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Implementing internal controls.

Companies acknowledge that effective internal controls are beneficial because they support reliable financial statements and provide reasonable assurance for the data that managers rely on to make key decisions affecting their businesses. While management's responsibility for internal controls isn't new, many small to mid-sized businesses continue to struggle with the SOX 404 reporting requirements on internal controls over financial reporting.

According to Julie Harrer's Internal Control Strategies: A Mid to Small Business Guide, many smaller companies struggle with implementing an internal control program not only because most perceive the costs of such a program to be prohibitive, but also because they lack insufficient guidance to assist in implementing controls. But that doesn't mean it's impossible, and Harrer provides a guide that small and mid-sized companies can use to implement a strong internal control program and deal with the different assessment aspects while remaining cost conscious. Her book details a structured approach and guidance for businesses to implement and enhance cost-effective controls while also providing ways to enhance efficiencies within existing company structures.

At the outset, Harrer spends more time on the control environment and entity-level controls than most would. She emphasizes that a strong control environment and strong entity-level controls can reduce the overall costs of an internal control program because they permeate throughout all of the financial reporting processes. She then discusses ways to streamline documentation by assessing the true key internal controls that need to be documented and assessed. She presents cost-effective ways to test and assess controls. In case a deficiency is identified, she details a plan to help determine whether it truly needs to be remediated and, if so, how to establish cost-effective means of remediation. Throughout this, Harrer provides multiple practice tips to help implementers focus on what is truly important for each of the different segments of the assessment.


Harrer also includes multiple scenarios and specific advice on how to address items in a cost-effective manner--from strengthening the control environment to implementing a monitoring program. Understanding that SOX 404 is an ongoing effort, Harrer spends an entire chapter on project management, emphasizing the importance of hiring qualified staff, organizing the SOX team in an effective manner, and continuing to educate the entire business staff on the importance of the SOX effort in order to strengthen overall buy-in within the business for improving the effectiveness of internal controls. She ends the book by covering some common areas of concern and tips to address them. There are also several appendices with additional resource information to include entity-level control matrices and checklists.

One of the biggest benefits of Harrer's book is that it is written by someone who has gone through the process herself and has had to contend with the same implementation issues and lack of guidance that others are confronting. Overall, Harrer's book is a valued resource that provides insight and concrete guidance for those of us that struggle daily with ensuring that effective controls over financial reporting are maintained not only for our stakeholders but to support internal management's decision making.--Michael A. Bollinger, CMA, CFM, CPA, CIA, CGFM, CDFM,
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Title Annotation:BOOKS
Publication:Strategic Finance
Geographic Code:1USA
Date:Jan 1, 2011
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