How to Rightsize Internal Controls for Your Business: Avoiding the Hidden Costs of Over-Control — Without Leaving Gaps

When internal controls fail, the challenge isn’t realizing change is needed. Rather, it’s determining the extent of the change required to have an effective control environment. Should you rebuild the entire control framework or make targeted fixes? Once that decision is made, a harder question follows: “What should your control environment actually look like?”

This is where many companies stall. Not only do they have ineffective controls, but they also have those that are misaligned with related risks. Some are relics of past audits or address risks that don’t currently exist. Others were copied from generic templates or added after system implementations, similar to those typically seen in other control environments. Few are periodically revisited, and fewer still are mapped clearly to mitigate the company’s actual risks.

The result? A control environment that is too dense in some areas, too thin where it matters and too confusing for anyone to navigate with confidence. Instead of supporting the business, controls become more about checking the box than actually protecting the business. The control environment, therefore, doesn’t effectively mitigate risk and is too costly to maintain.

The goal of an effective control environment isn’t about adding more — it’s about rightsizing. That means building controls that reflect how your business truly runs, targets real risks and focuses your team’s time and attention where it matters most.

What Overcontrolled and Undercontrolled Environments Really Look Like

Overcontrolled environments

These environments aren’t always obvious because on the surface they often look organized. When you go below the surface of an overcontrolled environment you typically find:

• Too many touchpoints: Routine transactions require multiple approvals, slowing down the business.
• Redundant controls: Multiple controls address the same risk without enhancing effectiveness.
• Manual workarounds: Excessive manual steps are layered over automated systems.
• Complexity without clarity: Processes are overly detailed or confusing, leading to delays or errors.
• Control fatigue: Employees are burdened by unnecessary control tasks, reducing engagement and finding workarounds.
• Disproportionate effort: There are high compliance costs for low-risk areas.
• Inflexibility: Controls are rigid and slow to adapt as the business or risk profile evolves.
• Volume over value: Too many exceptions or immaterial issues create noise instead of insight.
• Audit overload: Findings exist that focus on minor documentation gaps instead of true risk exposure.

Undercontrolled environments

Undercontrolled environments seem efficient until you understand how decisions are made or how data flows. Common indicators include:

• Weak system access controls: System access is not removed timely or roles grant more permissions than necessary.
• Errors in key reports and data sources: The integrity of key reports or data sources are relied upon without proper validation.
• Weak system configuration: The system allows for data to be overridden without proper, documented secondary review and approval.
• Insufficient third-party monitoring: Critical third-party service providers are trusted without due diligence or ongoing oversight.
• Frequent errors or misstatements: There are repeated issues in financial reporting or operational processes.
• Lack of segregation of duties: Certain individuals can control end-to-end processes without oversight.
• Minimal documentation: Key processes and controls are undocumented or poorly defined.
• Inconsistent execution: Control performance varies across departments or locations, increasing risk exposure.
• High dependency on key individuals: Institutional knowledge is not documented or scalable.
• Surprise audit findings: Significant issues surface during external or internal audits.
• Weak monitoring: There is little to no tracking of control performance, exceptions or remediation.
• Delayed issue resolution: Control failures are known but not promptly addressed.
• Unclear accountability: Owners of key processes and controls are not clearly assigned.
• Increased fraud or policy violations: There is elevated risk due to lack of preventative or detective controls.

Why Rightsizing Matters: The Purpose Test

The goal is not only to have strong, effective controls. They also need to be efficient with the purpose of mitigating risk. Strength without purpose can create confusion and ultimately waste time.

Every control should answer these simple questions:

• What risk is the control addressing?
• Why does it matter?
• What errors do I expect to prevent or detect by having the control?

If those answers aren’t clear to both management and staff, the control probably isn’t serving you well. This mindset is crucial for middle-market companies with limited time and resources. You can’t afford excessive controls, while you also can’t tolerate risky control gaps. Rightsizing strikes a balance between the two.

