Leveraging Change and Disruption to Improve Internal Controls

Rather than focusing only on the negative impacts of the coronavirus on their business, public companies can take advantage of the change and disruption to improve and become stronger by improving the effectiveness of workflow and related internal controls. In particular, they can leverage technology to improve the way internal controls operate.

Most public companies have been affected in some way by the pandemic. They may have experienced such changes as:

• Reduction in revenue or public float, resulting in no longer requiring an auditor opinion over internal controls (Section 404 (b) of the Sarbanes-Oxley (SOX) Act);
• Remote work environment for all or most employees;
• Pressures to streamline, automate, or increase the efficiency and effectiveness of operations; and/or
• Potential rotation of work environment between home and office, based on current state/federal guidelines and company policies.

Where are the opportunities in these disruptions? Here are a few:

Automation

Existing tools and infrastructure can very likely be leveraged to support more efficient, digital controls. Perhaps until now “key” controls (those deemed necessary to support overall financial reporting) have been performed with manual processes, such as hardcopy sign-offs. While organizations may have recognized digital functionality features of the supporting financial systems that could automate or remove manual components of controls, these may have been deferred or forgotten. 

Now is the time to revisit them. The first step is for internal control owners and managers to identify manual controls and begin to assess how to digitize the operation and/or approvals, either through existing or new tools.

Control Description and Operation

To ensure their continued operation and support the vitality of the business, companies that are leveraging Continuity of Operations Plans to ensure that the business can continue to meet customer demands and organizational objectives should consider how well controls are documented and detailed.

Businesses can challenge the operation of the existing controls by revisiting:

• How the controls are described;
• How supporting procedures (such as standard operational procedures) are aligned to reflect and incorporate the performance of the control; and
• Who has ownership of the controls, and why. Control owners should revisit how the control is described, performed, and evidenced to identify efficiency and effectiveness opportunities.

Changes in business structure, operations, or technology are key indicators that your organization should reassess the controls in place. The purpose of the reassessment is not only to realign the risk of the organization, both financially and to meet audit requirements, but also to consider the operational and strategic value provided.

Weaver can assist you in determining compliance requirements for your business and how to streamline your current activities. Contact us with questions or concerns about how your organization can improve your internal control environment and bring value to the SOX process, while maintaining compliance with SEC requirements.

© 2020