Hard Stops vs Soft Warnings Is Your System Enforcing Rules or Just Making Suggestions

Published on: Fri Nov 15 2024 by Ivar Strand

Hard Stops vs. Soft Warnings: Is Your System Enforcing Rules or Just Making Suggestions?

When we discuss the internal controls of a financial system, we often speak of them in absolute terms. We say the system has a “control” to prevent overspending a budget line or to block duplicate payments. However, the effectiveness of these controls depends entirely on how they are implemented in the system’s logic.

There is a critical distinction between two types of automated controls: “hard stops” and “soft warnings.” A failure to understand this difference can lead an organization to believe its control environment is robust when, in fact, it relies on little more than discretionary user compliance.

Defining the Terms: Preventive vs. Detective Controls

In the language of risk management, these two types of controls are distinct.

• A Hard Stop is a preventive control. It is a rule codified in the system that makes a prohibited action impossible to complete. The system actively enforces the rule. For example, when a user tries to submit a purchase order that exceeds their defined spending limit, the “Submit” button is greyed out or the system returns an unavoidable error message, preventing the transaction from proceeding. There is no override.

• A Soft Warning is a detective control. It is a rule that alerts the user to a potential violation but allows them to proceed. The system suggests compliance. In the same scenario, the user might see a pop-up message stating, “Warning: This purchase order exceeds your spending limit. Do you wish to continue?” with “Yes” and “No” buttons. The user has the ability to override the control.

The Criticality of the Distinction

The difference in the level of assurance provided by these two mechanisms is profound.

A control environment built on hard stops provides a high degree of confidence that certain rules are being systematically enforced. The control is not dependent on the judgment or integrity of the individual user; it is an architectural feature of the system.

Conversely, a control environment that relies on soft warnings provides a much weaker level of assurance. The final decision rests with the user, making the control discretionary. While a log of the overrides may be kept, the control itself did not prevent the action. In our work, we frequently encounter situations where managers and auditors believe their system has hard controls when, in reality, it is built on a foundation of soft warnings that can be bypassed with a single click.

How to Verify Your System’s True Control Posture

An organization must have a clear and accurate understanding of which of its controls are preventive and which are merely detective. This is a primary objective of the verification techniques we have discussed throughout this series, such as live logic walkthroughs and the use of test data.

The test is straightforward. During a system demonstration or as part of a formal User Acceptance Testing (UAT) process, an auditor must deliberately and systematically attempt to violate key business rules.

• When attempting to approve a payment to a suspended vendor, does the system prevent the action entirely? This confirms a hard stop.
• When attempting to submit an expense claim without a required receipt, does the system present a warning but allow the user to proceed? This confirms a soft warning.

For every control that is revealed to be a soft warning, a subsequent question must be asked: Who has the authority to perform the override, and what is the process for reviewing the log of these overrides? A system of ignorable warnings, without a robust back-end review process, is a control environment with significant vulnerabilities.

To truly understand an organization’s risk exposure, one must know whether its systems are enforcing rules or merely making polite suggestions. This deep verification is the only path to building genuine, evidence-based confidence in our digital financial infrastructure.