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Ten things that should trigger an internal controls review

When’s the last time your company did an internal controls review? Unfortunately, some companies wait until an audit detects a material weakness or significant deficiency in its internal controls before taking action. By then it’s too late. Here are ten strong indicators the status quo of your internal controls is no longer adequate.

Overly complex spreadsheets. Spreadsheets are inherently risky in that it’s easy for accidental changes to occur. The more complex they are the bigger the risk becomes. At a minimum, it’s a good idea to evaluate these annually or even hire an outside specialist to test their accuracy.

Change in business environment due to growth or expansion. Whether a company is in a period of high growth or expanding through acquisitions and/or mergers, its important to keep a handle on internal controls.

Unhappy auditors. If your auditors are not satisfied with your current process or are asking more or different questions, they may see something you don’t. It’s time to take a closer look at your internal controls.

Pressure from management to speed up the process. The faster you do things the less time for review. Make sure your internal controls are appropriate for the pace.

ERP system or tax software implementation. A new system and process means the entire control environment has been changed. Time for a reevaluation.

Staff changes. People are a key component of the internal controls process. Has the department experienced turnover? It there a change in skill sets or structure? Has the workload increased and people are feeling overworked? It’s a good idea to do an annual review and evaluate the impact of these factors on the overall process.

Pressure to add value within the overall organization. If your tax department spends most of its time doing the necessary number crunching it can’t effectively perform value-added work. A strategic tax department requires the right resources. From an internal controls perspective, analyze how those resources are used.

Separate compliance and tax provision processes. Some companies separate the compliance and tax provision processes rather than incorporate them into the overall tax reporting cycle, but an integrated approach is best. When tax provisioning, tax compliance and tax planning are all part of the reporting cycle, it creates internal controls efficiency throughout the entire process and there’s less chance of disconnect between the provision and the tax return.

Regulatory changes. Whether they’re tax, GAAP or industry related, regulations are always changing. Those that affect your business will also affect your internal controls.

Overutilization of consulting resources. Many of our clients are being asked for engagement letters and invoices to document the work their consultants are performing. Also be prepared to show that you reviewed their work to ensure accuracy.

While these are important signals, even if nothing on this list rings true for your company, internal controls must be evaluated on a routine basis to ensure they are both working properly and meeting their objectives. Baker Tilly's experienced tax professionals can assess your internal controls and ensure they are effective. Let us help you.

John Bennecke
Jennifer Crawford
Baker Tilly Capital 2018 midyear review
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Baker Tilly Capital 2018 midyear review