Policies and procedures establish an organization’s standards for operation and decision-making within each key business area. They ensure employees are performing tasks effectively to align with organizational objectives. Policies, or principles adopted by an organization to uphold process standards, indicate the “why” behind actions. Procedures detail the “what,” or the specific steps taken to achieve those goals and implement the policies.
Writing and successfully implementing policies and procedures can be tricky. If a company issues their policies and procedures at separate times and in separate documents, employees may struggle to grasp the full context and rationale behind the business process. If the documents are lengthy with complex language, an employee may choose to skim over the document, potentially missing key information aiming to improve the efficiency of their day-to-day activities. If policy and procedures are written ineffectively, the organization may miss an opportunity to contribute to and fortify their internal control framework.
To address these challenges, a company should consider implementing the following strategies to create concise, reader-friendly policy and procedure documents that enhance internal controls:
Rather than deploying policies and procedures separately, combine them into a single document. This allows a company to outline the procedural steps to complete a process successfully and articulate the policies governing each step. Therefore, the employee has access to both the “why” and the “how.”
Opt for simple and straightforward language in policies and procedures documents. The use of jargon or convoluted language can reduce the effectiveness of the document and make employees less likely to read it.
We recommend incorporating the following sections to simultaneously improve policies and procedures and fortify the internal control structure:
Every policy and procedure document should state its purpose through an overarching policy statement clearly articulating the organization’s approach to the area of operation. This statement ensures organizational alignment, effectively communicating expectations across the company. It should be concise and set the stage for subsequent sections.
A process flow diagram is a visual representation of a step-by-step business process. It documents the flow of activities from one involved party to another, denoted by horizontal swim lanes. The process of developing this diagram typically results in ideas for process improvements if a duplicate or less than efficient step is identified.
A RACI is a tool used to clarify the roles and responsibilities, or the segregation of duties, in a business process. RACI stands for Responsible, Accountable, Consulted, and Informed. Each letter represents a level of responsibility associated with a process step:
This tool promotes transparency and efficiency across departments involved. The process steps depicted in the RACI should directly correspond to the steps outlined within the process flow. Numbering each step helps the audience understand the policy and procedure document more easily as they read through it.
A process narrative provides a tabular view of the business process from start to finish. It details each step outlined in previous sections, subject to the same number formatting, in addition to specifying each process step’s inputs (data or information required to complete the task) and purpose (the desired outcome of the task).
To strengthen a company’s internal controls framework, the narrative should identify any risks associated with each step, propose clear mitigation measures, and specify the accountable parties responsible for implementing these measures. These measures act as internal controls, ensuring compliance with regulatory standards such as those required by SOX 404(b).
Policy statements play a critical role in strengthening the internal controls associated with a business process. This section should specify the policies intended to mitigate the risks identified in the process narrative for each process step. This approach ensures that every identified risk is effectively managed through established policies, thereby enhancing the overall risk management framework.
Listing references to supporting documentation gives a company the opportunity to further champion their control structure. It allows a company to clarify specific processes in greater detail and facilitate the integration of supplementary control documents, thus producing a transparent, auditable trail.
Policy and procedure documents can be lengthy and confusing, even more so when they are separated. To make them more effective, combine them into a single document with a standardized structure that clearly defines the business process’ segregation of duties, delegation of authority, and risk mitigation activities.
Contact Trenegy to learn more about how our policy and procedure strategy can strengthen a company’s internal controls. Reach out to us at info@trenegy.com.
