Kezia Farnham

Senior Manager

How to identify & improve weaknesses of internal controls

Internal controls matter. They tell employees at all levels how to proceed effectively, efficiently and, most importantly, securely. But even within the most cutting-edge systems, it’s likely that there are still some weaknesses of internal controls.

Internal controls weaknesses happen when the implementation doesn’t go according to plan or the control isn’t as effective as expected. In either case, this can leave the system vulnerable to attack, compromising the business’s reputation and bottom line.

Efficient and ongoing internal controls management can help you evaluate any weaknesses early and often. Here’s how to identify your internal controls weaknesses and improve them.

What Are the Weaknesses of Internal Controls?

The weaknesses of internal controls can impact four different system areas:

1. Hardware and software
2. Operations
3. Policies and procedures
4. Security architecture

If control implementation in any of these areas fails or a control isn’t effective, it creates a weakness that puts the entire system at risk.

Recognizing the weaknesses of internal controls is more important than ever since more than 54% of respondents in a recent survey said they’d experienced an increase in cyberattacks. Your system can have the following weaknesses:

Technical Controls

Hardware and software should have their own set of internal controls. If you’ve made changes to your system’s infrastructure or introduced a new technology, you can create a technical control weakness if the configuration or implementation fails.

Operational Controls

Human error is a limitation to even the best internal controls. Employees who don’t follow or misunderstand your internal controls policies can unintentionally create a weakness.

Ongoing, practical training and a culture of compliance can stop these weaknesses before they start, but an effective incident response procedure is also essential when these risks inevitably present themselves. The quicker you solve the weakness, the less impact it’ll have on your system.

Administrative Controls

Your administrative controls are the policies and procedures that tell employees how to safely engage with your organization’s protected data. Common controls include backing up information to prevent loss of data, testing software to ensure it meets the system’s standards and even having rules for how employees should behave when handling data.

Architectural Controls

Your security architecture informs how your system identifies and mitigates risk. If your system doesn’t effectively surface or resolve risks, it can introduce weakness. This can happen, for example, any time you replace hardware, introduce new software or otherwise update your architecture since implementation can fail for each of these changes.

5 Steps to Identify Weaknesses of Internal Controls

Having internal controls in place is vital. Even more important is identifying and getting ahead of weaknesses on an ongoing basis. These are the steps you can take to identify weaknesses in all areas of your system before they cause harm:

1. Audit Your Systems: The first step is to conduct an internal audit, focusing on the four major control areas. This should include all existing hardware, software, policies, procedures and employees that interact with the system since they can all introduce weaknesses.
2. Document Internal Controls: Use your audit to document all internal controls components, policies and procedures. Create a comprehensive catalog of controls that apply to all systems and all levels of the organization. This should be a broad point of reference for future system reviews.
3. Assess Your Risk: You can also use your audit to create a risk assessment. This is also where you’ll start to identify any internal controls weaknesses since a risk assessment will include potential risks and your recommendations to mitigate them.
4. Provide Ongoing Training: Building a culture of compliance is important. Human error can introduce risk to the most well-built controls. Once you’ve documented your controls policies and procedures, create comprehensive training so your entire team can seamlessly incorporate them into their daily activities.
5. Monitor Your Controls: Incident detection matters. The faster you can respond to an incident, the smaller the impact will be. Collect feedback from different stakeholders, talk to other departments and continually refresh your audits so you can catch internal control weaknesses before they result in a breach.

How Can Software Help Identify Internal Controls Weaknesses

Software can help identify internal controls weaknesses in four key ways:

1. Greater oversight into controls testing
2. Automated workflows that help identify and remediate issues
3. Centralized controls library
4. Simple reporting, including a real-time assurance report card

One of the reasons software is so effective is that it automates the many steps required by effective internal controls management. Manually identifying weaknesses within your internal controls may not be sustainable, especially if you have to keep up with many different controls, like SOX, ITGC and ICFR, to name a few.

Software is the only way to take a truly “always on” approach to internal controls management. “Always on” also applies to every step of the process, from implementation down to reporting. You can build automated workflows to act as your first line of defense, check their progress in a real-time controls dashboard, pull from a controls library and then create thorough reports perfect for both management and the board.

Streamline Your Approach to Internal Controls Management

Internal controls management can be challenging. But it doesn’t have to be. The right internal controls management solution can make the difference between securing your systems in a way that cuts complexity and costs or leaving weaknesses of internal controls in place that could snowball into more significant breaches.

Internal Controls Management from Diligent automates repetitive processes, shares real-time compliance updates and keeps your management team abreast of all internal controls issues, all while saving time, money and stress.