COSO Framework: Effective Implementation

Complete guide to implementing internal controls following the COSO framework in Mexican organizations

In Mexico's business environment, where family businesses coexist with multinational corporations, the term "Internal Control" is often confused with "bureaucracy." Nothing could be further from the truth. A robust internal control system is the organization's immune system.

The COSO framework (Committee of Sponsoring Organizations of the Treadway Commission) remains the global gold standard. However, its implementation in Mexico often fails not due to lack of technical knowledge, but due to lack of cultural adaptation.

Below, I present a pragmatic guide to grounding the COSO cube in Mexican operational reality.

1. Control Environment: "Tone at the Top"

This is the foundation. In Mexico, respect for hierarchy is strong, so the example set by the owner or CEO is the only policy that really matters.

The Challenge:: If the CEO skips controls to "expedite" payments, no manual will work.

The Solution:: Formalize a Code of Ethics that applies, without exceptions, to partners and executives. Integrity must be visible and demonstrable.

2. Risk Assessment: Dynamic, not Static

Many companies create a risk map once a year and file it away. COSO demands continuous assessment.

Implementation: Identify operational risks (internal fraud, technology failures) and external risks (tax regulatory changes, insecurity). Prioritization is vital: we can't control everything. Focus on risks that threaten business continuity.

3. Control Activities: Segregation of Duties

This is where fraud prevention happens.

The Golden Rule: The person who authorizes the purchase cannot be the same person who registers the supplier in the system or who makes the payment.

Local Reality: In medium-sized companies with few staff, perfect segregation is difficult. In these cases, compensating controls must be implemented, such as direct and random reviews by Management or External Audit.

4. Information and Communication

A control is useless if it doesn't generate data or if the employee doesn't know it exists.

Systems:: Ensure ERPs have automatic "locks" (e.g., not allowing invoicing with negative inventory).

Whistleblower Channels:: Implementing anonymous ethics hotlines is crucial in our culture, where direct confrontation is avoided. Employees must feel safe reporting irregularities.

5. Monitoring

The system degrades over time. What worked in 2024 may be obsolete in 2026.

Internal Audit: Not as police, but as improvement consultants. Their function is to verify that controls designed on paper actually operate in practice.

Conclusion

Implementing COSO in Mexico is not about translating the manual from English to Spanish. It's about designing controls that understand local idiosyncrasies, that are agile, and above all, that add value to the business. At ASG Risk, we believe that the best control is not one that stops operations, but one that allows you to run faster with safety.