internal control presentation march 2010

7/24/2019 Internal Control Presentation March 2010

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Internal Control Workshop

Kenneth Wilson, Associate ComptrollerDeb Martin, Internal Auditor


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Agenda

Quiz on what you knowMovie on applyin internal controlconcepts in hi her education!eview answers to "uiz#resentation reviewin concepts,ob$ectives, and risk assessment

Case studiesWrap%up


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Internal Control Quiz


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Internal Control Concepts &Objectives


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Why have Internal Controls?#romote operational e&ciency ande'ectiveness#rovide reliable (nancialin)ormation*a)e uard assets and records+ncoura e adherence toprescribed policiesComply with re ulatory a encies


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Basic Concepts o Internal ControlsMana ement, not auditors, mustestablish and maintain the entity s

controlsInternal controls structure shouldprovide reasonable assurance that(nancial reports are correctly stated

-o system can be re arded ascompletely e'ective*hould be applied to manual andcomputerized systems


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!etailed Internal Control Objectives!ecorded transactions are valid

.ransactions are properlyauthorized

+/istin transactions are recorded

.ransactions are properly valued .ransactions are properly classi(ed


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!etailed Internal Control Objectives .ransactions are recorded at the propertime

.ransactions are properly included insubsidiary records and are correctlysummarized+nsure compliance with policy*a)e uard Assets


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What are Control Activities?

Control activities are the policies andprocedures that help ensure that

actions identi(ed as necessary tomana e risks are carried outproperly and in a timely manner0

#olicies should be implementedthou ht)ully, conscientiously, andconsistentlyMechanical procedures are not use)ulwithout )ocus on policies


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Control Activities Include"Approvals

Authorizations1eri(cations!econciliations!eviews o)#er)ormance Security of AssetsSegregation of Duties

Controls overInformation Systems


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Approval# Authorization# & $eri icationMana ement authorizes activities andtransactions within limited parameters0

Mana ement speci(es when priorsupervisory approval is needed0

A supervisor s approval implies thathe2she veri(ed con)ormance withpolicies and procedures0


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%econciliations!elate di'erent sets o) data to oneanother0

Identi)y and investi atedi'erences0

.ake corrective action whennecessary0


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%evie s o 'er or(anceManagement compares in)ormation aboutcurrent per)ormance0

.o bud ets

#rior periods, competitors3ther benchmarks

Measures a ainst achievement o) oals andob$ectives0

Identi)y une/pected results or conditions whichre"uire)ollow%up0


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)ecurity o AssetsAccess to assets such ase"uipment, inventories, and cashis restricted0

#eriodically assets are counted andcompared to control records0


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)egregations o !uties

Duties are se re ated to reduce the risko) error or inappropriate action0

-ormally the responsibilities o) the)ollowin should be separated4

Initiatin , approvin , 5 recordintransactions

6andlin the related assets!econcilin balances!eviewin reports

3ne person cannot steal and conceal0


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Controls over In or(ation )yste(s7eneral controls include data center,system so)tware ac"uisition 5

maintenance, security access, andsystem development 5 maintenance0

7eneral controls support the )unctionino) application controls0

Application controls are pro rammedsteps desi ned to control applicationprocessin 0


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Risk Assessment: Creating theRight Balance andUnderstanding the Limitations

of Internal Controls


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Risk Assessment is a process to

Identify significant risksAssess risks

What is the likelihood of occurrence?What is the potential impact?Manage these risks through:

A oidance

Acceptance and !haring "Insurance#Mitigate $ith Controls


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What are risks?

A risk is anything that could %eopardi&e theachie ement of your organi&ation's o(%ecti e)

Achie e our goals*perate effecti ely and efficiently+rotect the uni ersity's assets from loss+ro ide relia(le financial data

Comply $ith applica(le la$s, policies, andprocedures


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Risks

-uestions to ask yourself:

What can go $rong?

.o$ could someone steal from us?What policies are $e most affected (y?What types of transactions in our areapro ide the greatest risk?.o$ can someone (ypass the internalcontrols?What potential risk areas could causead erse pu(licity?


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Limitations on Internal Controls

/mployees can make mistakes or e0ercisepoor %udgment

1here can (e collusion 2 $here t$o or moreindi iduals $ork together to steal

Management may inappropriately o errideesta(lished policies or procedures


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Questions?


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OFFICE OF THE EXECUTIVE VICE PRESIDENT FOR BUSINESS AND FINANCE, TREASURER

To: Faculty, Staff, and Students

Fr: A ! "ia#

$%ecuti&e !ice 'resident for (usiness and Finance, Treasurer

Re: Fraud Re)ortin* 'ro*ram

(est )ractices )ro&ide for a fraud re)ortin* )ro*ram as an im)ortant )art of a healthy +usiness en&ironment 'urdue ni&ersity has in)lace controls to )ro&ide reasona+le assurance that fraudulent, ille*al, or dishonest acti&ity on the )art of ni&ersity em)loyees, officers, or+usiness contacts is )re&ented or detected, +ut the )otential for ina))ro)riate transactions and +eha&ior still e%ists -ithin the ni&ersity, asit does in any or*ani#ation therefore, consistent -ith +est +usiness )ractices, 'urdue ni&ersity has im)lemented a fraud re)ortin*)ro*ram to ensure that the ni&ersity )ro&ides a mechanism for re)ortin* im)ro)er or ina))ro)riate acts

This is an im)ortant )ro*ram, and I encoura*e you to use it -hen a))ro)riate and to communicate the e%istence of this )ro*ram to yourCollea*ues in the ni&ersity community 'lease hel) us make the )ro*ram a success +y usin* it for its intended )ur)ose, re)ortin*sus)ected im)ro)er or ille*al acts affectin* 'urdue ni&ersity that you ha&e -itnessed or of -hich you mi*ht ha&e kno-led*e 'ersonalcom)laints re*ardin* harassment or issues other than fraud should +e filed accordin* to e%istin* ni&ersity )olicies

