Corporate Controls in the Digital Era

Why are corporate controls needed in the present Digital Era

John KYRIAZOGLOU, M.S., B.A (Hon.), Management Consultant

Author of ‘IT STRATEGIC & OPERATIONAL CONTROLS’ (www.itgovernance.co.uk),

And co-author of ‘CORPORATE CONTROLS’, to be published by www.theiic.org, by 12/2011

A question was recently put in a discussion group whether corporate controls were indeed necessary in the present DIGITAL SOCIETY and ECONOMY.

My comments follow:

We live, at least in most Western countries, in a post-industrial society, in the knowledge society, also known as the information society. The new life-style (modus vivendi, in the sociological vernacular) enforces upon all of us a new set of operational factors and transactional characteristics in our societal and human interactions, a new socio-economic operating mode (modus operandi in the sociological vernacular).

This set of social interactions is permeated and driven by several socio-technical factors and functional characteristics, such as:

(a)Globalization of markets,

(b)Liberalization of markets,

(c)Services economy,

(d)Lack of governance controls in international fiscal and financial markets, transactions and activities,

(e)Very fast developments in the fields of Information Technology, Communications, Biology, Medicine, Management, etc.,

(f) Information plurality, diffusion and potential information over-loading, Increase of the leverage and focus on the needs of customers, the so-called customer-focus approach in all dealings,

(g) Differentiation of the needs and increase of the expectations of better provision of services to citizens, the so-called citizen-based service approach in all public-sector exchanges and transactions, and

(h) Reduction and de-strengthening of the traditional government model of a large central organization to a model of organization based on a de-centralized approach.

All of these, interacting and inter-connected in different sets, make up a new social, economic, technological, moral and political framework, within which society, economy, enterprises, government, non-profit organizations, communities, citizens, etc., operate and function productively. 

New and more complicated roles are being created for the state (central administration, regional forms of government, local governments, etc.), for the business entities (small size, middle size, large size, conglomerate, international enterprises, etc.), and for organizations of the main public sector and related public regulatory authorities, with greater expectations for improved quality of life, and socio-economic advancement and development, in all industrial sectors and socio-economic environments.

The noted management guru Charles Handy supports the view that we must re-examine the basic principles that govern the running of enterprises and think from scratch of what is the basic objective of doing business.

At the level of organizations (private, public, non-profit, non-governmental, etc.) rapid changes are taking place on a continuous basis.  This is due to the impact of innovative approaches of researching and designing new products and services (e.g., via the Web), the tremendous effect of quick and accurate information provided by ITC (Information Technology and Communications) infrastructure and systems, and to the new asset evaluating models.

Traditionally, organizations (at least in the private, for-profit sector) valued only physical assets (buildings, land, vehicles, heavy equipment, installations, plants, etc.), sales inventories, and profits. Presently, technology know-how, good-will and brand names, computer systems and application software, office automated support tools (Excel spreadsheet applications, etc.), electronic commerce and electronic data  distribution services, etc., must also be added as valued assets to the balance sheet of organizations.

The model and the role of the classical state is also changing, within the framework of the European Union, as well as within the framework of the international environment, with the approach of electronic government, the model for citizen one-stop shop services, and the devolvement of authorities and responsibilities to the regional and local level (prefecture, wide metropolitan area governments, city level, community, neighborhood level), etc.

All these new and very quickly developed roles are required for:

(1) Quicker and more effective service (in relation to costs and benefits)

(2) Better management and more efficient use of global resources

(3) More proper (ethical, ecology-friendly) resource management by all industries, in all countries

(4) Continuous improvement in the quality of products and services provided, in social and citizen participation, in the commitment to democratic  institutions and customer services, for all stakeholders (people and  organizations)

(5) Minimization if not total reduction of social, public sector and business fraud and corruption

(6) Better understanding of what has gone wrong in private and public organizations and what must be done to get things right.

All of these may be implemented on the basis of strategy (organizational philosophy, external regulations, strategy, risk and change management, and performance measurement) and management controls (at the strategic and operational levels, a management information system, and the reporting, communications, audit , monitoring and review activities), i.e. the two complementary support pillars of a Corporate Controls Framework.

