quality and effectively keep project management on track.
What Are the Different Types of Controls?
Controls management falls into two main categories, and there are several types of controls within those categories. The main areas of controls management are regulative controls and normative controls. Within regulative controls are bureaucratic controls, internal controls, and quality controls. Under normative controls are team norms and organizational cultural norms. Depending on the type of control, each can have a different objective. Some controls are financial, some relate to security, and others are regulatory. The people, processes, and technologies involved with each control may also differ, so understanding the purpose of each control is critical when performing management control activities.
Regulative or Regulatory Controls
Regulative controls, which encompass bureaucratic, financial, and quality controls, emerge from a company’s existing policies and standard operating procedures. These types of controls may include controls that directly impact regulatory or compliance efforts at the organization, and therefore may be subject to audit.
- Bureaucratic controls stem from a company’s senior leadership and the policies and procedures they outline for departments and team members to follow. Human Resources controls fall into both the “bureaucratic” category and the “internal controls” category.
- Internal controls, such as financial and security controls, are aimed at ensuring the integrity of information to promote accountability and prevent fraud. They are the means by which an organization monitors and controls the direction, allocation, and usage of its resources.
- Quality controls are in place to define the variation that is considered acceptable regarding product output — the end result of whatever product or service is delivered to clients and customers. Quality controls are generally aimed at improving or maintaining customer satisfaction.
Normative Controls
Normative controls are team norms and organizational cultural norms. They govern manager and team member behavior through the company’s accepted patterns of action, rather than requiring written policies like regulative controls. These controls are often less formal, and may not be documented.
- The team norms are the informal rules that help employees understand what their responsibilities are to the company and to each other. Team norms tend to develop gradually, but once established can have a powerful influence on employee behavior.
- Organizational cultural norms are a company’s shared values, beliefs, and culture.
All of these controls work together to keep employees aligned and on track to meet company goals with the level of integrity established by senior leadership.
Eight Key Strategies for Strengthening Controls Management
Strategies for strengthening controls management include staying on top of regulatory requirements, optimizing internal controls, and using smart controls management software solutions to improve processes and communications end-to-end. Here are eight ways your business can improve controls management:
Strategy 1: Strictly Manage Regulatory Controls
It’s critical for companies to stay on top of all regulatory requirements specific to their line of business. Different fields will need to comply with different regulations, depending on what industry the company is in. An organization in the medical field may need to know how to be HIPPA compliant, and a food service company could be subject to the Food and Drug Administration guidelines. One regulatory requirement all public companies need to stay on top of is SOX compliance. As such, it’s important for companies to understand what requirements are applicable to their organization and implement appropriate controls to monitor compliance.
Whenever possible, organizations should have management controls in place to evaluate the actual performance of regulative controls and benchmark performance from year to year. Automation of regulatory controls can also be a boon, reducing the potential for user error to disrupt the performance of the control.
Strategy 2: Rigorously Follow Internal Controls
Internal controls, such as financial controls, help safeguard an organization and further its objectives by tracking progress towards various goals and targets, such as increasing operational effectiveness and efficiency, providing reliable financial reporting, and profitability, or ensuring compliance with laws and regulations. Strong internal controls help reduce risk in an organization by protecting the company’s resources and play an important role in detecting and preventing fraud. It is important to remember that implementing controls is not the same as compliance — so it’s critical not just to identify and implement strong controls, but also to make sure employees maintain compliance with control protocols, such as by performing internal reviews or audits.
Organizations can ease the burden of compliance with internal controls by creating templates for control activities that stakeholders and process owners can use repeatedly.
Strategy 3: Maintain Solid Security Controls
Solid security controls management helps to ensure a company’s data and information is safe from potential hacks or security breaches. Companies should implement advanced security controls, like two-factor authentication, in order to improve the company’s information security posture and avoid malware infections and brute force attacks.
Management control systems should consider cybersecurity and security risks as a major area of risk for almost all businesses today. The Harvard Business Review recently released an article on “The Devastating Business Impacts of a Cyber Breach”, and they are not the only reputable publication to sound the alarm on cybersecurity risks. IT security is now an integral part of GRC functions, like controls management, and organizations ignore security controls at their own risk.
Strategy 4: Uphold Consistent Quality Controls
Quality controls ensure a company’s product or services stay at the desired level in order to maintain customer satisfaction. Some companies use software to analyze product output electronically, or they might enable quality control staff to analyze products prior to release. Quality standards will differ by company, and while some require zero defects before shipment, others are comfortable releasing items with small flaws. Whatever your company’s quality control standards are, it’s important the standards are consistently maintained and upheld across the entire organization.
Strategy 5: Oversee Thorough Team Training
One key aspect of maintaining proper controls management is ensuring team members at all levels are aware of controls they need to comply with and follow. Employees need clear direction on controls management procedures so they understand their role in the process and can help the company maintain compliance with controls. It’s important employees throughout the entire company are trained on proper procedures so they are following the controls that are put in place. A cadence of annual training on security controls and procedures is recommended.
Keep in mind that different roles in your organization will require different levels of security awareness and controls management training. Some personnel may even be responsible for executing or overseeing management controls. In these cases, additional training may be warranted.
Strategy 6: Optimize Data Measurement Systems
Companies can use measurement systems to find areas for improvement within their day-to-day operations. Managing key performance indicators means that those performance data points need to first be determined, agreed upon, properly tracked, and then managed against.
In the era of big data, there are a lot of facts and figures out there. Using data measurement systems to determine what information is important to your business is the beginning. Then, layering controls on top of data measurement is key to controls management. If a measurement system includes financial targets, for example, a controls management tool can be created to automatically flag areas that are performing below expectations. The controls management tool can then help leadership teams in decision-making and when to step in and help departments reach their goals.
Strategy 7: Follow Data Retention Guidelines
Data retention is storing and managing a company’s data and records for a designated period of time. Having a solid data retention policy in place is important for ensuring your company stays in regulatory compliance regarding data privacy and also keeps your business in line with your industry’s timeline-based data storage requirements. Data retention also helps companies maintain security controls, and prepares an organization for continuity with available backup data in the event of a catastrophic loss due to a natural disaster or malicious hacking. In addition, controls management is important for determining and adapting a company’s data retention policy, as the ability to access historical data records and points of access by team members are needed to uphold compliance with security requirements.
Strategy 8: Enable a Powerful Software Solution
Companies can use controls management software to help them run secure processes. Using software allows them to identify and report issues quickly, and keeps those with access to data dashboards current on the status of the controls, with real-time access to high-priority data. It also creates open communication across the company, where staff can use workflow software to communicate issues across teams effectively and efficiently. Software programs also significantly reduce the risk of error.
Build a Stronger Internal Controls Program Today with AuditBoard
Having reliable controls management tools in place is more important now than ever. Aligning employees and organizational goals is an age-old challenge; enforcing controls on top of that is an even bigger mountain. Management controls and management control systems keep your people, goals, and controls moving in the same direction. Using internal audit management software will help your business achieve more, with the ability to manage audit planning, fieldwork, and reporting all in one single platform. Take control today.
Frequently Asked Questions About Controls Management
What is Controls Management?
Controls management is a function designed to align people, controls, and processes at an organization to achieve objectives and goals.
What Is the role of Controls Management?
Controls management establishes oversight over the performance of controls, reveals gaps in controls, and provides assurance that controls are operating as intended.
What are the different types of controls?
There are many different types of controls that can be divided into the regulatory and normative categories. Regulative or regulatory controls are those controls that address some kind of regulatory or compliance requirements. Normative controls are less formal controls that are meant to guide employee behavior and culture.
