Metric of the Month: Automated Primary Controls

Automation can process more internal controls data in less time, with greater accuracy, pinpointing suspicious activity that manual auditing might ...
Perry D. Wiggins and CPANovember 5, 2018
Metric of the Month: Automated Primary Controls

If you’re not already automating your internal controls, you should be.

The cost of the technology has come way down, while its capabilities have increased. Advanced controls automation is now accessible even to smaller organizations, and the return on investment is high. Automation not only effectively pinpoints risk, it can free your team to focus on high-value work while providing detailed information and analysis to help you better understand many aspects of your business.

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Organizations with a higher percentage of automated internal controls have better safeguards in place to protect their corporate assets and lower the risk of fraud. For this month’s metric, we focus on the percent of primary controls that are automated, as reported in APQC’s Internal Controls survey in June 2018. The survey collected input from 89 business entities.

The calculation used for this metric is the number of automated primary controls in each organization, divided by the total number of identified primary controls. In the context of internal controls, a primary control is a control which is a part of regular oversight and management. The set of primary controls form the basis of the organization’s internal controls.

primary controls automated bar chartIn those organizations with the highest levels of automation, considered “top performers” in terms of the measure, half or more of the primary controls are automated. In organizations at the other end of the spectrum, just 11% or fewer primary controls have been automated. At the median are the organizations that have automated about 19% of their primary controls, leaving more than 80% of primary controls to be processed manually.

Time is Money

There will always be a need for skilled finance professionals to assess the risk of any anomaly identified through internal controls. But when internal controls processes rely heavily on manual intervention, it greatly enhances the opportunities for fraud and abuse to occur and go undetected, each of which could potentially drain money from the organization. Organizations that have automated a high percentage of primary controls have a more comprehensive approach that provides greater confidence in the safeguarding of organizational assets.

Automation of internal controls allows organizations to quickly analyze huge volumes of data from multiple systems, flagging potential fraud patterns as they happen. Instead of a laborious, hands-on process of performing spot checks on random samples of data, these software “robots” run continuously in the background, doing the tedious work of scanning everything from emails to purchase orders, looking for patterns and anomalies, and flagging outliers for further investigation.

Perry D. Wiggins

Automating this process frees auditors from digging through records manually and gives them more time to dive deeply into investigating red flags and determining whether there is a logical explanation for irregularities. As a nice side-benefit, the process also finds run-of-the-mill errors that can be corrected before they become vulnerabilities to the organization.

The traditional, manual approach to internal controls isn’t just time-consuming; it’s an inefficient use of valuable finance employees’ time. Computers, on the other hand, don’t need sick days, and they are more than willing to work all night with no overtime pay. They can perform sophisticated tests in much less time and aren’t prone to human error. They can produce bulletproof evidence of fraud that would hold up in court, if necessary. And, the software can be scaled up or down to fit your business, so you can easily add analytics to your existing systems as necessity and funding allow.

The data produced by these automated processes also come in handy for other kinds of decision support. For example, an automated system that detects unusual extremes in employee expense reports can also be used to study average expense costs for various cities where the organization does business. When those data are combined with sales plans, it’s easy to accurately plan for next year’s business travel.

If an organization falls into the low end of the range on percentage of primary controls that have been automated, it’s time to take a look at the available software tools that can help crunch much more data, more thoroughly, in less time. You may be surprised at their affordability and quick application. Once you have them in place, you’ll wonder how your finance team ever got by without them.

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston.

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