The risk management process and the importance role of internal control
Why Internal controls are important
It’s a myth that only medium-sized or large companies need a risk management process. In fact, every company of every size should have internal control frameworks and processes.
Every management board is responsible for appropriate risk management processes and internal controls to be in place at their organization.
They benefit an organization two areas:
- First, Internal Controls will help an organization avoid costly, time-consuming, and damaging oversights, regulatory compliance issues and risks.
- Second, they will help operations run efficiently and faster, and consequently increase profits.
The recommended approach to build your internal controls
Naturally, the frameworks will vary in structure and complexity and processes should be tailored for each company’s size and activities.
But every organization needs clear, specific, and appropriate internal control processes. They are there to control any crisis that may arise and ensure operations are smooth and efficient.
Internal control systems should cover 5 activities:
- Internal control environment
- Risk management
- Internal control mechanisms
- Informing and communicating
- Error monitoring and correction
(Source: Internal Control – Integrated Framework, Committee Sponsoring Organizations of the Treadway Commission, Jersey City, 1992)
Internal controls are a coherent way to support management
We recommend Internal Risk Management (IRM) systems are fully integrated with the rest of the organization.
IRMs are only as good as how they interact with other management systems, so they should never be deployed in a vacuum. They should align closely with other management functions, for instance, organizational planning. IRMs generate clear insights which planning teams can use to improve and adapt their organization’s plans and strategies.
They will also help an organization to be able to quickly adapt to fast changing and sometimes unpredictable market conditions.
Internal controls help organizations by protecting assets, driving better financial results, and working toward strategic objectives. They can flag and prevent unnecessary effort and reduce operating costs.
Good Internal Controls software platforms such as Adaptive GRC can automate many of the required processes to set up and run a robust IRM.
AdaptiveGRC is a platform that allows you to streamline your risk management processes. The tool offers almost limitless flexibility while remaining straightforward and intuitive to use. Users can tailor the functionality to precisely fulfil almost any organization’s requirements.