The socio-economic needs in the present DIGITAL SOCIETY and ECONOMY for the establishment and existence of a Corporate Controls Framework to cover both the historical context (i.e. conformance) and the future forward-looking view (i.e. performance) will be based on the major concept that for the achievement of all of the above, there exists a requirement for the design and implementation of a new operating model for private corporations and public organizations, consisting of:

(i) creation and implementation of strategic objectives,

(ii) best and most optimal use of resources (social, corporate),

(iii) measurement of produced and delivered goods, services and target achievements,

(iv) monitoring and improvement efforts on a timely and continuous basis, in other words on performance, and

(v) a set of strategic and operational controls which includes a Compliance Monitoring and Performance Management Systems for collecting performance data, monitoring, reviewing, and improving performance and compliance.

All of these are very critical and should be studied further and practical solutions proposed by think tanks, professional societies, scientists and researchers across the globe.

CORPORATE CONTROLS BOOK

CORPORATE CONTROLS BOOK

To be published by the end of 2011

AUTHORS

 John KYRIAZOGLOU, CICA, M.S., B.A (Hon.)

and Dr. Frank Nasuti, Ph.D., CPA, CICA, CFE

  with Dr. C. J. Kyriazoglou, Ph.D., MSc.

BOOK SYNOPSIS 

This book is about corporate controls and how they enable and support all management levels of the organization (top, middle, and lower) to accomplish strategic and operational goals and specific time-bound business objectives. Corporate controls, also, facilitate all these management levels to function most effectively and efficiently, and in a beneficial way both to its stakeholders and to society, at large. The stated mission of this book is to provide a set of such Corporate Controls, and their design, implementation and audit issues.  Methodological processes are only described as to how controls are designed, implemented and audited.

The book is structured in three parts and an appendix, as noted below:

PART A: BASIC TERMS AND CONCEPTS

Chapter 1: Introduction to Management, Regulations and Controls, and

This chapter describes the basic concepts of management, regulations and controls, such as: Management Roles, Levels of Management Structure, Legal and Religious Systems, International Regulations and Guidelines, and Key Concepts of Management Controls.

Chapter 2: Proposed Organizational Controls Framework

This chapter describes the current socio-economic environment within which organizations and people operate, presents the most prevalent regulatory control frameworks, presents a diagram depicting the social and economic  needs and drivers for the existence of an Organizational Controls Framework, analyzes the characteristics of competitive advantage and how organizational controls interact and support them, and outlines the basic building blocks of the proposed Organizational Controls Framework.

PART B: MAIN ORGANIZATIONAL CONTROLS

Chapter 3: Corporate Philosophy Controls

This chapter describes the main Corporate Philosophy Controls, such as: Vision, Mission,  and Values Statements, Corporate Social Responsibility Policy, and Corporate Ethics (Policy, Office, Committee, and Program). Also the purpose of organizational philosophy controls, two models for creating a corporate ethics policy, examples of vision, mission and values statements, and a corporate ethics policy are presented. In addition to these a set of review and audit tools and techniques are depicted, such as:

Corporate Vision, Mission, and Values  Statements Checklist,

Departmental Corporate Vision, Mission, and Values  Statements Checklist, Corporate Ethics Program and Policy Checklists, and
Corporate Fraud Management Checklist.

Chapter 4: Corporate Governance Controls

This chapter describes the main Corporate Governance Controls, such as: Board of Directors Charter, Corporate Committees (for Audit, Benefits and Personnel, Information Technology, Financial Issues, and Business Continuity), Corporate Policies (for Financial Accounting, Customer Relations, Fraud and Theft, Community Relations, Health and Safety, and Environment Management,  and

Corporate Processes and Plans (for Performance Management, Internal Audit, Risk Management, Business Continuity Plan, Transaction Authorization Controls, Corporate Compliance Officer). Also examples of (a) charters for a board of directors, an audit committee, and a business continuity issues committee, (b) several policies (such as: customer relations, fraud and theft, community relations, health and safety, environment management, fixed asset management, and performance management), (c) a risk management process (with three steps), (d) a business continuity plan, and (e)  corporate governance performance measures, are presented. In addition to these the following audit programs and checklists are described:

Internal Controls Framework Checklist,  

Business Continuity Audit Review Program, and
Generic Performance Audit Program.

Chapter 5: Strategic Management Controls

This chapter describes the main Strategic Management Controls, such as: Corporate Strategic Planning Committee, Strategic Plans, Strategic Budgets, Strategy Implementation Action Plans, and

Performance Management Framework. Also examples of (a) a charter of a strategic planning committee, (b) strategies, mission, vision, and values statements, (c) a strategic process methodology  and a performance measurement procedure, (d) a corporate strategic plan and a strategy implementation plan, and (e) strategic performance measures, are presented. In addition to these the following audit checklists are described: Strategic Readiness Checklist, Business Idea Development Checklist, and Corporate Strategic Plan Checklist.

