If an auditor were to ask you, “What is your opinion of your internal controls,” how confident would you be in your answer? Do you really know how strong your internal controls are for your organization? The best way to find out for yourself is to perform an internal risk assessment on your controls. This can give you a clear view on where exactly your organization stands with its ability to address risks within your organization or accounting processes with effective controls.
One way to evaluate your internal controls is by looking at all of the processes of your organization and identifying in each step any possible risk of something going wrong. When looking for risks, think about mistakes that can happen and even try to find ways someone could commit fraud. Once all of the risks have been identified, the next step would be to look at the current controls of your organization and see what risks are reduced or eliminated by the controls already in place. From here work, on implementing new controls to address the remaining risks, or even to enhance current controls.
Doing this may take some time, but it will be worth it to increase the strength and effectiveness of your internal controls. It will also give you a clear understanding of your internal controls so that you can respond confidently to the question mentioned at the beginning of this post. Lastly, performing an internal risk assessment of your organization may bring to light a possible deficiency that would have been identified by your auditor as a management letter comment on your next audit.