Adjust control means to risks level

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Frequently, companies need to adjust control means to risks level. They do not truly monitor their large risks through a control system. Regarding small risks, they tend to consider that performing control is the solution, without really looking at control results.

1 – Large risks need a control system

To adjust control means to risks level sounds perfectly logical. The higher the risk, the more attention it needs. Nevertheless companies frequently fail to set up a control system for large risks. Managers tend to monitor them “by hand”. Nevertheless they often lack the time to follow important details that are therefore not under sufficient control.

For instance, managers are well involved in investments or deal decisions. They use documentations prepared to help their decision. Unfortunately the methods used to build those documentations and underlying calculations do not always follow a controlled method. Lobbying is another high stake activity of managers. All management will need to make sure lobbying messages are always consistent.

2- Making controls doesn’t mean the risk is under control. It is necessary to analyze the result of the controls.

Adjust control means to risks level is also an issue for small risks. It is a common mistake to conclude on the efficiency of a control system only by looking at the number of controls, without worrying about the results of these checks. It is therefore possible to conclude that the control system is in place, forgetting if the controls reveal major problems.

For example, an entity plans to monitor annually 70 invoices to ensure compliance with analytical imputations. If at the end of the year the 70 invoices have been checked, the result will be reassessed that the control has been carried out as planned, at 100%. Nevertheless, it will be also important to carrying out any analysis on the actual results, such as the rate of compliance of imputations.

The posts dedicated to management will conclude with the explanation that within a control system nothing is superfluous.

If you liked this blog, please leave a comment. I plan to consolidate all posts is a white paper: just let me know if you wish to receive it.

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