14 15 And does communication occur down across and upward in the entity as well

14 15 and does communication occur down across and

This preview shows page 56 - 59 out of 74 pages.

14 15 And does communication occur down, across and upward in the entity, as well as between the entity and other parties? 15 Monitoring a202925199b97cb3e48d5bdd1256019671e960eb.doc
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a202925199b97cb3e48d5bdd1256019671e960eb.doc 57 16 Are appropriate procedures in place to monitor on an ongoing basis, or to periodically evaluate the functioning of the other components of internal control? 16 17 Are deficiencies reported to the right people? 17 18 Are policies and procedures modified as needed? 18 Overall Conclusion See attached 7.12 Hard and Soft Control To minimize risks, management designs and sets in place a set of rules, physical constraints and activities called “internal controls”. Due to the explicit, formal and tangible character of these controls, these controls are generally referred to as hard controls . However, the dynamic environment with its rapidly changing technology, increasing regulatory requirements and globalization requires more than rigorous adherence to policy, procedures and protocols, which may be referred to as soft controls . Social-psychological factors The recent financial and economic crisis has exposed the more softer human factor, the so called soft controls, in the inner workings of organizations as never before. Soft controls are the intangible factors in an organization that influence the behavior of managers and employees. Whereas soft controls are founded in the culture or climate of an organization, the hard-controls are more explicit, formal and visible. The control environment includes soft controls like tone-at-the- top, risk-awareness, openness to raise issues and discuss ideas, trust and loyalty, stakeholder focus, and enforcement. a202925199b97cb3e48d5bdd1256019671e960eb.doc
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a202925199b97cb3e48d5bdd1256019671e960eb.doc 58 Based on scientific research, Muel Kaptein 29 distinguishes seven social-psychological factors which influence people’s behavior within organizations. These factors highly influence the effectiveness of internal control measures and procedures. The factors are as follows: 1. Clarity for directors, managers and employees as to what constitutes desirable and undesirable behavior: the clearer the expectations, the better people know; what they must do, how to perform the control and the more likely they are to act on it. 2. Role-modeling among administrators, management or immediate supervisors: the better the examples given in an organization, the better people behave, while the worse the example, the worse the behavior. 3. Achievability of goals, tasks and responsibilities set: the better equipped people in an organization are, the better they are able to execute the control activities that are expected from them. 4. Commitment on the part of directors, managers and employees in the organization: the more the organization treats its people with respect and involves them in the organization, the more these people will try to serve the interests of the organization and reach the internal control objectives.
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