Benefit one: Business process improvement..................................
One byproduct of implementing strong internal controls is business process
improvement. When companies start to take a close look at their business
processes and document, measure, and monitor them, they can make them
more efficient and streamlined. It gives companies a chance to examine their
processes closely and ask themselves probing questions such as, “Why does
it take seven people for us to do something, when Company X only needs
three people to do the same thing?”
Benefit two: Management by exception ..........................................
By establishing a norm (such as “The process works this way and when it
doesn’t, a control will alert us”), companies learn to manage by exception.
Controls start to function as a barometer of how things are operating in the
company — and give an early warning of how things could go awry, or an
indication of trends. Controls can also flag how companies need to change or
improve their processes. If companies don’t continue to assess their controls
and respond to the changes that controls indicate are necessary, they could
be considered negligent.
Benefit three: Real-time monitoring .................................................
Automated internal controls are like traffic cops. They prevent accidents (by
directing the flow of traffic), detect accidents (by listening to the radio), and
clean up after accidents (removing damaged cars and calling an ambulance
to take the injured to hospital). (We cover automated controls in more detail
in the section, “Seeing How Automated Controls Make Things Easier” later in
this chapter.)
Like traffic cops, automated internal controls can be on duty 24 hours a day,
seven days a week, monitoring both past activity and activity taking place in
real time. In any automated process, key points in the process should serve
as checkpoints to make sure that previous steps were completed and the
next processing step is ready for execution. In most companies, the checks
and balances used to monitor the automated processes rely on staff to
review reports or transactions to make sure that the transaction is recorded
accurately and in accordance with accepted accounting guidelines.
Before automation, auditors were the primary feedback loop to managers to
ensure that processes were operating effectively and efficiently. Auditors
played the role of traffic cop, but without automated internal controls, their
methods were not adequate. Auditors used sampling techniques — selecting