In this episode, Jonathan Marks considers both tone and conduct from the top of an organization. The nature of a corporate culture can be the difference between a thriving and a beleaguered organization, and it all starts at the top! The control environment – that is, the overall attitude, awareness, and actions of directors and management regarding the internal control system and its importance to the organization – is the key to setting the tone of the organization because it influences the “control consciousness of its people.” Factors that contribute to the control environment include, but are not limited to –

·      Integrity and ethical values communicated by executive management in speaking and writing and demonstrated by action;

·      Responses to incentives and temptations – clear policies and actions that prohibit the acceptance of inappropriate gifts, for example;

·      Moral guidance, as communicated through a code of business conduct and ethics;

·      A commitment to competence, as demonstrated by robust human resource policies and clear job descriptions for the purpose of hiring and retaining qualified people;

·      A board of directors and audit committee that are engaged, ask questions, and take appropriate action;

·      A management philosophy and operating style that place high value on risk assessment and internal control;

·      A well-defined organizational structure that is appropriate to the company’s size and complexity;

·      Appropriate assignment of authority and responsibility, with well-defined authority and duties that are appropriately segregated to prevent or detect error and fraud;

·      Human resource/capital recruiting and retention policies and practices to ensure that human capital is valued; and,

·      Ways to settle internal differences, such as a forum to discuss and settle differences of opinion between management and employees.

In any organization, the buck stops with the CEO: He or she has ultimate responsibility for the internal control system. For additional reading see the article Tone from the Top, It Dissipates!