Trust Is Your Only Control

I frequently present to audiences about fraud and ways to prevent it—like implementing internal controls. I even developed an entire training about trust versus control, which covers this concept of trusting employees versus implementing controls. Some business owners and executives trust their employees too much, and these same business owners usually have very few, if any, controls in place to keep their employees in check.

But over that past few days, I have been rethinking this concept. It really isn’t about trust versus control because trust is still necessary when implementing and maintaining internal controls. I wouldn’t say this is a profound revelation, but it is important because controls are ineffective if employees don’t adequately perform their part. For example, I have seen employees embezzle money from companies with what would appear to be an effective internal control structure.

I don’t say this to scare you, but your controls are only as strong as your people. Isn’t that the same as a business owner who has no controls and trusts their employees to do the right thing?

I am not recommending you throw all your controls out the window—internal controls still have a place in businesses, but I have included the following tips to help you evaluate your internal controls and mitigate some of the risks associated with trusting others:

• Verify often – I am sure you have heard the phrase, “Trust but verify.” Oftentimes, owners, executives, and auditors will ask employees about transactions or variances. They will accept the employees answer without question. Verifying the answer(s) provides two things: comfort that the employee’s answer was accurate and the employee sees that you will verify explanations. You don’t have to do it every time, but if you do it every once in a while, you are keeping people honest.
• Involve multiple people – This is essentially segregation of duties and monitoring controls. When multiple people are involved in the process, you have checks and balances. If properly planned and implemented, these are the strongest controls because the only way to circumvent them would be through collusion or an employee not doing their job.
• Proper tone at the top – A strong ethical culture is so important. It provides an environment for employees to be honest and stay honest. If breaking the rules is acceptable, it will be hard to trust any of your employees and leaders will not even see it. Consider the honest employee in an organization with poor tone at the top—do you think they will stay there for long? If they try to voice opposition, do you think anyone will listen?

Before you ditch all your internal controls or choose to not implement any at all, you should know that the risk of fraud is higher in an environment without internal controls. Please see my three part blog series related to protecting your business through building strong controls, educating employees, and engaging employees.

If you ever have an idea for a future blog or a question about a published blog, please contact me with your thoughts. I would love to hear from you.

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