How to document internal controls in 7 steps
Internal controls are the link between day-to-day operations and effective governance oversight. These systematic processes enable organizations to identify risks early, ensure accurate financial reporting, and demonstrate regulatory compliance — providing boards and executives with the reliable information needed for strategic decision-making.
Organizations looking to strengthen their controls typically focus on two key areas: automating processes through dedicated internal controls management software and creating robust documentation systems.
Whether you are documenting controls for financial reporting or enhancing your internal controls processes across your entire risk profile, having a comprehensive approach to document management for internal controls can make all the difference.
Here, we explore the approach organizations need to document internal controls, from initial risk assessment through ongoing monitoring and improvement.
Documenting internal controls: a step-by-step process
While internal controls processes can have limitations, documentation shouldn't be one of them. The good news is that internal controls documentation can be straightforward if you take a structured approach.
Here's our step-by-step guide to documenting internal controls:
1. Comprehensive risk assessment and mapping
Identify the processes and activities that create your most significant risks — the ones where key controls need to be measured and documented. Modern risk assessment extends beyond traditional financial risks to encompass operational, technological, and regulatory dimensions that reflect today's complex business environment.
Examples of risks requiring documentation include:
- Operational risks: Third-party vendor relationships, supply chain disruptions, and key personnel dependencies
- Technological risks: Artificial intelligence deployment, cybersecurity vulnerabilities, and system integration failures
- Regulatory risks: Evolving compliance frameworks, data privacy requirements, and industry-specific regulations
Organizations should also document risk appetite statements, risk tolerance thresholds, and interdependencies between different risk categories. This comprehensive approach ensures that internal control documentation addresses the full spectrum of organizational risk exposure rather than focusing solely on traditional compliance areas.
2. Establish a robust internal control framework
Put in place a structured internal control framework that sets out your approach to controls for all the key risks identified in your risk assessment, including setting control objectives, parameters, and comprehensive requirements around documentation standards.
The framework should:
- Establish clear governance structures
- Define roles and responsibilities across multiple organizational levels
- Specify documentation standards that meet current regulatory expectations
Best practice frameworks incorporate the Committee of Sponsoring Organizations (COSO) Internal Control - Integrated Framework principles while adapting to contemporary challenges such as remote work environments, cloud-based systems, and automated decision-making processes.
The framework should specify documentation requirements for different types of controls, establish review cycles, and define escalation procedures for control exceptions or failures.
3. Document your internal controls
Record the measures, processes, or checks you implement to ensure your controls are met. Some processes will naturally be more complex than others and require more detailed documentation. Some, like internal controls for financial reporting, may be mandated by regulations like the Sarbanes-Oxley Act (SOX) and need to be documented to specific standards.
Modern documentation practices now extend beyond traditional process documentation to include system-generated audit trails, automated control monitoring results, and integration with broader governance platforms. As such, organizations should document both manual and automated controls, specifying the technology platforms, data sources, and exception handling procedures.
4. Detailed control specifications and dependencies
Capture all individual controls to build the complete picture of your internal control measures.
Control documentation must address the interconnected nature of business processes, where controls often depend on multiple systems, data sources, and organizational functions.
Organizations should map control relationships, identify single points of failure, and document backup procedures as a safeguard during system outages or personnel changes.
The documentation should specify performance indicators, tolerance levels, and escalation triggers. For controls involving third-party systems or processes, documentation must address vendor management requirements, service level agreements, and contingency procedures.
5. Clear accountability and responsibility structure
Document who owns each internal control, how they're held accountable, and how control performance is monitored and reported. Documentation should specify primary and secondary responsible parties, escalation pathways, and oversight mechanisms.
The accountability framework should integrate with performance management systems, so control responsibilities are reflected in individual and team objectives. Documentation must also address training requirements, competency standards, and succession planning to limit the impact of personnel changes.
6. Test your controls and document the results
Controls testing and monitoring are essential components of the internal controls process. Via sample testing, you must identify and document potential areas where your controls might fail. Note down all the controls that work as they should, and capture any exceptions in a remediation log to be addressed as soon as possible.
Organizations should also document testing frequencies, practical sampling approaches, and testing methods that ensure proper oversight while managing costs and time.
7. Regular review and continuous improvement
Even without exceptions, your controls should be tested regularly, and your entire approach revisited periodically based on changing business conditions or regulatory requirements. Documenting this review process is an essential aspect of establishing internal controls overall.
Make sure to capture review results, improvement recommendations, and implementation timelines.
Internal control documentation examples and modern approaches
How do you document internal controls in practice? Here are common approaches organizations use.
Traditional documentation
Most growing companies start with familiar tools that require minimal upfront investment:
- Spreadsheet-based control matrices tracking control descriptions, owners, and testing results
- Word document procedures outlining step-by-step control activities
- Email chains for control testing, evidence, and exception tracking
- Shared drive folders organizing control documentation by department or process
Modern integrated approaches
Leading companies are adopting more sophisticated methods that provide better visibility and efficiency:
- Process flowcharts that visually map control activities within business processes
- Automated control monitoring that generates real-time performance data
- Dashboard reporting that provides instant visibility into control effectiveness
- Exception management systems that track issues from identification through resolution
The shift toward technology-enabled documentation
While some organizations still rely on spreadsheets and document-based systems, other companies are moving toward integrated governance platforms that provide centralized control libraries, automated documentation generation, and real-time monitoring capabilities.
Organizations using internal controls management software like Diligent benefit from:
- Centralized risk and control libraries that eliminate duplicate effort
- Automated documentation generation that reduces manual work
- Real-time monitoring that catches issues before they become problems
- Integrated reporting that supports both operational management and investor presentations
Alongside more efficient compliant processes, reduced costs, greater confidence in your controls, and less potential for human error — a recognized potential weakness of internal controls — automating your internal controls process can help to make documenting internal controls an in-built part of your controls design and implementation.
Realize the benefits of documenting internal controls
Effective internal controls documentation provides clear accountability structures, reduces compliance risks, and enables faster audit processes. Documenting internal controls preserves institutional knowledge during organizational changes while enabling data-driven decisions through consistent and transparent workflows.
However, manual documentation approaches quickly become bottlenecks for large organizations. Leading companies are implementing AI-powered platforms that automate control testing and generate audit-ready reports.
Discover how Diligent's AI-driven Internal Controls Management can streamline compliance, reduce manual effort, and improve risk management.
