Best practices for documenting controls

Best Practices for Documenting Internal Controls

Effective documentation of internal controls is essential for maintaining transparency, ensuring compliance, and facilitating efficient audits. Whether you’re an auditor, a compliance officer, or a process owner, here are practical tips for documenting internal controls:

1. Understand the Purpose of Documentation

Before diving into the specifics, recognise why internal control documentation matters:

• Communication: Documentation serves as a communication tool. It conveys how processes operate, who is responsible, and what controls are in place.

• Risk Mitigation: Well-documented controls help mitigate risks by providing clarity on preventive and detective measures.

• Audit Trail: Documentation creates an audit trail, allowing auditors to assess control effectiveness.

2. Choose the Right Format

Select the most suitable format for documenting internal controls:

• Process Narratives:

  • Detailed written descriptions of processes, including control activities.

  • Useful for understanding the flow of transactions and control points.

  • Include step-by-step procedures and decision points.

• Flowcharts:

  • Visual representations of processes, showing the sequence of steps and decision nodes.

  • Ideal for complex processes or when a visual overview is necessary.

  • Include control points within the flowchart.

• Control Matrices (Risk and Control Matrices):

  • Tabular formats that link risks to specific controls.

  • List risks, control objectives, and corresponding control activities.

  • Useful for assessing control coverage and identifying gaps.

3. Include Key Information

Regardless of the format, ensure your documentation includes the following:

• Control Description:

  • Clearly articulate what the control does.

  • Specify its purpose (e.g., prevent fraud, ensure accuracy).

• Control Owner:

  • Identify the individual or team responsible for the control.

  • Include contact information.

• Frequency and Timing:

  • Specify how often the control is performed (daily, monthly, annually).

  • Note any critical timing considerations (e.g., month-end closing).

• Evidence and Documentation:

  • Describe where evidence of control execution is stored (e.g., system logs, sign-off sheets).

  • Reference relevant policies, procedures, or manuals.

4. Keep It Updated

• Regularly review and update control documentation.

• Align it with any process changes, organisational restructuring, or system upgrades.

5. Involve Stakeholders

• Collaborate with process owners, risk managers, and compliance teams.

• Seek input from those directly involved in executing controls.

6. Use Technology Wisely

• Leverage tools such as document management systems, workflow software, or intranet portals.

• Ensure version control and accessibility.

7. Standardise Terminology

• Use consistent terminology across all documentation.

• Avoid jargon or overly technical language.

8. Train Users

• Educate control owners and users on the importance of documentation.

• Provide training on how to maintain and access control documentation.

Remember, well-documented internal controls enhance accountability, reduce ambiguity, and contribute to effective risk management. Whether you’re creating process narratives, flowcharts, or matrices, prioritise clarity and accuracy.