Examples of Control tools:
- Ethical "tone at the top", communicated in words and deeds
- Organizational structure that promotes the flow of information
- Clear definition of responsibilities
- delegation of authority commensurate with responsibility
- Mechanisms to hold people accountable for results
- Reward mechanism
- Qualified and well-trained personnel, particularly in key positions
- Positive, motivating work environment
- Effective empowerment of employees
- An atmosphere of mutual trust
- Frequent interaction between senior and operating management
- Appropriate policies and procedures for hiring, training, promoting, compensating employees
- Written policies and procedures
- Performance standards
- Procedures for authorizing and processing transactions
- Independent verification of performance
- Reconciliations
Types of controls:
- Preventive controls - These are proactive controls that deter undesirable event from occurring
- Detective controls - These are controls that detect undesirable events that have occurred
- Directive controls - Proactive controls that cause or encourage a desirable event to occur
- Mitigating or compensating controls - These are controls that compensate for the lack of an expected control. Close supervisory can replace segregation of duties.
Active control implies a task that prevents or detects a deviation from the approved procedure.
Passive control operates without human intervention.
The process in a control loop is:
- Determine the objective that management has established for the function and the company as a whole
- Establish the acceptable standard prior to beginning the evaluation of the controls.
- Compare actual findings against the standards that were previously established.
- Determine appropriate corrective action.
Characteristic of effective controls:
- Timely identification of potential or actual deviations so as to limit costly exposures
- Reasonable assurance of achieving intended objectives at a minimum cost with the fewest undesirable side effects
- Clear accountability that helps personnel to meet their assigned responsibilities
- Effective placement
- Root cause identification so corrective action is appropriate
- Alignment to management strategies and business objectives.
Limitations of controls:
- Excessive or redundant controls can lead to confusion and frustration
- Over-reliance on controls may cost more than the exposure they are intended to guard against
- Overemphasis on controls can lead people to focus merely in satisfying the controls and cause them to lose sight of business objectives.
- Changes and time may make controls obsolete
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