segregation of duties in office of three, two, or one

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Matt Malinowski Susan Green Segregation of Duties in Office of Three, Two, or One

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Segregation of Duties in Office of Three, Two, or One. Matt Malinowski Susan Green. Internal Control Myths and Facts. MYTHS Internal control starts with a strong set of policies and procedures Internal control – That ’ s why we have external/internal auditors. - PowerPoint PPT Presentation

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Page 1: Segregation of Duties in Office of Three, Two, or One

Matt MalinowskiSusan Green

Segregation of Duties in Office of Three, Two, or One

Page 2: Segregation of Duties in Office of Three, Two, or One

MYTHS• Internal control starts with a strong

set of policies and procedures• Internal control – That’s why we

have external/internal auditors.• Internal control is a finance thing• Internal controls are essentially

negative, like a list of “thou-shalt-nots.”

• Internal controls take time away from our core activities – serving students.

Internal Control Myths and Facts

FACTS• Internal control starts with a strong

control environment•While external/internal auditors

play a key role in the system of control, management is the primary owner of internal control

• Internal control is integral to every aspect of business

• Internal control makes the right things happen the first time

• Internal controls should be built “into,” not “onto” business processes.

Page 3: Segregation of Duties in Office of Three, Two, or One

•Benefit payment receipt

•County Official – Post office refunds

•Do you have a fraud policy?

Could this Happen to You? Examples of Fraud

Page 4: Segregation of Duties in Office of Three, Two, or One

• Money• Reputation• Public Trust• Acceptable Practice / prevalent in other

areas

Costs of Fraud

Page 5: Segregation of Duties in Office of Three, Two, or One

• Definition from Merriam Webster Online Dictionary:a: deceit, trickery; specifically: intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right b: an act of deceiving or misrepresenting : trick

Fraud

Page 6: Segregation of Duties in Office of Three, Two, or One

• Payroll Fraud• Benefit Fraud• Double Payments• Charge Off Fraud• Disposal Fraud• Travel Claim Fraud

Common Types of Public Sector Fraud

Page 7: Segregation of Duties in Office of Three, Two, or One

• Simply what it sounds like –

Separating Duties

What is “Segregation of Duties”

Page 8: Segregation of Duties in Office of Three, Two, or One

• Segregation of duties means separating the recordkeeping function from the operational responsibility of that activity and from those who exercise physical control over the records.

• Categories of duties: – Authorization– Custody– Record keeping– Reconciliation

Segregation of Duties

Page 9: Segregation of Duties in Office of Three, Two, or One

•Do I have to add more people to make this work?

NO

Segregation of Duties

Page 10: Segregation of Duties in Office of Three, Two, or One

A Balanced Assessment should take into account the following:

• Significance- The degree of harm that could result

• Likelihood of Occurrence- What is the probability that a given risk will materialize?

• Inherent Risk – Where will there always be risk?

Assessment Criteria

Page 11: Segregation of Duties in Office of Three, Two, or One

• Rotation of duties– Mandatory vacation– Job rotation periodically / cross training

• Management oversight – Open the mail twice a month– Reconcile the checking account periodically– Review, review, review

• Third party help such as consultants

Ways to Implement Solutions with Less Staff?

Page 12: Segregation of Duties in Office of Three, Two, or One

• Receipts– Manual checks and cash– Electronic receipts

• Disbursements– Board checks– Payroll

Key Cycles

Page 13: Segregation of Duties in Office of Three, Two, or One

• Transaction –– Initiation– Approval – Recording– Reconciliation– Asset handling– Review of reports

• You don’t have 6 employees in your business office. Now what?

Key Duties

Page 14: Segregation of Duties in Office of Three, Two, or One

• Person #1 issues a purchase order based on a requisition completed beforehand.

• Person who ordered the item verifies that the goods are received (Sign off on PO copy)

• Separate Person in the business office issues or authorizes payment.

Example of Maintaining the Three Separate Functions

Page 15: Segregation of Duties in Office of Three, Two, or One

• After the fact review• Review of the bank reconciliation is a

compensating control vs. review of the check register before checks are cut

Compensating Controls

Page 16: Segregation of Duties in Office of Three, Two, or One

• Control related policies to compensate for risks. • Examples: – Purchases orders must be approved by department head or

other designated official. – Policy to only pay off of an original invoice– Reconcile encumbrances to open purchase orders– Leave approval and leave posting– Technology for efficiency = sub calling / electronic leave

recording

Compensating Controls

Page 17: Segregation of Duties in Office of Three, Two, or One

• Separate – approval, – accounting/reconciliation– Safeguarding

• Reduce/eliminate those that accept and disburse funds

Focus on Major Areas

Page 18: Segregation of Duties in Office of Three, Two, or One

Assertions to ensure that all significant risks are identified in a purchasing cycle:

1) Has a purchase been recorded for goods not yet received? Has a vendor been paid twice?

2) Have purchases been made, but not recorded?

3) Were all purchases properly authorized?4) Were charges to appropriate accounts?

Identifying Potential Risks

Page 19: Segregation of Duties in Office of Three, Two, or One

• Treasurers Report on all Cash Balances• Special Fund Reports (Food Service, Capital,

Special Revenue, Activity)• YTD Budget Report• Budget Transfers• All Tax Exonerations• Bill List (Include monthly, emergency, wires)

What are you reporting to your board?

Page 20: Segregation of Duties in Office of Three, Two, or One

• Budget preparation, monitoring• Purchasing/Payroll functions• Tax Collection/Reporting – (tax collector’s

course)• Investments• Records

Examples of Internal Controls

Page 21: Segregation of Duties in Office of Three, Two, or One

• U.S. Government Accountability Office (GOA) – New Edition Yellow Book – http://www.gao.gov/govaud/ybk01.htm download. See pages 81-87.

• Roslyn School District, New York -• http://www.osc.state.ny.us/localgov/audits/2006/schools/ros

lynfoll.pdf (a real life scandal)

• GFOA article "Evaluating Internal Controls"•

http://goliath.ecnext.com/coms2/gi_0199-2938675/Evaluating-internal-controls-control-self.html

Additional Resources/Information