My preteen daughter was singing the other day, when my wife called her attention. My wife pointed out that the lyrics of the song seemingly don’t align with our family values and principles. The song was about pretending to be good to get what she wants, to get what she thinks she deserves. Our immediate reaction as parents was to tell her not to sing such a song. Immediately after issuing the restriction, I paused for a moment. The song my daughter sung was from the soundtrack of one of her favorite television movies. It was sung by a villain; hence, the lyrics were understandably skewed to appeal to our own selfish side. In addition, we, as parents, are not always with our kids to catch these actions all the time.
By simply looking at the expression on my face, my wife asked what was bothering me. “There might be a better way to deal with this,” I answered. I would have loved to start my explanation by reminding her of what we learned back in our undergraduate studies about internal controls. The good thing was that I was able to get a hold of myself; otherwise, the two of them might have laughed at me. I proceeded by explaining that, apart from simply crafting a rule, we should teach our kids how to discern for themselves what songs are appropriate and are not. It should not be simply about whether they can sing a particular song, but more about being able to determine which among the thousands of messages they hear from television, radio, internet and friends is valid and is aligned to our values. What we need is to strengthen, in internal control parlance, our control environment through the establishment of a policy, training, and being a good example.
We then proceeded to examine the lyrics of the song. We altogether highlighted the problematic lines and measured them by the standard we have set for ourselves, our family values. We reviewed the basic principles we abide by. We were essentially retraining our kids, and ourselves as well, on our family’s vision, our family’s code of ethics and conduct.
Similar to a family, an organization also faces the same set of conditions. Every now and then, an employee would be caught doing something against the organization’s policies. Sometimes there are no policies in place, but it is clear that the employee’s actions are against what the organization stands for. The knee-jerk reaction is to penalize and set rules so it would not happen again. Although there is nothing wrong with that, it would be too cumbersome to deal with such noncompliance if it happens often due to a weak control environment. The leadership of an organization should realize that there is another key aspect in internal control that is often set aside: the control environment. The control environment is the foundation on which the entire internal control structure of the organization sits upon. It reflects what values and principles the organization abides by. It is the tone setter.
The control environment establishes the environment that promotes doing what is right and doing it the right way. It covers both the technical competence of and the ethical principles observed in an organization. The control environment, even if the employees forget the details of each policy, would be able to guide the employees in determining whether an action is aligned with the values of the organization.
The control environment starts from the very top. The owners or board of directors set the tone. These individuals, sometimes called as “those charged with governance,” establish the code of ethics and conduct, as well as the policies and procedures the entire organization would follow. Such a group of individuals is also seen as the bastion of compliance to such codes, policies, and procedures.
In ensuring that people are committed to observe codes, policies and procedures, the coverage of the control environment should start from the hiring process down to the execution of disciplinary actions for erring employees. In between, it is imperative that everyone is trained and retrained on the organization’s code of ethics and conduct.
Setting the tone is more than just setting the rules. It also requires those who set the rules to observe them, for it applies to everyone. I, too, am guilty of the very act I was restricting my daughter to do. I have my share of singing inappropriate songs with loads of inappropriate lyrics. By not being able to fully comply with our policies, my daughter — or all employees for that matter — will be confused about what to follow or whether rules should even be followed because those charged with governance are not following the policies themselves.
Anton Ng is a partner in the Audit and Assurance division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 23 partners and more than 900 staff members. We’d like to hear from you! Tweet us: @PAGrantThornton, like us on Facebook: P&A Grant Thornton, and email your comments to firstname.lastname@example.org or email@example.com. For more information, visit our website: www.grantthornton.com.ph