Internal Controls and Entropy
22 June 2018|Impero
Entropy is a measure of the energy not available for useful work. In business controls the entropy measure is high and increases over time.
In the early phases of setting up a new or transforming an existing business operation there is a lot of energy available for control activities. The importance is clear: best process, the right controls, how change is to be managed, what the reporting rules are, who makes decisions and based on what evidence, will be in front of mind. Stakeholders will understand where responsibility lies, who is accountable and what they will be reporting on.
Over time, things may change. The energy dissipates, issues come up, the focus moves on to other things and the once robust process becomes fragile, its value may be diluted, and the rigour half hearted, the controls programme may then become unreliable.
Why? The answer is that maintaining the energy, the focus and the attention required for a really excellent internal controls programme is hard. The day to day activities require effort, lots of attention to small details, consistency and alignment in approach.
Control programme activities are rarely sexy, they are mostly un-exciting, manual, mundane and not assigned high value by those doing the work or the enterprise. Internal controls are a chore, a Friday afternoon activity when all the important stuff is done.
The quality of the controls programme depends on the commitment of an individual or set of individuals, usually armed with a spread sheet. The irony inherent in using a guy with a spread sheet to underwrite the controls for multimillion dollar businesses impacting potentially tens, or hundreds, of thousands of customers, employees, suppliers, and the IT, Finance, Sales and other systems involved is deep.
Is there a way to increase the energy available for this work? Answer: no. The solution is not to attempt to fight the laws of physics. The solution is to use software to do what software does best.
Removing the tedious, manual tasks that people don’t want to do, and automating processes so they get done the same way every time. To manage workflow to ensure alignment and discipline is maintained and the right behaviours are enforced.
It is an investment in tools to do things that make their people better. See www.impero.com for technology to manage Internal control programmes.
