Control rationalization can help companies align controls with risk, improve governance and deploy resources more efficiently.
Control rationalization helps identify and mitigate risks more efficiently. One of the results of a thorough assessment is that companies can identify control gaps and weaknesses that may expose them to financial misstatements, fraud, compliance breaches, and cybersecurity threats. Changes to business operations, systems or processes occur and require controls to be adjusted in order to address associated risks.
Enhancing Efficiency and Effectiveness: Control rationalization involves evaluating existing controls to identify redundancies and inefficiencies. By eliminating unnecessary controls, companies can streamline activities associated with performing and documenting the controls and streamline control effectiveness assessments.
Tips for Successful Control Rationalization:
- Identify the objectives for maintaining your control environment (e.g. improve the accuracy and reliability of financial reporting, compliance with regulatory requirements, prevent fraud etc.)
- Assess existing processes and controls. Conduct meetings with stakeholders (control owners, process owners, etc.) to understand current business processes to identify control procedures being performed including both automated and manual controls. Also identify changes to environment, systems and processes.
- Evaluate processes to identify relevant risks and associate controls in place to mitigate those risks.
- Analyze the risks and controls to:
- Determine if there are risks which are no longer relevant and should be removed;
- Identify which controls most effectively mitigate the associated risks (consider both manual and automated controls);
- Determine if there are controls that can be removed from the risk and control matrix;
- Consider utilizing a tiered control strategy of primary and secondary controls where primary controls are relied upon for initial compliance support and secondary controls are only used for audit support when the primary controls are not operating effectively. Both primary and secondary control procedures would be performed however the documentation requirements for secondary controls maybe different than primary controls.
- Where risks are identified with no associated controls, work with process owners to design and implement appropriate controls.
- Collaborate and communicate with stakeholders to finalize the risk and control matrix to help encourage the effective adoption of any changes to the control environment.
- Update supporting control documentation (e.g. process flow diagrams, process narratives, etc.) to add new controls, remove controls no longer needed, change controls from primary to secondary, etc.
- Perform ongoing monitoring of processes, controls and risks to maintain the risk and control matrix to adapt to changing environment and risks.
Control rationalization helps companies to mitigate risks, strengthen governance and compliance, and enhance efficiency. By streamlining controls and eliminating redundancies, organizations can improve operational agility and allocate resources strategically.
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