1415 And does communication occur down, across and upward in the entity, as well as between the entity and other parties?15Monitoringa202925199b97cb3e48d5bdd1256019671e960eb.doc
a202925199b97cb3e48d5bdd1256019671e960eb.doc 5716 Are appropriate procedures in place to monitor on an ongoing basis, or to periodically evaluate the functioning of the other components of internal control?1617 Are deficiencies reported to the right people?1718 Are policies and procedures modified as needed?18Overall ConclusionSee attached7.12 Hard and Soft ControlTo 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 maybe referred to as soft controls. Social-psychological factorsThe 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 controlsare 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
a202925199b97cb3e48d5bdd1256019671e960eb.doc 58Based on scientific research, Muel Kaptein29distinguishes sevensocial-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. Clarityfor 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-modelingamong 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. Commitmenton 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.