In Business We Must "Jiggle the Gate" - Lessons From the Air and Water Show and the Home

Today, as the jets are flying over Chicago (and my office – how cool is that?) practicing their maneuvers for the annual Chicago Air and Water Show this weekend, I am reminded of two things:

1 – The importance of effective internal control systems

2 – The importance of monitoring those internal control systems

It doesn’t take an aerospace engineer to understand that while flying in tight formation a pilot must be constantly aware of his position relative to the other aircraft in the formation. One false move by any of the pilots would spell disaster for everyone. Fortunately they have computer systems in the cockpit that continuously calculate time, space, distance (i.e. internal control system) and a built in warning system alerting them when things are going wrong (i.e. monitoring). However, it is up to the pilot to react to these indicators to avoid disaster. It is pretty amazing to me that all of this works, considering they are flying at speeds over 500 mph and at a distance of 18 inches apart from each other. Heck, I find it difficult jogging next to someone who is only 18 inches away from me – I can almost guarantee we’d bump into each other – but not these pilots. Amazing!

Well, effective internal controls systems and monitoring the internal control systems is important in other places too. Parents of toddlers know all about internal control systems (gates around staircases, plastic covers over door knobs, protective covers over electric outlets…) and monitoring systems (you can’t leave a toddler alone, right? and when you do there is technology for to help - it is called a baby “monitor” after all!). How about pet owners? Do you think they know a little about internal control systems and monitoring? Absolutely.

My business is helping organizations evaluate their systems of internal controls and also the effectiveness of the internal control monitoring. It is as important in a corporation as it is in an airplane and as it is in the home. Can you think of an example of when there have been breakdowns in either the internal controls or the monitoring of those controls in business? You probably don’t have to think too hard. It has happened all too often and unfortunately it continues today. Sometimes it is a fundamental breakdown in internal control, sometimes it is someone circumventing internal control, and other times it is a failure to monitor the control. When done purposely or with malicious intent it is usually for a perceived short term gain (meeting quarterly earnings, making a bonus) at the expense of the long term.

The examples in the corporate world have been discussed and evaluated over and over and over. It cost many their jobs and many more their life savings. But business is not alone in this. If you happen to be a college sports fan, the recent examples of Ohio State (my alma mater) and this week the University of Miami (FL) are shining examples of failure to monitor internal controls systems, ignoring warning indicators, and/or circumventing internal controls systems… all for short term gain at the expense of long term success.

Why have internal controls and effective monitoring systems? Well, besides all the obvious reasons, it is simply the right thing to do. It is important to protect our pilots, protect our children, protect our pets, protect our investments, protect our reputations, and protect our chances at long-term success. However, it is not enough to simply design and implement a good system of internal control. You have to TEST it! Imagine installing a baby gate at the top of a staircase. When finished installing the natural instinct is to jiggle it to make sure it is stable, right? Who would install a baby gate and not test it? And, for good measure you would test it regularly. You could do a great job in creating the control (installing the gate), a great job in monitoring the control (checking regularly to make sure it is still there), but if you don’t test it (jiggle the gate) you could fail as a parent with catastrophic consequences.

When enacted in 2002, the Sarbanes-Oxley Act created the requirement for publicly traded companies to design, monitor, and test systems of internal controls. However, most private companies and private institutions are not held to such standards. While “it is the right thing to do” many private companies ignore the need for internal controls and many more fail to test. If you are reading this and work for a private organization (heck, any organization) think about how often your organization “jiggles the gate” when it comes to the financial reporting processes, information technology, security, privacy, policy and procedures, and operations. If you really think about it, you might not like the answer. A small investment each year to design controls, monitor controls, and “jiggle the gate” will go a long way to protect your opportunity for long-term success.

Effective systems of internal controls are critical to all of us in every walk of life. It is important in the cockpit, at home, in the classroom, and yes, in the workplace. So, do yourself a favor and go “jiggle the gate!”

For those of you in Chicago, I hope you enjoy the Air and Water Show this weekend!

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This blog post was written by Steven Randall. Steve is a Managing Partner with Vonya Global, a premier provider of internal audit consulting services. If you would like more information about Vonya Global or if you have a questions for Steve, you may him through this blog, the company website, twitter, or his LinkedIn Profile.