The Internal Audit .ffice is res)onsi+le for the administration of the 'urdue ni&ersity fraud re)ortin* )ro*ram For additional informationon the )ro*ram, )lease &isit --- )urdue edu/fraud A "isclosure Form for Anonymous Re)ortin* is a&aila+le at the We+ site If you ha&es)ecific 0uestions a+out the )ro*ram, )lease contact 'e**y Fish, "irector of Audits, at 12345 67682499 or )lfish )urdue edu

To anonymously re)ort sus)ected fraud or other -ron*doin*s, call 12345 67683777, toll8free 19335 9;98o&de >all, Room


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Reportable Activities I cl!"e

Theft$m+e##lementIm)ro)er re)ortin* of timeQuestiona+le )aymentsDisuse or 0uestiona+le use of cash/)8cards"i&ersion of or lack of timely de)osit of re&enues

Credit card fraudIna))ro)riate communication of confidentialinformation

Any other ille*al or 0uestiona+le acts


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Fraud Re)ortin* 'ro*ram@ot Intended for:

address throu*h de)artmental mana*ement or >uman Resources

#o itori $ perso el iss!es%

a&&ir'ative actio e(!al access e(!al e'plo)'e t e"!catio al opport! it)

Direct to t*e O&&ice o& t*e Vice Presi"e t &or Et*ics a "Co'plia ce or to t*e O&&ice o& I stit!tio al E(!it) Iss!esrelate" to%


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Dechanisms to Re)ortSus)icious Acts

Fraud Re)ortin* >otlinea5 is anonymous

+5 has no caller I" c5 has no call +ack o)tion

Anonymous Form

a5 a&aila+le throu*h Internal AuditEs home)a*eCall Internal Audit "irect


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nternal Control

Case Studies


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New Business Manager< em)loyees'ayroll Clerk, R)rocessin*, does all follo-8u) re&ie-, kno-s ne- system,e&eryone is ha))y -ith her, -ants to +e left alone,schedules &acation around )ayroll, -ill call you -hen she

needs you Accountin* Clerk, ;9 months e%) at ' , )rior e%) , notrainin* e%ce)t in&oice &ouchers, does -ork +y cate*oryonce a month 1Cash recei)ts, funds transfers, +illin*s,(ud*et Ad ustments, $rror Corrections 5 'urchasin* doneas needed Works -ell -ith *i&in* academicadministrators -hat they need(A has senior role -ith "ean, does not look at monthlystatements since staff is so com)etent and has dele*atedall si*nature authority -ithout further re&ie-


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Procurement Cards.ne clerk for )rocurement card transactions G e%tensi&euse of the card occurs 'eo)le lo&e its ease.nly has one card so not does need a check8out )rocess"istri+ution document is 0uickly re&ie-ed and a))ro&ed"oes account allocation +ut ne&er chan*es o+ ect code

sers ha&e 7= days to turn in recei)ts G meetsre0uirement to turn in reconciliation -ithin 7= days!alidates amount of recei)t matches the reconciliationDissin* recei)ts are not )ursued G she finds that the (Dacce)ts certain e%)lanations for missin* recei)ts and sheal-ays uses these standard reasonsThe clerk is ne-ly *raduated from hi*h school and is u)8to8date on deskto) com)uter skills Sa&es thede)artment from ha&in* to train her They are &ery ha))y


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Travel

'I has federal *rant that re0uires a lot of tra&elCar tra&el )rimarily to B locations'I is account mana*er and has chosen -ho the dele*ate -ill +e

G a clerk re)ortin* to them(usiness Dana*er dele*ated si*nature authority, +ut dele*ateinsists on si*nin* (us Dana*ers name G (D a*reed to this'I/dele*ate make tra&el arran*ements and )rocess alltransactions"ele*ate kno-s of instance -here 'I -as in to-n durin* Htra&el(D ust found out e%ce)tion to )olicy routinely filed G no recei)tsfor tra&el since 'I stays -ith collea*ues

Cuts do-n on *rants tra&el costs G e&eryone is ha))yIt +others (D, +ut you are re&ie-in* monthly statements and feelas *ood as you can a+out it


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Asset Control

In&entory of ca)ital assets is hard to make a )riority@e- ca)itali#ation limit is -onderful, assets -ent from4== to ;4=In&entories ha&e ne&er really +een com)leted in )astLot of mo&ement in de)artmental e0ui)ment G a lot of

take homeStudent hourly is )erformin* in&entory -ith scannin*e0ui)ment;


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Receipting of RevenueK day -orksho) de&elo)ed for B== )eo)le, at 4= )er )ersonChair has decided to de)osit the re&enue in a restricted fund tomaintain control"ocumentation for re*istration states that fee is a donation G althou*hthe donation is re0uired for re*istration"e)artment secretary is in char*e of )rocess and -ill recei&e and)rocess all re*istrations and )aymentsChair is not interested in details, only -ants final listCash and checks comin* &ia mail and hand deli&eredRe*istration information is entered into a data+ase and re*istrationforms are then destroyed +ecause of lack of stora*e s)ace

Recei)ts are not +ein* issued +ecause mailed8in re*istrations -ould+e too much trou+le and e%)enseSecretary accumulated all recei)ts +efore )rocessin* CR!(usiness Dana*er found out a+out this -hen transaction sho-ed u)on the monthly o)eratin* statements


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nternal Controls

Thank you for your time and )artici)ationIf 0uestions )lease contact Men Wilson at

62B33 or k -ilson; )urdue edu or "e+Dartin martindd )urdue edu

internal control presentation march 2010

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