Chapter 6: Financial Controls

This chapter describes the main types of financial controls, such as: Financial Organization Controls (Financial Issues Committee, Function of the Controller, Accounting Manager – Job Description, and Budget Department), Financial Policies and Procedures (Financial Accounting Controls Policy, Financial Accounting Procedures, Financial Revenue Procedures, and Budgeting Procedure), General Ledger Controls (Chart of accounts, General Ledger, Trial balance, and  Financial Statements), and Computerized Financial Systems (General Ledger (GL) Systems, Customer Invoicing (CI) Systems, Accounts Payable (AP) Systems, Customer Orders / Sales Processing (COP) Systems, and  Payroll Systems). Also examples of (a) a charter of a financial issues committee, (b) a financial accounting controls policy (c) two budget formulation methodologies and a budgeting procedure, (d) two budget plans (income and expenses, and strategic initiatives), and (e) financial performance measures, are presented.

In addition to these the following audit programs and checklists are described: Detail Management Controls Checklist, Financial Management Controls Checklist, and Asset Management Controls Checklist.

Chapter 7: Administrative Controls

This chapter describes the main types of administrative controls, such as: Administrative Organizational Controls (Corporate Committees, and Departmental Terms of Reference), Administrative Procedures (Procedures Manual, Files, Documents and Records Management Procedures, Confidential Information Release Procedures, Management Reporting Procedures, Asset Protection Procedures, Legal Procedures, etc.),  Administrative Office Controls ( Physical Security Controls, Mail Controls, EDI Controls,  Facsimile Transmission Controls, daily activities controls, etc.), and

Policies, Procedures and Forms Controls.

Also examples of (a) the terms of reference for a production planning department, (b) the contents of an administrative procedures manual, (c) the clauses of an EDI standard contract, (d) five administrative forms (activities journal, visitors log, securities incidents log, problems log and mail log), and (e) administrative performance measures, are presented.
In addition to these the following audit checklists are described:
Internal Controls System: Policies and Procedures Checklist,
Departmental Terms of Reference Checklist,
Records Management System Checklist, and
Legal Issues Checklist.

Chapter 8: Human Resource Controls

This chapter describes the main types of human resource controls, such as: Human Rights Policy, Benefits and Personnel Committee,

Personnel Management Controls, Employee Management Policies and Procedures Handbook, and Human Resources (HR) Systems.

Also examples of (a) a human rights policy, (b) the contents of the charter of a benefits and personnel committee, (c) the job description of a CIO, (d) the contents of an employee management policies and procedures handbook, and (e) human resource performance measures, are presented.

In addition to these the following audit programs and checklists are described:
Human Resources Management System Checklist,
Personnel Responsibilities and Skills Checklist, and
Personnel Management Audit Program.

Chapter 9: Production Controls

This chapter describes the main types of production controls, such as: Operations Policies and Procedures (Purchasing Process and Procedural Controls, and Inventory Control Procedures), Manufacturing Process Controls, Manufacturing Process Controls (New Product Development Controls, Bill of Materials (BOM) File, Master Production Schedule (MPS), Material Requirements Planning (MRP), Inventory Master Records (IMR) File, Inventory Transactions File, Preventive Maintenance Controls), Computerized Production Information Systems (Material Requirements Planning (MRP) System, Cost Accounting (CA) System, Production planning and control (PPC) system, Enterprise Resource Planning (ERP) system),Quality Management Controls,  Standardization Procedures, Project Management Controls, Performance Management Controls, and Production Performance Measures.

Also examples of (a) a quality management policy, (b) the steps of a methodology for establishing operational policies and procedures, (c) a purchasing process, (d) a procurement procedure, and (e) production performance measures for innovation, inventory control, manufacturing, production cost, service productivity, supply chain, and quality, are presented. In addition to these the following audit programs and checklists are described:
Production Process Audit Program,
Purchasing Controls Checklist,
Inventory Controls Checklist, and
Quality Management Controls Checklist.

