A new study finds that rapid transformation to the digital economy is putting a strain on control systems within organizations. The speed and intensity of changes, brought by the COVID-19 pandemic and rapid shifts in the economy, have disrupted staffing and increased the adoption of advanced technology, which has impacted internal controls.
The purpose and effectiveness of internal control are being tested like never before, say the report’s authors, by several external pressures. The study, titled “Internal Control and the Transformation of Entities,” was conducted jointly by the Association of Chartered Certified Accountants (ACCA), the Internal Audit Foundation, and the Institute of Management Accountants (IMA).
The three professional organizations polled some 2,000 of their global members to gain a better understanding of what lies ahead for internal control. The findings show that the continued effects of the pandemic, the turbulent economic climate, regulation, and data and technology, are all presenting organizations with unique challenges for their internal control activities.
The lack of appropriately skilled staff was highlighted by half of respondents as a challenge, and 41 percent said technological advances are compromising existing internal controls. Nearly a third (32 percent) said a lack of executive emphasis on internal controls was also impacting the management of internal control.
Respondents were also asked the purpose of internal control in an entity, with 88 percent saying it minimizes risk, 84 percent cited prevention of fraud, and 77 percent, the protection of assets. The poll also shows that most respondents (80 percent) say they agree or strongly agree that they need to apply their internal control framework to non-financial and ESG reporting.
Changing Business Models
“Internal control forms a core part of the activities of accountancy, finance, and internal audit professionals, assisting them to ensure that entities operate effectively and efficiently,” says Helen Brand, chief executive of ACCA. “Yet the business model is changing for many because of various and interconnected external pressures. Given this ongoing turbulence, it’s therefore essential that organizations recruit and retain the skilled people who can ensure that internal controls are agile and future-ready to support business transformation and growth.”
“As we say in the foreword to our report, internal control goes beyond statutory compliance requirements,” says Jeff Thomson, president and CEO of IMA. “It helps entities build trust, confidence, and a positive reputation in achieving strategic business outcomes. All this is increasingly vital now and in the future as we do not see turbulence or volatility decreasing.”
The report also makes numerous recommendations and actions to improve internal control listed under headlines about the main drivers of change, such as strategic, transformation, people, processes, technology, and data.
“Internal control demands appropriate prioritization by management and a combination of people, processes, technology, and data—all underpinned by an unwavering commitment to trust and ethics,” says Anthony J. Pugliese, president and chief executive officer of the IIA’s Internal Audit Foundation. “The route to this is through professional qualifications and continuing professional development, which our three organizations commit to delivering now and in the future.”
“Our recommendations will help accountants, finance professionals, and internal auditors navigate the way ahead as entities continuously evolve and transform,” concluded Clive Webb, a co-author of the report and head of business insights at ACCA. “Our collective professions’ role in this change is essential, and we have every faith that their skills, knowledge, and dedication will ensure the future strength and integrity of internal control processes in an increasingly challenging world.” 
Joseph McCafferty is editor and publisher of Internal Audit 360°