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1 Inte r nal Contr ol Compone nts F ive Co mpo ne nts o f I - PDF document

Aug 14, 2022 •602 likes •662 views

Inte r nal Contr ols Why ar e inte r nal c ontr ols impor tant and why do we ne e d the m? What is Inte r nal Contr ol? I nte rna l Co ntro l Pro c e ss imple me nte d b y a n e ntity s o ve rsig ht b o dy, ma na g e me nt, a nd

  1. Inte r nal Contr ols Why ar e inte r nal c ontr ols impor tant and why do we ne e d the m? What is Inte r nal Contr ol? I nte rna l Co ntro l Pro c e ss imple me nte d b y a n e ntity’ s o ve rsig ht b o dy, ma na g e me nt, a nd o the r pe rso nne l that pro vide s re aso nable assuranc e that the o bje c tive s o f an e ntity will be ac hie ve d Ob je c tive s c a n b e b ro a dly c la ssifie d into o ne o r mo re o f the fo llo wing thre e c lassific atio ns Ope ra tio ns Re po rting Co mplia nc e An o b je c tive c a n fa ll unde r o ne c a te g o ry, c a n a ddre ss diffe re nt ne e ds, a nd ma y b e a dire c t re spo nsib ilitie s o f inte rna l c o ntro l 2 What do Inte r nal Contr ols look like ? • Pla ns, me tho ds, po lic ie s, a nd I nte rnal pro c e dure s • Co ntinuo us b uilt-in c o mpo ne nt o f Co ntro l o pe ra tio ns • Re spo nsib le fo r de sig ning a n Manag e me nt e ffe c tive inte rna l c o ntro l syste m • Ma ke the inte rna l c o ntro l syste m Pe rso nne l wo rk 3 1

  2. Inte r nal Contr ol Compone nts F ive Co mpo ne nts o f I nte rna l Co ntro l • Co ntro l E nviro nme nt • Risk Asse ssme nt • Co ntro l Ac tivitie s • I nfo rmatio n and Co mmunic atio n • Mo nito ring 4 What ar e Inte r nal Contr ols going to do for us? E ffe c tive inte rnal c o ntro l Canno t pro vide abso lute syste m a ssura nc e • I nc re a se s the like liho o d • F ac to rs o utside the that an e ntity will c o ntro l o r influe nc e o f a c hie ve its o b je c tive s manag e me nt c an a ffe c t • Re duc e s the risk o f fra ud o r e rro r • E xample s: Na tura l disa ste r o r c o llusio n 5 How do we imple me nt inte r nal c ontr ols? E sta b lish • Po lic ie s a nd Pro c e dure s Co mmunic a te Re pe a t • T o Pe rso nne l Re vie ws Adjust Inte rna l Co ntro ls • Pe rio dic a lly • As ne e de d a nd Re g ula rly 6 2

  3. F oc us of Inte r nal Contr ol Inte g rity o f Info rma tio n • F ina nc ia l o r no n-fina nc ia l E xa mple s • E mplo ye e Info rma tio n • Ve ndo r Info rma tio n • Ba nk Re c o nc ilia tio n info rma tio n • Ca pita l Asse ts/ Inve nto ry Info rma tio n Que stio ns to Ask • Ho w a c c ura te is the info rma tio n use d to pro c e ss the info rma tio n? • Who a ppro ve s the info rma tio n o r c ha ng e s to the info rma tio n b e fo re a nd a fte r input into the syste m? 7 F oc us of Inte r nal Contr ol Autho rizatio n • Ac c e ss to the Info rma tio n sho uld b e limite d a nd mo nito re d • Que stio ns to a sk: • Who ha s a c c e ss to the info rma tio n? • Who ha s a utho riza tio n to c ha ng e o r a lte r the info rma tio n? • Are c ha ng e s to info rma tio n a ppro ve d? Se g re g a tio n o f Dutie s • No t o ne pe rso n sho uld b e re spo nsib le fo r a ll func tio ns o f a ny pro c e ss. • T his inc lude s, b ut is no t limite d to • Pa yro ll • Re c e ipts • E xpe nditure s 8 F oc us of Inte r nal Contr ol Re vie w a nd re spo nsib ility • Wo rk sho uld b e re g ula rly c he c ke d b y o ffic ia ls o r the ir de sig ne e E xa mple s: • Pa yro ll • Pe rso nne l re c o rds / pa yro ll ro ste r, E mplo ye e pa y ra te s a nd le a ve e ntitle me nts, Ve rifying pa yro ll re po rts a g re e to the ba nk sta te me nts • Ve ndo r • Ve ndo r Ma ste r F ile , Ve ndo r Pa yme nts • Ba nk Re c o nc ilia tio ns • Pre pa re d mo nthly, Re vie w a ll info rma tio n o n the b a nk re c o nc ilia tio n- inc luding the unde rlying info rma tio n • Ca pita l Asse ts • Ca pita l a sse ts/ inve nto ry listing 9 3

  4. Contr olling the Contr ols Must use Ve rify e ve ry time Wo rking No t e no ug h to just se t up I nte rna l Co ntro ls! Pe rio dic Adjust Mo nito ring whe n ne e de d 10 Doc ume nt, Doc ume nt, Doc ume nt Maintain Do c ume ntatio n o f I nte rnal Co ntro ls be ing pe rfo rme d • Assists in the inte rna l re vie w pro c e ss • Pro vide s e vide nc e to a udito rs E xa mple : • Co ntro l : Invo ic e s a re re vie we d prio r to pa yme nt to de te rmine tha t the g o o ds o r se rvic e s we re re c e ive d a nd the pa yme nt is fo r the pro pe r a mo unt/ pro pe r pub lic purpo se • Co ntro l E vide nc e : Invo ic e is ma rke d “o k to pa y” b y the de pa rtme nt e mplo ye e who ha s kno wle dg e o f the e xpe nse ” 11 Inte r nal Contr ol De fic ie nc ie s A de fic ie nc y in inte rna l c o ntro l e xists whe n the de sig n o r o pe ratio n o f a c o ntro l do e s no t allo w manag e me nt o r e mplo ye e s, in the no rma l c o urse o f pe rfo rming the ir a ssig ne d func tio ns, to pre ve nt o r de te c t fraud, e rro rs/ no nc o mplianc e , a nd/ o r fina nc ial re po rting missta te me nts o n a time ly b a sis. T ake Basis fo r Ove r time will c o rre c tive impro ve me nt g e t be tte r a c tio n 12 4

  5. T hings to R e me mbe r Mo nito r I nte rnal Co ntro ls • Cha ng e s to po lic ie s a nd pro c e dure s • Co mmunic a te d to e mplo ye e s No t e no ug h to imple me nt inte rnal c o ntro ls • If the c o ntro ls a re n’ t wo rking – c ha ng e the inte rna l c o ntro ls Co ntro ls must b e fo llo we d • E VE RY time no t just SOME o f the time • No t fo llo wing the c o ntro l pro c e ss o ne time is to o ma ny- • T ha t mig ht whe n fra ud/ misuse , e rro rs o r missta te me nts o c c ur 13 14 88 E. Broad St. Columbus, Ohio 43215 Phone: (800) 282-0370 www.OhioAuditor.gov 5

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