Chapter 10: Information Technology (IT) Controls

This chapter describes (in summary form) the main IT Controls, such as: IT Organization Controls, IT Administration Controls, IT Strategy Controls, System Development Controls, IT Security Controls, IT Operational Controls, IT Technical Controls, Computerized Application Controls, and IT Performance Management Controls. In addition to these the following audit programs and checklists are described:
IT Terms of Reference Checklist,
IT Vision, Mission, and Values Checklist,
IT  Strategic Planning Checklist,
IT Technology Coverage Checklist, and
IT Performance Assessment Audit Program.

PART C: DESIGN, IMPLEMENTATION AND MONITORING OF CONTROLS

The purpose of this part is to identify and propose the elements required to design, implement and monitor strategic and operational control systems more efficiently and effectively.

This part contains three chapters:

Chapter 11: Designing Strategic and Operational Controls

This chapter describes how to design strategic and operational controls for organizations, and the various elements required by the organizations to carry out the design process the best way. The contents of this chapter are:

Strategic and Operational Controls,
Objectives of a Strategic and Operational Control System,
Selecting a Strategic and Operational Control System,
Designing Strategic Management Controls,
Duties, Responsibilities, and Conflicts of Interest,
Key Issues in Designing Strategic and Operational Controls,
Frameworks for Implementing Strategic Controls, and
Comparative Analysis of Frameworks.
Also examples of (a) a strategic controls process and a corporate policies and procedures management plan, (b) a conflicts of interest policy, (c) the control duties and responsibilities of a CIO and a board of directors, (d) a BSC for a public ministry and a BSC for a large construction company, and (e) performance measures for designing controls, are presented.
In addition to these the following checklists are described:
Strategic Management Controls Checklist, and
Organizational Controls Readiness Checklist.

CHAPTER 12: Implementing Strategic and Operational Controls with the BSC

This chapter describes how to implement strategic and operational controls for organizations, and the various elements required by the organizations to carry out the implementation process the best way. The contents of this chapter are:

The rationale for BSC development and implementation, 
The BSC general implementation process,
BSC Detail Implementation Approaches, and
The critical success factors in implementing strategic controls.
Also examples of (a) a Full-Scale Methodology for implementing BSC, and a Quick way approach for implementing BSC, (b) the contents of a BSC implementation plan, BSC responsibilities, and a performance dictionary, (c) an employee performance review policy, (d) linking the various BSC components, and (e) performance measures for implementing controls, are presented.
In addition to these the following checklists are described:
BSC Implementation Checklist,
Strategic Controls Implementation Checklist, and
Strategic and Operational Controls Checklist.

Chapter 13: Monitoring and Review Controls

This chapter discusses the purpose and main types of monitoring and review controls, and describes the following controls, such as:

Monitoring Controls System,
Monitoring implementation of the strategic plan,
Monitoring implementation of policies and procedures (Continuous management monitoring procedures, Communicating performance information procedure, Management reports monitoring procedures, and Data Quality Monitoring Procedures), and Review and compliance controls (Internal Audit Process, Corporate Compliance Officer, Daily Activities Review Controls, Computer Security Monitoring and Review Procedures, The Corporate Governance Information System, External-Assessment Procedures, and Self-Assessment Procedures).
Also examples of (a) a data improvement methodology, (b) the contents of an internal audit report, (c) the contents of a customer satisfaction survey, (d) a Corporate Intelligence Monitoring Management Plan, and (d) performance measures for monitoring controls, are presented.
In addition to these the following audit programs and checklists are described:
Organizational Controls Monitoring Audit Program,
Communications System Review Checklist,
Internal Audit Checklist,
Monitoring Strategic Plan Checklist,
Monitoring Corporate Controls Checklist, and
Monitoring IT Controls Checklist.

APPENDICES

Appendix 1. The Code of Hammurabi

Appendix 2. The Ten Laws of Solon
Appendix 3. The Maxims of the Oracle of Delphi 
Appendix 4. Examples of BSC Implementations 
Appendix 5. Strategic Analysis and Assessment Methods and Tools 
Appendix 6. Chief Information Officer – Job Description 
Appendix 7. List of Audit and Review Programs 
Appendix 8. List of Audit and Review Checklists 

GLOSSARY

BIBLIOGRAPHY

                          AUTHORS

John KYRIAZOGLOU, CICA, M.S., B.A (Hon.)

                          and Dr. Frank Nasuti, Ph.D., CPA, CICA, CFE

                          with Dr. C. J. Kyriazoglou, Ph.D., MSc.