Don’t Lose Control During COVID-19

As the evolving COVID-19 pandemic brings uncertainties, organizations face immediate risks impacting their control environment or compliance with Sarbanes-Oxley (SOX) requirements. Here, I offer practical advice on informing and supporting your control environment while keeping your operations running. Management should consider the following internal control questions:

• Have there been changes to the way controls operate as a result of COVID-19?
• Has the level of risk changed due to COVID-19?
• Has the frequency of the controls changed due to COVID-19?
• Has the control owner or person responsible changed due to COVID-19?
• Has decision-making changed as it relates to operations and organizational objectives?
• Do policies and procedures need to be reviewed and revised to reflect any changes?
• Are there contingency plans in place should someone become unavailable to execute controls?

In the context of the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) “Internal Control – Integrated Framework,” these risks may be heightened during COVID-19. Practical next steps are based on suggested best practices to help mitigate those risks.

Control Environment

Risks:

• Remote-working arrangements may result in significant changes to the way internal controls are executed
• Remote-working arrangements may result in reduced oversight and communication across the organization
• Lack of continued education and training sessions may lead to miscommunication on how to consistently execute internal controls or apply organizational policies
• Contingency plans are not in place for key personnel who execute internal controls
• Noncompliance with organizational policies or applicable accounting standards, laws and regulations

Practical Next Steps:

• Engage with team members via videoconferencing and calls to discuss changes in business operations and potential changes to all risk areas.
• Consider using electronic/digital signatures to evidence reviews and approvals.
• Deploy trainings to ensure all employees are informed on how to handle working in a remote environment.

Risk Assessment

Risks:

• Increased pressures to meet organizational goals and targets (heightens the risk of fraud)
• Failure to promptly assess and subsequently address the impact of changes caused by external environment factors
• Failure to involve appropriate levels of leadership and stakeholders in the decision-making process could lead to inappropriate or rushed changes in processes and controls
• Inconsistent oversight and communication increases the risk of management override of internal controls

Practical Next Steps:

Review previously performed risk assessments (e.g., enterprise risk assessments, fraud risk assessments, IT risk assessments, etc.), reassess risk rankings and modify mitigation plans.

Control Activities

Risks:

• Confidential data (electronic or hard copy) is not adequately protected
• New controls may not be implemented or current controls are not revised to account for remote workforces (e.g., increased access to systems or applications, etc.)
• Increased user access or changes in employee job responsibilities may result in segregation-of-duties conflicts
• Failure to promptly set policies and procedures or implement necessary corrective actions may lead to outdated or missing controls

Practical Next Steps:

• Continue to maintain segregation of duties and other preventive controls when performing key activities.
• Strengthen detective or monitoring controls.
• Explore system capabilities and the ability to automate controls (ERP workflows, electronic signatures, etc.).

Information and Communication

Risks:

• Significant changes may require disclosure in quarterly or annual financial statements; disclosures may not be accurately reflected or excluded from financial statements due to COVID-19 (risk factors, MD&A, asset impairments, valuation, loss contingencies, going concern, subsequent events)
• Information may be delayed or unavailable due to operations in impacted countries or remote-working arrangements (delayed processes may impact the ability to execute controls or the accuracy of financial records)
• Financial close or external reporting may be delayed or unable to be completed

Practical Next Steps:

Establish a communication platform and process to keep teams and the organization informed on a timely basis (e.g., daily updates, weekly departmental meetings, etc.).

Monitoring Activities

Risks:

• Lack of business continuity or disaster recovery plans could lead to major disruptions in processes and controls
• Heightened use of personal or public unsecured Wi-Fi networks increases the dependency of cybersecurity controls including: access security, system change control and data center/network operations
• Increased use of mobile devices or organizational assets outside of the office heighten the need for monitoring IT general controls
• Remote-working arrangements and changes to the overall environment may require changes to the frequency of control performance

Practical Next Steps:

Reflect on current processes, potential opportunities and lessons learned during these unprecedented times and continue to use them moving forward (updating business continuity and disaster recovery plans, communication protocols, more efficient and streamlined processes/controls, etc.)