1 / 221

Presented By Paul E. Glick Glick Consulting Group Email pglick@mindspring

Evaluating A Government’s Internal Controls and a Review of How Fraud Relates to Internal Controls. Presented By Paul E. Glick Glick Consulting Group Email pglick@mindspring.com. THE AGENDA. Introduction and Overview What Are Internal Controls

mindy
Download Presentation

Presented By Paul E. Glick Glick Consulting Group Email pglick@mindspring

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Evaluating A Government’s Internal Controls and a Review of How Fraud Relates to Internal Controls Presented By Paul E. Glick Glick Consulting Group Email pglick@mindspring.com

  2. THE AGENDA • Introduction and Overview • What Are Internal Controls • Management’s Objectives and Responsibilities • Who Is Responsible for Internal Controls? • What Types of Public Sector Fraud Exists?

  3. The Agenda • Where is the Independent Auditor? • Internal Control Environment • Risk Assessment • Control Activities • Information and Communication (Step 4) • Monitoring

  4. The Agenda • Evaluation Controls Over Accounting And Financial Reporting • Other Internal Control Pitfalls

  5. Seminar Objectives • Review The Framework And Concepts Of Internal Controls • Relate These Concepts To Financial Cycles (I.E., The Real World) • Understand Who Might Be “Ripping Us Off”

  6. Factors Affecting our Current Environment

  7. Factors Affecting our Current Environment • Global financial crisis • Uncertainty in unexpected places (Municipal Bond Ratings) • Increased regulation and oversight (Tax Reform, ARRA) leading to diminished control over revenues • Smaller staff due to budget cuts

  8. Factors Affecting our Current Environment • Trends in the Audit Community • SAS 115 (documentation of internal controls and communication with those in governance) • Risk Assessments • Fraud Risks • Oversight at the Federal Level • Transparency • COSO

  9. Factors Affecting our Current Environment • Governments are being asked to do more with less • Money and human resources

  10. The Nature of Fraud Industry • Fraud Can Be Explained By Three Key Factors: • A Supply Of Motivated Offenders • The Availability Of Suitable Targets • The Absence Of Capable Guardians Or A Control System To “Mind The Store”

  11. The Nature of Fraud Industry • The Opportunity To Commit & Conceal Fraud Is The Only Element Over Which You Have Significant Control. • What Are Some Of The Warning Signs? • What Can We Do About It?

  12. A Survey Of Folks Regarding Fraud • 31% of All Americans are Dishonest • Another 40% are Situationally Honest (i.e., they will be honest if it pays to be honest and dishonest if it pays to be dishonest) • $200 Billion Employee Fraud Cost per Year Compared to $11 Billion from Violent Crime • In Banks, 95% of Losses are from Employees and 5% are Caused by Bank Robberies • In Retail, 70% of Losses are from Employees and 5% are Caused by Shoplifters and Customers

  13. Fraud and Abuse in The U.S. • U.S. Cost About $990 Billion A Year • Government And Public Administration Have A Median Loss Of $93,000 Per Fraud Scheme • Average Organization Loses 7% Of Revenue • 12% Of Cases In A Study Were Frauds That Occurred In Government • Street Crime Only Costs The U.S. $4 Billion Annually

  14. The Facts • Fraud Schemes Frequently Continue For Years Before They Are Detected • The Typical Fraud In The Study Lasted 2 Years From The Time It Began Until It Was Discovered • Frauds Are Much More Likely To Be Detected By A Tip Than By Audits, Controls Or Any Other Means • Lack Of Adequate Internal Controls Was Most Commonly Cited As The Factor That Allowed Fraud To Occur • Occupational Fraudsters Are Generally First-time Offenders

  15. What Is Fraud? • It’s When Folks Are Ripping Off The Government In Lots Of Different Ways • Fraud Is Like A Four Letter Word • Just Ignore It And It Will Go Away • It Will Never Happen To Us

