How to Establish Effective Controls

What is a Control Environment?

The control environment is an important component of the five-part Committee of Sponsoring Organizations (COSO) model defined by the University. It reflects the values of an organization—the atmosphere in which people conduct their activities and carry out their control responsibilities. 

An effective control environment is defined as follows:

  • An environment in which competent people understand their responsibilities, the limits of their authority, and are knowledgeable, mindful and committed to doing what is right and doing it the right way. 
  • Employees in this environment are committed to following an organization's policies and procedures, and its ethical and behavioral standards. 
  • The control environment encompasses technical competence and ethical commitment. It is an intangible factor that is essential to effective internal control.

Role of Governing Board & Management

To enhance an organization's control environment, the governing board and management of the environment should:

  • Establish and effectively communicate written policies and procedures, a code of ethics and standards of conduct. 
  • Behave in an ethical manner, creating a positive tone "at the top."
  • Require the same standard of conduct from everyone in the organization.

Management Responsibilities

To set the tone, management should foster a strong environment that encourages:

  • The highest levels of integrity and personal and professional standards.
  • A leadership philosophy and operating style that promote internal control throughout the organization.
  • Assignment of authority and responsibility.

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Control Environment Tips

Effective human resource policies and procedures enhance an organization's control environment. These policies and procedures should address:

 

      • Hiring • Counseling
      • Orientation • Promotions
      • Training • Compensation
      • Evaluations • Disciplinary actions 

The management environment is greatly influenced by the extent to which individuals recognize that they will be held accountable. In the event that an employee does not comply with an organization's policies and procedures or behavioral standards, an organization must take appropriate disciplinary action to maintain an effective control environment.

Listed below are some tips to enhance a department's environment. This list is not all-inclusive, nor will every item apply to every department. It's a starting point.

Provide Written Procedures

Make sure that the following policies and procedures are available in your department (hard copy or Internet access):

  • Administrative Policies and Procedures
  • Business and Finance Bulletins
  • Employee Handbook
  • Purchasing Manual
  • Personnel Memorandum

Additionally, make sure that the department has a well-written departmental policies and procedures manual that addresses significant activities and unique issues.

Define Limits of Responsibility

Employee responsibilities, limits to authority, performance standards, control procedures and reporting relationships should be clear.

Make sure that employees are well acquainted with the University’s policies and procedures that pertain to their job responsibilities.

Openly Address Ethics 

Discuss ethical issues with employees. If employees need additional guidance, issue departmental standards of conduct.

Make sure that employees comply with the Conflict of Interest Policy and disclose potential conflicts of interest (such as ownership interest in companies doing business or proposing to do business with the University).
Properly Hire & Train

Make sure that job descriptions exist, clearly state responsibility for internal control, and correctly translate desired competence levels into requisite knowledge, skills and experience. Make sure that hiring practices result in hiring qualified individuals.

Make sure that the department has an adequate training program for employees.
Evaluate Fairly & ConsistentlyMake sure that employee performance evaluations are conducted periodically. Good performance should be valued and get positive recognition.
Discipline as NecessaryMake sure that appropriate disciplinary action is taken when an employee does not comply with policies and procedures or behavioral standards.

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