How do you deal with deviations or exceptions found in your internal control testing sample?

Managing Deviations in Internal Control Testing: 1️⃣ Root Cause Analysis: Investigate the cause of deviations to understand underlying issues. 2️⃣ Immediate Action: Take prompt corrective measures to address deviations and prevent recurrence. 3️⃣ Documentation: Thoroughly document all deviations and corrective actions taken for future reference. 4️⃣ Process Improvement: Identify opportunities to enhance control processes and prevent similar deviations in the future. 5️⃣ Communication: Keep stakeholders informed about deviations and actions taken to maintain transparency and accountability. Address deviations with diligence and efficiency to uphold the effectiveness of internal controls!

An auditor must promptly assess and document deviations to ensure a clear understanding of the issue and its potential impact. In my experience as an Internal auditor, upon discovering discrepancies in cash counts, I immediately documented each deviation in detail. This included noting the specific nature of the deviation, the date and time it occurred, the individuals involved, and the potential financial impact. For instance, I found a deviation where the recorded cash count differed from the actual cash on hand by a significant amount. This documentation was crucial for further investigation and analysis.

Identificación y Documentación Cuando se detecta una desviación o excepción, el primer paso es documentarla detalladamente. Esto incluye la naturaleza de la desviación, el proceso afectado, y cualquier información relevante que ayude a entender la magnitud y el impacto del hallazgo.

Promptly identifying and accurately documenting deviations is the first step in addressing issues in internal control testing. In my previous, during an internal control audit, I found that several transactions lacked the required dual authorization, a key control designed to prevent unauthorized transfers. I meticulously documented each instance, noting the date, amount, and individuals involved, ensuring a clear record for further analysis.

Ao lidar com desvios ou exceções encontrados na amostra de teste de controle interno, primeiro, documente cuidadosamente cada ocorrência, incluindo detalhes sobre a natureza e a gravidade do desvio. Em seguida, analise as causas-raiz, envolvendo as partes interessadas para entender o contexto. Desenvolva um plano de ação corretiva, priorizando as questões mais críticas, e estabeleça prazos para implementação. Comunique os resultados e as ações planejadas a todos os envolvidos, garantindo acompanhamento para verificar a eficácia das correções e prevenir recorrências futuras.

Expanding on clear and consistent definition, this should be documented in a controlled document to ensure standardization across the organization

Even the most resilient systems include exceptions. First, consider the consequences—could the lag allow for unnoticed errors? Causes can be traced back to human oversight, resource gaps, or poor procedures. Is the discovery indicative of random anomalies or of systemic risks? Confirm that there is enough evidence to evaluate control efficacy. Close any holes that have been found. Re-test after corrective steps have been implemented across all processes. Though inconvenient, thorough exception reviews improve risk prevention, standardisation, and process discipline. Continuously improving detection and response capabilities results in more resilient systems.

Audit exceptions refer to deviations from the expected result during the testing of control activities. In the context of System and Organization Control (SOC) audits, auditors evaluate whether a service organization's controls are accurately described, suitably designed, and effectively operating to achieve control objectives or criteria. These audits aim to answer three key questions: 1. Accuracy of Description. 2. Control Design: Are the controls described by the service organization suitably designed to achieve related control objectives or criteria? 3. Control Effectiveness Remember that understanding audit exceptions helps organizations improve their processes and address any deficiencies identified during testing.

Address deviations by assessing their significance, identifying root causes, and implementing corrective actions. Document findings, report to management, and adjust controls as needed. Monitor for recurrence and adjust testing procedures accordingly to prevent future deviations.

Auditors must conduct a thorough root cause analysis to help identify the underly reasons for deviations. In my previous role as an Internal auditor, I performed a root cause analysis to determine why the cash discrepancies occurred. This involved interviewing the employees responsible for cash handling, reviewing transaction logs, and examining the physical security measures in place. Through this analysis, I discovered that the discrepancies were due to both human error in recording transactions and a lack of enforcement of access controls to the cash drawers. Identifying these root causes was essential for developing effective corrective actions.

