As IMA’s Senior Director of Regional Partner Relations, Ahmad is responsible for managing all IMAs strategic partners, government relations and training partners in the Middle East, Africa, India, and Southeast Asia. A graduate of California State University Sacramento, major in International Business. After a very successful 10 years of working in the USA, he joined a leading Training institute – one of the largest finance and accounting training company in the Middle East as Executive Director and was instrumental in helping over 80,000 professionals learn more about their chosen profession and take step towards becoming certified professionals.
Digital transformation has drastically changed the working patterns of companies. There has been an extremely rapid increase in the use of computing power and the internet, which has enhanced the productivity of enterprises and improved the flexibility of the workforce. The ability to work from anywhere has enabled employees to stay connected and entities to collaborate globally. But while the increased use of digital enablers is enhancing the way business managers service their clients, it is at the same time posing complex challenges to core organizational processes, especially when it comes to policies and control procedures.
For one, digital transformation has brought about a complete shift in work culture, introducing the extensive use of cloud-based solutions, artificial intelligence, and the like that necessitate internal control frameworks to be flexible and adaptive. However, there is a marked resistance toward the new age of internal control that includes risk management, constant real-time monitoring, and automation. This calls for a responsive control framework and agile leadership that suits an expanding business environment. It also highlights the need for corporations to hire and retain skilled manpower to support unhindered and efficient corporate governance.
How digital transformation has impacted internal control
As per a survey titled, “Internal control and the transformation of entities,” which assessed how digital transformation has impacted internal control, at least 50% of the participants emphasized the dearth of appropriately skilled staff engaged in internal control procedures as a major challenge. The survey conducted with 2,000 global members of ACCA (the Association of Chartered Certified Accountants), the Internal Audit Foundation, and IMA (Institute of Management Accountants), had some key findings. Among respondents, 41% blamed the absence of technological advances within the internal control function and 32% said that the lack of executive emphasis was responsible for affecting internal control management. The overall view of the respondents indicated that the challenges before internal control arose mostly during the pandemic which led to a turbulent economic environment causing uncertainties. It also underscored that the staff involved in managing internal control required appropriate skill sets going forward.
Inclusion of internal control early on during digital transformation is key
Internal control is prime for an organization’s performance, growth, and relevance in the market. Going beyond statutory compliance requirements, it helps companies build trust, confidence, and a positive reputation in achieving strategic business results. It includes processes that finance professionals use to prevent financial fraud and transactional errors and essentially ensure that the company is operating effectively. Fundamental to effective internal control is the right blend of people, processes, technology, and data.
With accelerating technology and data adoption across industries, a broader scope of skill sets at all levels in an organization is desirable for effective internal control and in turn, achieving important objectives, especially in disruptive and uncertain times. In the ever-expanding business environment of today, it is also a necessity for internal control frameworks to be agile and future-ready for sustainable operations with the rapid adoption of technological advancements. Also, it is crucial to include internal control frameworks and processes early on during business transformations. It would not only enhance the business, but also generate value for shareholders, especially in a multi-stakeholder organization.
Today, data comes from varied sources and is less structured, which is a major concern for organizations that are looking at data fraud and threat risks seriously. To tackle this, entities need to heavily invest in technology and data skills simultaneously, especially for those involved in internal control, and look for and organize appropriate learning opportunities in technical and interpersonal areas to support manpower across the board. They must also recognize the need for the incorporation of non-financial elements into internal control. This is because more than financial objectives, what is important to stakeholders today are disclosures that are non-financial such as actions connected to climate change and human capital, which broaden the scope of performance and confidence.
ESG for the highest transparency and confidence building
Once again, the survey corroborated this, showing a whopping majority (80% of participants) who voted for non-financial and Environmental, Social and Governance (ESG)-related disclosures for their internal control framework. ESG metrics create the highest transparency by combining the right data and disclosures resulting in clearer financial reporting and building confidence and trust. As the demands for ESG-related disclosures soar, the need for a policy on such disclosures arises, which comes under the purview of internal control.
To meet the larger internal control, objectives robust skill sets are a must. It is important for accountancy, finance, and internal audit professionals to recognize the prospects that technology brings along that can be put into processes to improve and enhance working. These professionals should maintain their relevance through adequate qualifications and continuous learning so that they can enable the decision-makers to meet the needs of corporate governance and guide companies and stakeholders into a new era of internal control.