  16. Common Myths About Fraud • Most Folks Will Not Commit Fraud • Fraud Is Not Material • Most Fraud Goes Undetected • Fraud Is Well Concealed • Prosecuting Will Deter Others

  17. Potential Cost Of Fraud • Lose The Confidence In The Government • Loss To The Reputation Of Innocent Third Parties (I.E., The Remaining Staff) • Cost To The Perpetrator • The Public Loss

  18. Potential Cost Of Fraud • Diversion Of Public Resources From Intended Purpose • Loss Of Money, Assets And Time • Embarrassment, Guilt, Humiliation And Shame • Subsequent Management Decisions Are Reviewed Under A Microscope • Any Investigation Turns The Government Or Agency Inside Out

  19. Personal Rip Offs For Glick • Send Banking Information • Bank of America • Wachovia Bank • TCF Bank • HSBC Bank • Catawba Valley Bank • Regions Bank • Bank of the West • Washington Mutual • Bank Financial • Huntington Bank • Smith Barney

  20. Personal Rip Offs For Glick • Frank Senger - $20.5 Million • Chief AdeniranAderogba - $10 Million • Dr SikasUsman - 30% of $45.8 Million • Dr.AhmedKassim- $10.5 Million • Miss Caroline Williams – 30% Of $16.5 Million • Mr Jack Chow – No Amount • Jim Mcconville - $20 Million British Pounds

  21. Personal Rip Offs For Glick • Richard H Mason – 10% On All Payments Made • Mr. Brendon Hopkins – 30% Of $26.5 Million British Pounds (Twice) • Mr. Mark Johnson – Lottery - $2.5 Million British Pounds • Mr.Carlos Moreno – 50% Of $34.5 Million • Miss Joyce Awuse - $5.5 Million • Irs - $109.30 • Dr Dansuki Dan - $25.5 Million

  22. Session 2 What Are Internal Controls

  23. What Are Internal Controls? • To put it simply, internal controls are an exercise of common sense. You are practicing good internal controls when you? • Balance your checkbook • Keep your ATM/debit card pin number separate from your card • Keep copies of your tax return • Compare your monthly credit card statement to the credit card receipts • Lock your car doors

  24. What Are Internal Controls? • Internal Control Is A Process, Affected By Management And Other Personnel, Designed To Provide Reasonable Assurance Regarding The Achievement Of Objectives In The Following Categories: • Effectiveness And Efficiency Of Operations • Reliability Of Financial Reporting • Compliance With Laws And Regulations

  25. What Are Internal Controls? • Internal Control Consists Of Five Interrelated Components That Affect Each Of The Three Categories

  26. What Are Internal Controls? • Internal control is a process. It is a means to an end, not an end itself. • Internal control is effected by people. • It’s not merely policy manuals and forms, but people functioning at every level of the institution.

  27. Limitations on Internal Controls • Considerations Of Costs Will Prevent Management From Ever Installing A “Perfect System” • Controls Are Potentially Subject To “Management Override” • Risk Of Collusion

  28. Applying the COSOFramework • Committee of Sponsoring Organizations of the Treadway Commission • www.coso.org

  29. Who Are The Organizations • American Accounting Association • American Institute of Certified Public Accountants • Financial Executives International • Institute of Management Accountants • The Institute of Internal Auditors

  30. COSO Internal Control – Integrated Framework • Established A Common Definition Of Internal Control • Provides A Standard Against Which A Government Can Assess Their Control Systems And Determine How To Make Improvements

  31. Internal Control Components • Control Environment • Risk Assessment • Control Activities • Information and Communication • Monitoring

  32. Internal Control Components • Internal Control Components Interact With: • Operations • Financial Reporting • Compliance

  33. Evaluating Internal Controls • Often, Evaluations Are Piecemeal Approaches To The Task • Internal Controls Are Not Isolated And Are Related To One Another

  34. Internal Controls Are Actually: • A Coordinated Set Of Policies And Procedures That Reflect A Comprehensive Strategy For Achieving Management’s Objectives

  35. Assessing The Internal Control Framework • Provides A Favorable Control Environment. • Continually Assesses Risk. • Establishes And Maintains Effective Control- Related Policies And Procedures. • Effectively Communicates Information. • Monitors The Effectiveness Of Control Policies And Procedures And The Resolution Of Potential Problems Identified By Controls.