Análisis de la Causa Raíz Una vez documentada, se debe realizar un análisis de la causa raíz para determinar por qué ocurrió la desviación. Este análisis puede involucrar entrevistas con el personal, revisión de procedimientos y análisis de datos. El objetivo es identificar si la causa es un error humano, una falla en el proceso, o una deficiencia en el diseño del control.

RCA to be performed to understand the issue and cause of concern.Consider the severity of issue and also understand exception pattern.Also understand the impact of the exception on all controls.

As an Auditor, evaluating the impact and severity of deviations helps in prioritizing corrective actions based on risk. In my experience, I assessed the impact and severity of the cash handling deviations by considering factors such as the frequency of occurrences, the amounts involved, and the potential risk to the bank’s financial stability and reputation. For example, recurring discrepancies in significant amounts posed a higher risk and required immediate attention. This evaluation helped prioritize which deviations needed urgent corrective measures and which could be addressed over a longer period.

The exception needs to be communicated to management if trivial.Understnda the exception and where it affects in hte standards and policies.

We can select antoher sample and revise the testing approach and see wherther the error pattern occurs in the same way.Procedures need to be modified

Determining the underlying cause of the deviation helps in developing effective corrective actions. To understand why dual authorizations were bypassed, I conducted interviews with staff involved in the process and reviewed workflow documentation. It became clear that a recent software update had inadvertently disabled the dual authorization requirement for certain high-value transactions. Identifying this root cause was critical for preventing recurrence.

Comunicación y Reporte Es importante comunicar los hallazgos y las acciones correctivas a las partes interesadas pertinentes, incluyendo la alta dirección y el comité de auditoría. Un reporte claro y conciso ayuda a mantener la transparencia y la responsabilidad en la gestión del control interno.

Clear and timely communication with relevant stakeholders about the findings and their implications is essential. In my role, I held a meeting with the Bank's compliance and risk management teams to discuss the dual authorization issue. I presented the findings, explained the potential risks, and suggested preliminary actions. This collaborative approach ensured that everyone understood the severity of the deviation and the need for prompt corrective measures.

Report the same in the findings and recommendations and understand the corrective actions and resolution.If we have reselected the samples and no exception had occured in the second sample we may go with the same approach

Dealing with deviations or exceptions found in internal control testing is a crucial part of the audit or compliance process. Here are some general steps to handle such situations: 1-Document the Deviation 2-Assess the Impact 3-Understand the Root Cause 4-Communicate with Management 5-Evaluate Management's Response 6-Consider Implications for the Audit Opinion 7-Discuss with Audit Committee or Governance Body 8-Adjust Audit Procedures 9-Follow-Up and Monitor Remediation 10-Document Everything Remember that each situation may vary, and the specific steps taken will depend on the nature and severity of the deviation, as well as the regulatory and organizational context.

Using the findings from deviations to drive continuous improvement in the control environment is essential. Learning from the incident, I recommended a periodic review of system updates to prevent similar issues in the future. This proactive approach contributed to a culture of continuous improvement, enhancing the overall effectiveness of the bank’s internal controls.

Auditors must ensure regular monitoring and follow-up to ensure that corrective actions are effective and that deviations do not recur. In my experience as an Internal auditor, after implementing the corrective actions, I set up a monitoring system to track the effectiveness of these measures. This included regular follow-up audits and reviews to verify that the cash handling processes were being followed correctly and that the discrepancies had been resolved. For instance, I scheduled monthly spot checks of cash counts and reviewed access logs to ensure compliance with the new controls. This ongoing monitoring helped in identifying any lingering issues and making further adjustments as needed.

Lidiar efectivamente con desviaciones en los controles internos requiere un enfoque estructurado y proactivo, centrado en la identificación, análisis, acción correctiva y monitoreo continuo. Este proceso no solo corrige las fallas existentes sino que fortalece el sistema de control interno, mejorando la eficiencia y la seguridad operativa de la organización.