Your Ask Joey ™ Answer

What are supervisory controls in a business process?

A supervisory control means exactly what you think it would mean. Supervisory controls are used to “monitor” a business process and are designed to prevent or detect issues. Supervisory controls are typically performed by the manager of a business process or executive team members.

What are some types of preventive supervisory controls? Examples of preventive controls include:

1) Hiring requirements: Hiring employees that are qualified, capable, and competent to perform the role is critical. Implementing minimum experience requirements, interview processes, and hiring decision committees can ensure the right individual is hired.

2) Proper hierarchy: Ensuring that the organizational hierarchy in a business is adequate ensures that employees are properly supervised and that a clear chain of command exists.

3) Segregation of duties: Proper segregation of duties in a business process reduces the risk of fraud or error.

4) Approval requirements: Requiring approval for certain business activities can prevent issues. Examples including hiring decisions, writing checks, executing agreements, etc.

What are some types of detective supervisory controls in a business process? Detective controls are often referred to as “the last line of defense”. Examples of detective controls include:

1) Audits or inspections: Audits can be used to evaluate a company’s business processes and ensure that proper controls are in place. This could be a financial audit, environmental audit, SOC audit, regulatory compliance, or other audits or inspections.

2) Employee performance reviews: Each employee should have an annual performance review to determine if the employee is adequately performing the job they were hired to perform.

3) Budget vs actual analysis: A key financial reporting control is to compare the actual financial results to the budgeted results. Most companies use a threshold ($ or %) and investigate if the difference exceeds the predetermined threshold.

4) Tracking of KPI’s: Every business will have key performance indicators (KPIs) that are considered critical to their business. By tracking these KPIs on a monthly or annual basis, a company can evaluate the performance of each business process. Example KPIs include new customers signed, average revenue per customer, market share, net promoter score, order fulfillment time, etc.

Supervisory controls are key controls that every company should have implemented in a business process. Other key controls include segregation of dutiesdata entry input controlscontrols over standing datadata processing controlsspreadsheet controls and account reconciliation controls.


Back To All Questions

You might also be interested in...

  • Discontinued Operations on the FAR CPA Exam

    Overview of Discontinued Operations In financial reporting, discontinued operations refer to a component of a company’s core business or product line that have been divested or shut down. Discontinued operations will be reported (net of tax) separately from continuing operations on the income statement. The reason that discontinued operations are reported separately is so that...

  • Equity Method Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on the equity method, please click the link below to download the Excel workbook: Equity Method Lecture Example https://youtu.be/QE4flnmuSkw

  • How Hard is the CPA Exam?

    So you’re thinking about taking the CPA exam? Whether you have a dream of becoming a tax advisor, feel as though you need public accounting experience, or just want to solidify your business acumen, the CPA license is one of the most prestigious and well respected licenses in the business world. The exam itself is...