Internal controls are processes designed to minimize risk to an organization’s objectives and safeguard it from being out of compliance with various industry standards or regulations. These controls protect assets, encourage adherence to regulations, laws, or internal policies, ensure accurate records, and promote operational efficiency.
In its most simple form, internal controls are things you do periodically (daily, weekly, monthly) to confirm you’re in compliance. If there is an area of non-compliance, these controls can help you close the gap. For example, if there are proposed equipment changes, you can initiate a review with the engineering team to ensure the proposal is compliant.
Internal controls can be divided into several categories. First, an internal control can be preventative or detective. A preventative control is one that prevents your organization from doing something wrong, while detective controls can help management review systems determine if anything falls outside acceptable ranges or violates any rules.
Internal controls can also be manual or automated. Manual controls require that someone in your organization take some action, such as reading a sensor. Automated controls are generally integrated with your business’s technology, so they don’t necessarily require action to keep them going.
Why Businesses Need Internal Controls
Internal controls are important because they bring compliance to the forefront of what the business does day in and day out. When everyone is thinking about internal controls and compliance, any potential issues are brought to the forefront much earlier in the process.
Fundamentally, having internal controls is just good business. Without them, owners or managers can’t be sure that the organization is operating as it should. Mistakes could be happening with alarming frequency, which will ultimately cost the business time and money.
Fortunately, one person doesn’t have to know everything about a business to implement or check internal controls. Most businesses, including those in the renewable energy industry, rely on SMEs within the organization to keep each area operating as expected.
An SME is a subject-matter expert, which is someone at your business who is very proficient in a particular area, such as an IT person managing firewalls. A compliance officer will interface with the SMEs throughout the organization.
Using Internal Controls for Renewable Energy Facilities
Effective internal controls support the security and reliability of the Bulk Electric System (BES) by identifying, analyzing, and fixing issues. Using controls can help owners and managers maintain compliance with NERC Reliability Standards.
NERC considers internal controls to be a critical component of a strong compliance program. The basic elements of an internal control program include the following.
- Risk assessment
- Control implementation
- Activity monitoring
For example, we often have been invited to present to the auditors at the beginning of the audit, which has proven to be beneficial in our relationship with the auditor team. During this time, we provide a customized program for a client and a monthly compliance assessment report for all of its facilities. This includes asking questions and validating that specific monthly tasks have been completed or that there haven’t been changes to equipment that might pose a compliance risk to the facility.
Implementing Internal Controls for Renewable Energy Facilities
Some businesses manage their internal controls using old-fashioned checklists or online spreadsheets. While better than no controls, these methods have some weaknesses. They are inconsistent and lack controls of their own. An online solution to managing internal control is the best option.
There are many areas of compliance with respect to NERC. Renewable energy facilities must take a methodical approach to compliance. As part of its Compliance Monitoring and Enforcement Program (CMEP) activities, NERC may review documents, conduct tests, or perform other audits to gain an understanding of an organization’s internal controls.
Audits take place every few years. It’s a common mistake to think that, while there isn’t a review upcoming, compliance isn’t important. The problem is that these issues can compound quickly, and getting back into compliance can take significant time and effort. For example, businesses subject to NERC compliance must do a monthly battery test. If they don’t, they’re not in compliance, and you can’t go back and fix that.
Internal controls are essential for regulatory compliance, but facilities should implement them for several other reasons as well. First, they help protect organizational assets by identifying and reducing or eliminating risk. Second, internal controls can help a facility streamline its operations so that it runs more efficiently and with fewer adverse events.
Radian Generation Can Help You with Your Facility’s Internal Controls and Compliance
Radian Generation can help renewable facilities understand what their risks are and develop strategies to develop internal controls. We also have a software solution called Radian Digital™ NERC, where our business partners can put their internal controls into the system so there is automatic tracking. That way, if someone is away from the facility and something doesn’t get done, the item will escalate until it is addressed.
No two power generation entities are alike, so the internal controls that work for one may not be sufficient for your organization. Our experts will work to understand the facility, the requirements for the facility, and what exposure exists before determining what internal controls are appropriate. For example, a brand new O&M provider might have more internal controls in place to keep them on track and in compliance than a seasoned and experienced provider.
One of the things Radian Generation emphasizes with its clients is the importance of creating an internal culture of compliance with its partners. As we work together to help your business achieve success, you can have peace of mind that compliance will become less of a risk for your business.Contact us if you would like to learn more about Raidan Generation’s compliance management services, which include asset management, documentation, periodic submittals, and audit support. If you want to learn more about implementing internal controls for renewable energy facilities, you can listen to episode 5 of our podcast, Navigating the Grid.