We are fast approaching the most significant reform to corporate governance in our lifetime and the industry at large is beginning to consider how it will need to plan and adapt.
We recently shared a video update about why organisations need effective controls as we rapidly approach reform. You can watch this video here - Key reasons boards must review their control framework now.
But why wait to improve your control environment?
The evidence is very clear; having an effective control environment leads to fewer surprises, better decisions and creates confidence for stakeholders. Asking directors to confirm the effectiveness of controls should only be an enhancement to the existing corporate governance model - and not an expensive new system that stifles business.
In this article we walk you through how you can build an effective and sustainable control framework - starting now:
- Create a strong risk culture – Having top-down commitment will sharpen the focus on business risks and get buy-in across the organisation. UK boards accept collective responsibility for leadership and direction of the business, and this should extend to the risk and control culture. Building an effective control framework that is flexible and scalable takes time and having the right culture is the glue that holds everything together. A strong risk culture also gives the organisation an early warning to potential issues.
- Define the right risks for your business – All risks should link back to your strategic objectives with an eye on future risks. Most organisations find it easier to start with financial risks, but this should be extended quickly to cover operational risks. Start by building a process view of your organisation and mapping to your key risks. Make process owners accountable for their areas and responsible for identifying process improvements as well as building controls into any change initiatives.
- Build your optimum suite of smart controls – Design a standardised control environment and optimise your key controls whilst leveraging technology. COVID has taught us that we need to rely more and more on technology – leading organisations will maximise the use of automated controls and adopt continuous monitoring to detect any issues immediately. As well as creating greater consistency and accelerating compliance, this has the added benefit of reducing the cost of your controls.
- Align your assurance functions – Many organisations have multiple control functions to manage critical risks, which are often siloed with overlapping or uncoordinated activities resulting in gaps, disruption, confusion, or wasted effort. Building an integrated assurance model will create one single view of the effectiveness of your control environment whilst maximising your testing effort. Alongside this, you need to continually train your control owners to adapt and challenge the way processes to operate.
To summarise, the upcoming changes should not be a challenging or costly compliance exercise for organisations but an opportunity to simplify, standardise and automate your control frameworks and move towards continuous monitoring.
Has your business been talking about effective internal controls? Do you have a smart control environment? Are you ready for these changes?
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