Management develops descriptions of various roles to reinforce its responsibility for effective internal control over external financial reporting. In pursuit of the entity's objectives, the board of directors and senior management maintain a philosophy and operating style that demonstrate a strong commitment to ethics, integrity, and competence.

Periodically, the CEO and CFO, as the parties ultimately responsible for internal control, request individuals within the entity to confirm accountability and represent that they have fulfilled their internal control responsibilities during any given period of time, highlighting any exceptions.

Auto Services is a publicly traded multinational automotive manufacturing, leasing, and sales organization that administers an annual goal-setting and performance evaluation process to help its employees be aware of the risks inherent in their day-to-day business decisions.

Representing its products adequately to its customers, saying no to bribes and other illicit practices, and delivering timely products or services in accordance with quality standards are the explicit expectations of the company and of each one of its representatives. Management communicates and reinforces these messages continually and holds its people accountable to these measures in their day-to-day decisions and overall risk and performance results, which it tracks proactively through client satisfaction dashboard reports and reactively through incident reporting. The company requires its employees to sign off on the goals mutually agreed to with management at the beginning of the year, recognizing that these may be revisited during the year as necessary to respond to changes in the business, and on their achieved performance at year-end.

Goals are defined, performance is evaluated, and employees are held accountable within the local organizational structure and within their functional reporting structure.

The chief financial officer further requires each of his finance managers to certify to him the absence of any instances of fraud, the effectiveness of the internal control over external financial reporting, and the reliability of the financial results produced.

Senior management defines performance measures, incentives, and rewards that are:

Senior management subsequently reports to the board what factors were considered in developing the performance measures, incentives, and rewards and how they are expected to drive the desired behavior.

Modern Financial Services has implemented a rewards system that requires the achievement of defined performance measures and encourages departments to monitor the effectiveness of their internal control systems and to self-report possible control deficiencies or opportunities for enhancement. This encouragement comes in the form of a policy that gives departments credit in the internal audit grading system for self-reported deficiencies. Any deficiencies that are identified through internal audit procedures, rather than through a department's monitoring efforts, are counted against the score.

The credit does not preclude the internal audit department from reporting specific deficiencies to management or the board when warranted, but it does positively affect the grading system, which can affect departmental compensation and benefits. The result is that Modern Financial Services is more likely to identify control deficiencies before they can become material to the organization.

The board of directors and management periodically evaluate the appropriateness of performance measures used to determine whether they have the intended influence on how people respond to pressures, incentives, and rewards. This evaluation may include:

The board of director's oversees the periodic assessment to ensure it has been completed, and may subsequently approve compensation plans. The board also provides oversight to ensure that the performance measures and compensation plans established for senior management are appropriately aligned with the entity's strategic objectives and balanced to promote the desired accountability without causing excessive pressure that could lead to fraudulent financial reporting.

The board of directors of A-Z Corp. has established a human resources compensation committee, which meets to establish compensation for the executive officers. It has been granted substantial discretion to determine all other bonuses under approved incentive plans.

The compensation committee routinely reviews the performance goals and awards for ongoing relevance and to determine whether they create unnecessary pressures or unintended consequences. It continually focuses on identifying those short-term sales objectives that may cause management to take undue risk, cut corners, or commit fraud that could harm the company's sustainable growth objectives.

Based on these reviews, goals and awards are modified as necessary, and changes are approved by the board of directors annually. The performance goals and awards consist of the following and are subject to audit:

In addition, individual employee performance goals are determined annually in discussion between the employee and the manager. They are then submitted to the human resources department for review, and to the compensation committee for approval.

Any incentive compensation that is approved and ratified by the board is distributed to individuals annually.

Management designs objective employee evaluation and compensation systems that periodically provide individual rewards, or disciplinary actions, as necessary. Decisions about both rewards and disciplinary actions are based on established objectives, including the individual's adherence to the standards of conduct and performance toward the entity objectives regarding internal control over external financial reporting.

Timber Co., a forest products company, structures its bonus plan to have 30% of the potential incentive award directly related to the demonstration of the company's core values. Information items that Timber Co. values are specific comments on how management does or does not reflect values are captured through employee feedback.

During the employee performance review and appraisal process, management provides feedback about the extent to which each employee has performed in accordance with the company's core values of sound integrity and ethics.

Medic Quest, a private company that researches, develops, produces, and markets medical scanning equipment, encourages its employees to identify and submit suggestions for improving internal control, including internal control over financial reporting. Employees are rewarded in the form of company awards and/or cash bonuses for ideas that are used.