What a Rightsized Environment Looks Like

A rightsized control environment is not defined by the number of controls. It’s defined by how well they reflect your business realities and address key risks. You know you’re getting close to a rightsized environment when:

• Controls align with actual risk: Low-risk areas aren’t overburdened, and high-risk areas get the attention they need. Thus, the controls aren’t just based on external auditor preferences or SOX checklists.
• Effective use of resources: Resources are focused where they’ll make the biggest impact to mitigate risk in high exposure activities.
• SOX controls align to financial statement materiality: Controls don’t simply focus on theoretical exposure or “just in case” logic. Rather, they focus on where significant financial statement errors can occur.
• Operational controls address enterprise-wide risks: The control universe addresses fraud, cybersecurity, data quality and accountability.
• Ownership is clear: Controls aren’t assigned based on an organization chart. They’re assigned based on where the controls logically fit the functions and mitigate the most risk.
• Automation is used effectively: Automated controls are not just used to patch application flaws. They’re integrated into the applications as the first line of defense in a scalable control design.

And perhaps most importantly, people can explain “why?” That is, control owners understand the purpose behind what they’re doing.

Five Steps to Rightsize Your Control Environment

Organizations can use a five-step, practical approach to simplify, strengthen and align risks to effective controls.

1. Start with risk and clarify the type of risk type being mitigated: Too many companies jump straight to controls. Start with risk but clarify what type you’re trying to mitigate, whether it’s operational, compliance, financial, IT, fraud or other risk.

• SOX: Controls should map directly to risks of material misstatement. Avoid designing controls that address theoretical exposure or immaterial items. It wastes effort and muddies testing.
• Outside of SOX: Focus on operational and enterprise risks including fraud, cybersecurity, third-party exposure, accountability gaps and regulatory exposure.

And for any domain, always ask: “If this goes wrong, who gets hurt or what’s the impact?” If the answers are unclear or the impact is low, the control may not be necessary.

2. Reevaluate control ownership and role design: Most control breakdowns don’t occur because of missing reviews. They’re due to unclear responsibility and accountability.

• Review roles in key systems, especially after implementation. Also, ask the questions: “Are access levels too broad? Do permissions reflect job responsibilities?”
• Evaluate approval protocols. Be sure to consider whether the approval protocols are meaningful or if they are redundant.
• Revisit inherited processes. After an acquisition or reorganization, ask: does someone clearly own the risk?

Effective control design starts with clear accountability, not just clean documentation.

3. Cut or simplify controls that no longer serve a purpose: Controls should evolve as the business changes. Too often, they remain static.

• Identify overlap, especially manual reviews that duplicate system-based controls.
• Consider asking, “If we remove this control, what’s the risk?” If there’s no clear answer, it may be time to sunset the control.
• Streamline controls where risk is low and use threshold-based approvals, automated verifications or switch from line item to batch reviews.

Fewer, well-designed controls are more effective than too many ambiguous ones.

4. Monitor more frequently and less formally: Don’t wait for year-end testing to monitor control effectiveness. Add less formal, real-time touchpoints.

• Track metrics like exception rates or control failures.
• Use alerts to surface risky combinations, such as a user who can both create and approve payments.
• Conduct monthly touchpoints about the effectiveness of key reconciliations instead of annual “surprise” reviews.

The goal is not to catch everything. It’s to spot patterns early and fix issues before they become problems.

5. Reinforce the message: risk driven, not checklist driven: Without a doubt, culture makes or breaks control environments. Focus on real risk through communication and reinforcement.

• Train teams on the purpose behind controls, not just how to follow them.
• Collaborate with internal audit and process owners to share trends and spot control fatigue before it leads to burnout.
• Align early with external auditors and be ready to explain how your control design reflects actual risk, not just industry norms.

Rightsizing is not a one-time fix or one-size fits all approach. It requires periodic reevaluation and a mindset shift. Controls exist to protect what matters — they’re not focused on everything.

Final Thought: Controls Should Create Confidence, Not Chaos

A strong control environment goes beyond audit readiness. It drives alignment, sharpens decision-making and protects the business without being a drag on resources. Rightsizing isn’t about doing less — it’s about doing what matters and having the clarity to know the difference.

If your resources are over extended and working too hard to meet the standards, it may be time to take a closer look at a rightsizing assessment. We’ll help you align your controls to mitigate the real business risk and build a framework that fuels both compliance and performance. Contact us to help your team transform the control environment into one of strength, efficiency and clarity.

©2025

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