  36. A Basic Rule • More Is Not Better • The Cost Of Excessive Or Redundant Controls Could Exceed The Benefits • Employees May View Controls As Unnecessary “Red Tape”

  37. Why Are Internal Controls So Important? • Because The Prevention Of Fraud Is Critical And Costs Are High

  38. Session 3 MANAGEMENT’S OBJECTIVES AND RESPONSIBILITIES

  39. MANAGEMENT’S RESPONSIBILITIES AND THE INTERNAL CONTROL FRAMEWORK • EFFECTIVENESS • EFFICIENCY • COMPLIANCE • FINANCIAL REPORTING

  40. EFFECTIVENESS • DETERMINES WHETHER THE GOVERNMENT AND ITS DEPARTMENTS ARE MEETING THEIR OBJECTIVES • GOALS AND OBJECTIVES IDENTIFIED IN BUDGETARY PROCESS • FOCUSES ON RESULTS RATHER THAN EFFORTS • INCLUDE OUTPUTS - HOW MUCH OF GOODS AND SERVICES ARE PROVIDED • INCLUDE OUTCOMES - WHAT IS THE QUALITY OF GOODS OR SERVICES TO BE PROVIDED

  41. EFFICIENCY • MAKING OPTIMAL USE OF THE RESOURCES MADE AVAILABLE • OBTAINING DESIRED RESULTS WITH THE LEAST EXPENDITURE OF RESOURCES • MEASURES COSTS (I.E., EFFORT) TO RESULTS (I.E., EFFECTIVENESS)

  42. COMPLIANCE • ANNUAL APPROPRIATED BUDGET • GRANTOR REQUIREMENTS • STATE OVERSIGHT REQUIREMENTS • IRS REQUIREMENTS • BOND COVENANTS • LOCAL LAWS AND REGULATIONS

  43. FINANCIAL REPORTING • INTERNAL FINANCIAL REPORTING • EXTERNAL FINANCIAL REPORTING • - SPECIAL PURPOSE • - GENERAL PURPOSE • - CAFR

  44. Session 4 Who Is Responsible For Internal Controls?

  45. Who is Responsible for Internal Controls? • Everyone has a part in the internal control system. • The roles vary depending upon what level of responsibility and the nature of involvement by the individual.

  46. Who is Responsible for Internal Controls? • Managers and supervisors are responsible for ensuring that internal controls are established and functioning to achieve the mission and objectives of their unit. • Each employee within an area should be made aware of proper internal control procedures associated with their specific job function.

  47. Is This Just A Problem For The Finance Office? • Most Folks Think This Is Finance’s Problem • But Not Really • However, We Are Emphasizing the Finance Department In This Seminar

  48. Management’s Responsibilities And The Internal Control Framework • Any Entity, Be It A Government, A Business Or A Nonprofit Organization, Exists To Achieve Some Purpose • It Is The Role Of Management To Provide The Leadership Needed For An Entity To Realize That Purpose

  49. Management’s Responsibilities And The Internal Control Framework • Furthermore, Management Is Not Free Simply To Act In Any Way It Might Choose To Achieve The Entity's Goals • Management's Options And Actions Are Circumscribed By Constraints And Expectations, Both Implicit And Explicit.

  50. Responsibility For Internal Controls • Management Is Primarily Responsible For The Effectiveness Of Internal Controls, Like Any Other Aspects of Performance • A Side Note - Authority And Responsibility Should Not Be Separated

More Related