The Importance of Balanced, Focused Controls
Posted on February 28th, 2008 by Julie Garland McLellan »Permalink
PV Boccasam caused a minor sensation when, during a visit to Australia, he likened controls to the brakes on a car and explained that you needed good controls if you wanted to go fast. In Australia at the time, the prevailing sentiment was that controls were more like seatbelts; all about restraint and nothing to do with performance.
Good controls, like good brakes, are essential, but you don’t want them fully on all the time. You just need to apply them at the critical moments.
For a board, or audit committee, understanding the controls environment can only occur if the members understand the business. It is important to know what are the key drivers of success and what, if done poorly, will prevent success; controls should then be focused on the activities that will make the most difference.
Although there are some areas, such as invoicing and cash handling, where good processes are necessary, in all companies there are others where lower controls will give higher performance.
A good case in point is a not-for-profit company that recently employed an excellent IT manager. The new manager came from a competitive environment where data security was a major issue. He immediately established controls to prevent data being removed from the company’s servers.
Unfortunately, this company relied on volunteers giving presentations to educate people about the risks of diseases. When the volunteers could not access the presentations because all the disk drives and USB ports had been disabled, the company’s operations were brought to a standstill and, worse, some volunteers used old, out-of-date presentations with incorrect information whilst waiting for the situation to be resolved.
This could all have been avoided if the IT manager had been properly briefed on the risks and sensitivities of this business and designed controls accordingly. Controls with an eye only toward restraint and not toward performance often end up slowing everyone down.
Tags: corporate governance, controls, compliance, audit committee
Julie Garland McLellan has over 20 years experience in strategic business development in resources, utilities and energy industries. She is currently a corporate governance consultant with Blackrock ITS, a leading Australian IT services and solutions firm. Previously, she served as associate director with McLennan Magasanik Associates, and a board member of the Victorian Minerals and Energy Council, the Victorian Energy Networks Corporation (VENCorp), the Melbourne University Engineering Foundation and City West Water. Julie has an honours degree in civil engineering from City University in London, an MBA from the leading Spanish Business School (Instituto de Empresa in Madrid) and is qualified in finance and corporate governance. We’ll let Julie take over from here.
