How to Create Conditions for Strong Controls in Your Business
From our audits, we find that many Ghanaian companies have poor internal controls especially with regards to their IT systems.
Internal control is a means for getting a hold of your business. You risk surprises if you have poor controls. Good internal controls just don’t happen, they need a conducive environment.
So, what can the CEO do to create a conducive environment for internal controls to work?
To create a conducive environment for internal controls, consider these factors:
1. Integrity and ethical values
2. Structures, reporting line, duties and authority of individuals
3. Attract, develop, and keep competent individuals
4. Hold individuals accountable for their responsibilities
5. A board that shows independence and oversight of management
I discuss these factors further:
1. Integrity and Ethical Values
Do people do the right thing for the right reasons? Is there high trust? Where there is trust, people work better together.
The CEO sets the tone for ethics and integrity in the organization. You and your manager must:
- Show through your directives, actions and behavior that integrity and ethics is important in your organization.
- Set expectations of integrity and ethical values and communicate them to your staff through policies and employment contracts.
- Discipline staff for ethical and policy breaches in a consistent manner.
2. Structures, Reporting lines, Duties and Authority of People in the Organization
People must understand what you expect of them and their authority to act.
To do this:
- Define the organization, responsibilities and authority of people in the organization.
- Create reporting lines so people can carry out their responsibilities and allow the flow of information to manage the business.
3. Attract, Develop and Keep Competent Individuals
You are more likely to achieve your objectives with competent people aligned to your objectives, than without them. So how do you achieve this?
- Attract and hire the best you can.
- Develop policies and procedures so everyone knows what you expect of them in terms of competence, attitudes and behaviors.
- Do periodic evaluations of the skills of the staff and correct shortcomings.
- Train and mentor people to do their job better.
4. Hold Individuals Accountable for Their Responsibilities
- Define performance objectives for people.
- Appraise performance and take corrective action.
- Use performance incentives to drive performance and reward good behavior.
5. A Board That Shows Independence and Oversees Management
A strong board which questions and holds management accountable helps to create a conducive environment.
- The board must identify and accept its oversight duties, which include the quality of internal controls.
- The board members must have a suitable mix of skills and individuals who are not executives of the company.
No matter the size of your company, you can use the above factors.
- Commit to building an ethical environment in your business.
- Have a board that will act as a check on you and question your decisions and plans. Get non-executive directors with the right skills and experience.
- Define reporting lines and accountability structures, no matter how simple they are.
- Commit to attracting, developing and keeping the right people.
- Build accountability systems that reward good performance and correct bad behavior.