Internal controls are often described, designed, and evaluated through the language of compliance. Over time, this framing has become so common that it is rarely questioned.
That is a problem.
Internal controls exist to manage risk, protect value, and support informed decision-making. When they are treated primarily as a compliance exercise, their purpose narrows. Judgment is replaced with formality. Ownership weakens.
Understanding this distinction is critical as internal controls work best when they are written, owned, and operated as risk management tools.
Why this is not helping organizations
1. Compliance – with what?
Compliance language is often used in relation to internal controls without clearly defining what it refers to.
In some cases, compliance refers to compliance with external laws and regulations. However, external regulations rarely prescribe specific internal controls. Instead, internal controls are the checks and balances that management chooses to implement to mitigate the risk of non-compliance with laws and regulations. The level and design of these controls remain a management decision, informed by risk appetite.
In other cases, compliance refers to compliance with internal processes. Since internal controls are part of those processes and exist to mitigate business risk, being “non-compliant” in this context usually means that a control has not operated effectively. In such cases, it is more precise to describe the issue as an internal control failure that needs to be assessed and managed based on risk.
At times, compliance is also used to refer to alignment with best practices. Best practices, however, are reference points rather than obligations.
For these reasons, it is important to be clear when using the word “compliance”. Where possible, alternative language is more effective, such as “alignment with best practices” or “internal control failure”.
2. Compliance language positions controls as external obligations
Beyond ambiguity, compliance language also changes how responsibility is perceived.
When internal control text is positioned as a compliance obligation, controls are framed as something imposed from the outside. The implied driver is not management, but regulators, auditors, or standards bodies.
This is misaligned with how internal controls are meant to function. Internal control is a management responsibility designed to support strategic, operational, reporting, and compliance objectives. Compliance is one objective, not the system itself.
When this distinction is lost, controls stop being management tools. Once controls are described as compliance requirements, people interact with them defensively. The focus becomes “did I tick the box?” rather than “did this actually reduce risk?” That behavioural shift changes how controls are executed, reviewed, and improved.
3. Compliance language reframes the objective from risk reduction to rule adherence
This shift in responsibility is followed by a shift in how success is defined.
Internal controls are meant to manage uncertainty. Compliance language reframes that purpose into a binary question: are we following the rule or not?
Over time, internal control documentation begins to tell a different story. Instead of explaining how specific risks are identified and mitigated, it explains how procedures align with expectations, standards, or templates. The narrative becomes inward-looking and procedural rather than risk-focused.
4. Compliance language obscures judgment and trade-offs
Once success is measured in terms of rule adherence, professional judgment is gradually squeezed out.
Good internal control design requires choices. How much control is enough? Which risks can be accepted? Where is prevention worth the cost, and where is detection sufficient?
Risk-based control descriptions explain cause and effect: this risk exists, therefore this control matters. Compliance-based descriptions remove that logic and replace it with structure: this control exists because it is required. As a result, the link between risk and control weakens.
What to do about it: reposition “compliance”
When compliance language is used, clarity and consistency are critical. Compliance with external regulations remains one of the key risks for any organisation and, like any risk, needs to be managed in line with the company’s risk appetite.
When discussing internal controls, however, it is helpful to avoid using compliance language loosely. A healthier internal control narrative looks like this:
- Internal controls are designed to mitigate the likelihood and/or impact of risks.
- Compliance with external mandatory requirements is one category of business risk.
- “Compliance” with best practices is better described as alignment with best practices.
- “Internal control compliance” is better described as internal control effectiveness.
Controls can be challenged, simplified, or removed based on their contribution to risk reduction. This reframing restores management intent to the control environment.
Organisations that successfully move away from compliance-centric control thinking tend to show the same patterns:
- Clearer linkage between risks and controls
- Stronger ownership at the process level
- Fewer controls, but stronger and more targeted ones
Conclusion
Internal controls are not a compliance exercise. Treating them as such narrows their purpose, weakens ownership, replaces judgment with formalism, and shifts focus away from risk management and value protection. Internal controls work best when they are written, owned, and operated as risk management tools first.
At internalcontroltoolbox.com, we focus on risk-first control thinking that supports real decision-making. Our templates and practical tools help teams operationalise this shift.
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