Internal controls; the key to secure the firm

Provides reasonable assurance in achieving objectives


Kuwait City, January, 04 2012: The last financial turmoil had a deep impact on the economies globally, and Middle East is no different. Though the Gulf had been relatively insulated from the crisis with the oil cushion in place for a few states, financial hubs like Dubai were not able to weather the storm at all. Kuwait followed the global pattern and the overall corporate landscape suffered a setback.

In the wake of the crises, The Central Bank of Kuwait (“CBK”) had last year announced tightened regulations for the investment sector with three key criteria related to liquidity and leverage. Most these regulations entail a conception of stress testing model in line with Basel II. In fact, following the CBK announcement, CBK governor Sheikh Salem Abdulaziz Al-Sabah announced that the body is contemplating a stress testing model for the investment firms in line with what is currently being followed for the banks in the country.

Mr. Tarek Shashaah, Partner, Grant Thornton Al Aiban & Al Qatami Co., opines “Though the economy globally as well as locally is on the path of resurgence, the fact that the world had to go through a slump highlights the importance of internal controls in company’s management and operations”. He highlighted the importance of segregation of duties within firms that enhances transparency and keeps it fiscally healthy. As a process internal control is designed to provide assurance regarding the efficiency and effectiveness of the operative units within the company, reliability in the financial reporting and compliance with laws and regulations.

Internal controls have five correlated components in the loop, namely, control environment, risk assessment, control activities, information and communication and monitoring.

The control environment framework defines the confines within the conduct of an organization takes place. The senior management usually sets the tone for ensuring highest level of integrity and professional standards within the firm. This is aligned to the operating processes of the company and responsibilities of key personnel along with their authorities. Al Aiban & Al Qatami Co. offers a full range of business process reengineering services, by developing the policies, procedures and authority matrices for our clients to help them put an efficient control environment.

The major concern under the umbrella of internal controls is the process to identify, monitor and control risks. Firms need to iteratively realign their risk philosophy, define the risk appetite and enable key risk management policy and procedures. The third component of internal controls involve the control activities which include preventive measures like developing the policy manuals, supporting documentation etc., detective measures like reconciliation and deviation from the usual line and the review measures to investigate the actual performance after the forecast and steps. At Al Aiban & Al Qatami Co., our team coordinates with our clients and assists them in measuring the effectiveness of the internal control measures being implemented. Moreover, our team carries special capabilities in the areas of general and application controls.

Information & Communication and Monitoring are the last two pillars of internal control. These pillars ensure that the information pertinent to the control processes flows across the company in a transparent manner. It also assesses the internal control performance over time. Monitoring helps determine whether internal control is adequately designed, properly executed, and effective.

Senior leadership’s role in the internal control system and its implementation is paramount to its effectiveness. Management should focus their monitoring activities in high-risk areas and with support from our team, spot variations in the transactions conducted by the company.

As a team, we are committed to providing our clients with internal control service in the areas of business process improvement, performance measurement and risk management advisory services to help them gain maximum efficiency and progress successfully. We can assist your company in analyzing, documenting, designing or reviewing internal controls for any or all of your active functions. Our staff has extensive industry experience and specialized internal control training and can become an important part of your management implementation team for CMA & CBK mandates implementation.