Internal Control Considerations During These Uncertain Times

By Matthew Fernandez March 30, 2020

Hearing from your auditor about internal controls at a time like this might be the last thing you want, and I don’t completely disagree. There are some huge challenges we all are facing, and those challenges need to be prioritized. Nevertheless, it is important that internal controls are not completely forgotten.

At the beginning of the month, all of our internal controls were designed based on precedent: we had well-defined processes to follow with generally the same people performing the same functions in the same locations. In these unprecedented times, all that has been thrown out the window. Suddenly (literally in the span of a few days), our processes have had to change, from top to bottom.

So how do we handle internal controls now that everything is changing? We need to adjust to what we are doing today. If any part of your workforce has transitioned to a “work from home” environment, their normal routine has been uprooted. By now, you are starting to run into challenges that have never been problems before. For example, a daily reconciliation is still being done, but is it still being reviewed? And if it’s being reviewed by those working remotely, how do they document their review? In the past, we could add some checkmarks and our initials, file it away, and call it good. Today we need to adjust – can you provide printers and portable scanners to everyone working remotely? Maybe, but probably not for everyone, and that would be a big expense. Consider alternatives – adding digital signatures to PDFs or attaching an email with approvals. Documentation remains a key part of internal controls.

If this is forcing you to come up with new digital processes, use this as an opportunity to discuss if these would be more efficient, not just for now, but for the long-term. You may find storing documents electronically, either scanning from paper to PDF or adding digital sticky-notes, is more efficient than printing and storing hard copies in paper. You might need to develop some new processes for digital information and storage: quality control reviews to ensure everything is scanned and labeled correctly, a policy for shredding originals (and what shouldn’t be shredded), digital back-ups, and controlling who has access to digital files.

As processes change, remember the key steps that were required before – they should still apply today, but may need to be modified. If you used a checklist before, keep using the checklist, and work through the areas that need to change to come up with a reasonable alternative. Reach out to front-line staff and ask what steps they don’t know how to complete anymore, or the steps that they have already changed on their own just to help make it through the day.

Also recall that a good internal control system has always started with the right tone from the top. That hasn’t changed, and should be stressed now more than ever. The “top” does not stop with the President or CEO; it starts there, but the message will be passed down through layers in an organization. One way to make sure there is a consistent message is to give the message to everyone at the same time; company-wide emails, virtual town halls, recorded messages – whatever works for you. This is a good time to remind everyone that now is not the time to cut corners.

I know we are all trying to figure this out as we go, but don’t stop doing what has made you successful in the past. Believe it or not, good controls do contribute to success!

For more information, please contact your BNN tax advisor at 800.244.7444.