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Internal controls are procedures and practices applied within a company to ensure operations are: efficient, effective and in compliance with laws, regulations and internal policies. These controls help to safeguard, prevent fraud and ensure the accuracy and reliability of information.
Given the swift expansion of the technology industry in recent years, it is important for technology companies to have a strong and effective internal controls environment. Weak internal controls and poor risk management have led to a number of high-profile company failures and we are seeing significant regulatory pressure. Internal controls not only prevent risks, but also allow for a strong foundation for future growth and operational efficiency.
The technology industry has proven highly resilient and innovative in the face of global turbulence. Yet with growth and transformation comes greater financial complexity and potential threats. Technology companies are entering into increasingly complicated agreements across revenue, equity and other financial transactions. Many are also experiencing a significant scaling of operations. In the race to expand, there is a potential threat to internal controls. IT infrastructure, finance team size, transaction interpretation and accounting are often left behind.
Do your internal controls support your future growth ambitions?
The best organisations visualise where they want to be in the long term and ensure their internal departments are geared up for that journey. There is a lot to consider – for example a skilled workforce, IT infrastructure, geographical locations, regulations, levels of automation and sufficient monitoring and testing across three lines of defence.
In our experience, too often management and their Boards are not proactive when it comes to an assessment of internal controls. It only becomes a priority when a significant failure in controls puts the organisation at risk. As a result, the revenue, reputation and business operations can be negatively impacted.
What are the key considerations for your company?
There is no one size fits all; management teams need to take a step back and consider what is relevant for their company.
You may want to reflect on the following questions: Are you comfortable and confident with your internal control framework?
- Which areas can you prioritise that are fundamental to managing risk and improving internal controls?
- How do you enhance accountability while ensuring relevant teams are set up for success?
- Will changes introduced be relevant in the long term?
- Have you considered all risk factors that impact the company and sufficiently analysed these to understand the impact?
What help is available to support internal controls?
Our guide, ‘Making your internal controls work for you’, highlights the benefits of robust internal controls and what ‘good’ looks like for technology companies. It also explores the common challenges that different size technology companies face and provides some practical steps you can take to strengthen your internal controls. This covers operational, IT and exit aspects. Below is a link to our guide which provides advice on what to consider going forward.
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