Question

250 WORDS

Provide an example of a situation in which the "design of controls" may be effective but those controls do not operate "effectively". In other words, what issues could cause these controls to be ineffective, such as situations in which the controls are circumvented, or ignored?

Answer 1

Ans: )

Design of controls and the operating effectiveness of controls are 2 very different aspects on which the overall control effectiveness of an organization is based.

While the design of controls should ensure that the control objective of the organization is achieved if they are operated as designed, it is based on factors like:

• Proper alignment between the identified risks and the controls.
• Timely implementation of controls.
• Appropriate segregation of duties.
• Timely attention to and resolution of the observations and issues noted.
• Ensure that the information used in designing the controls is reliable.
• Procedures to monitor the application of controls.

The execution of these controls is based upon factors such as:

• Sampling strategy used.
• Process of sample selection.
• The extent to which testing is done.
• Relevance of the information provided to the reviewer.
• Capability to implement and understanding of the controls of the reviewer.

For E.g.: Suppose an organization has designed a control specifying that a journal entry will be entered in the accounting system by one employee and will be independently reviewed and approved by another employee, This is an example of a good control design, but when tested it is observed that the employee who has been assigned the review responsibility lacks proper knowledge, authority or understanding to perform the role, or the sampling strategy and the process of sample selection for performing the review is flawed which leads to ineffective execution of a properly designed control.