When employees understand the “why” and “how” of internal controls, they are better equipped to follow correct procedures, and identify potential risks before they escalate and make sound decisions to mitigate. In a fast-moving and evolving control environment, even small errors, such as a missed verification step, incorrect data entry, or an overlooked approval, can lead to significant financial loss, regulatory penalties, or reputational damage.
Benefits of employee understanding of internal controls
- Improved procedure adherence: When employees know the purpose of a control, they are more likely to follow it correctly and consistently, leading to more predictable and reliable outcomes.
- Proactive risk identification: A clear understanding allows employees to recognize potential risks and errors as they happen, rather than waiting for a problem to become a major issue.
- Better decision-making: Informed employees can make sound decisions that align with the company’s objectives, helping to mitigate risks before they escalate.
- Enhanced asset protection: Internal controls are designed to protect an organization’s physical and intangible assets, and employee comprehension ensures these safeguards are effectively maintained.
- Increased compliance: Understanding the “why” helps employees see how controls are linked to legal and regulatory requirements, promoting a culture of compliance and helping the company avoid penalties or scandals.
- Operational efficiency: Controls that are understood and followed by employees contribute to operational efficiency, accurate reporting, and the achievement of strategic goals
Organizations eager to strengthen their risk management efforts should invest in targeted, role-specific internal controls training. This not only safeguards the organization’s assets and compliance posture but also builds a culture where quality, accountability, and risk awareness are part of everyday work. Ultimately, this empowers employees to move beyond reactive compliance, promoting a culture where applying internal controls is instinctive, not imposed.
What else can organizations do to promote a proactive internal controls mindset?