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INTERNAL CONTROL PROGRAM

Learn about internal control programs to promote efficient operations, compliance with laws, and safeguard resources. Understand risk assessment and control activities for effective management. All employees share responsibility for internal controls.

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INTERNAL CONTROL PROGRAM

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  1. INTERNAL CONTROL PROGRAM Presented to President’s Cabinet

  2. What Is Internal Control DEFINITION INTERNAL CONTROLS are the integration of the activities, plans, attitudes, policies and efforts of the people of an organization working together to provide reasonable assurance that the organization will achieve its mission. Simply put -

  3. What is Internal Control Internal Controls are actions taken to make sure the right things happen --- -- and the wrong things don’t.

  4. What is the Purpose ofInternal Controls Promote efficient and effective operations and produce quality products and services Ensure adherence to laws, regulations, contracts and management directives Safeguard resources against loss due to waste, abuse, mismanagement, errors and fraud Develop and maintain reliable data, and accurately present the data in timely reports

  5. Who is Responsible forInternal Control Everyone in an organization has responsibility for internal control. Senior Management sets the “tone at the top” that affects integrity, ethics and other factors of a positive control environment.

  6. What is the Purpose ofInternal Controls What is the Purpose ofInternal Controls Compliance with laws and policies Accomplishment of mission Relevant and reliable data Economical and efficient use of resources Safeguard assets

  7. Internal Control SystemSystem Components Information Communication

  8. Components of theControl Environment

  9. Components of theControl Environment

  10. Components of theControl Environment

  11. Control Environment Setting the proper control environment is crucial to the effective implementation of all the other elements of internal control. Staff will take their cue from the attitude and example displayed by management.

  12. Risk and Risk Assessment • RISKSare events that threaten the accomplishment of objectives and can be either internal or external. They ultimately impact an organization’s ability to accomplish its mission. • Examples of risks include: • Human error • Fraud • System breakdowns • Natural disasters

  13. Risk Assessment • Identify each risk in terms of: Likelihood The probability that an unfavorable event would occur if there were no internal controls in place Significance or Impact The magnitude of the effect on the organization if the unfavorable event were to occur Cause The reason why the unfavorable event may occur

  14. Managing Risk • Risk assumption – impact and likelihood low (do not establish control activities) • Risk control – take action to lower the probability or eliminate the risk (establish control activities) • Risk avoidance – abandon plan; risks uncontrollable and unacceptable (do not carry out the function)

  15. Managing Risk Risk COSTS BENEFITS The cost of internal control should not exceed the benefit derived

  16. What are Control Activities? • Control activities are tools – both manual and automated – that help identify, prevent or reduce the risks that can impede accomplishment of the unit’s objectives. Directive Controls (Laws, Regulations) Preventive Controls (Approvals, Authorizations) Detective Controls (Reconciliations, Audits) Corrective Controls (Training, Supervision)

  17. Commonly Used Control Activities • Documentation – preserving evidence to substantiate a decision, event, transaction or system • Approval and Authorization • Verification – determination of the completeness, accuracy, authenticity and/or validity of transactions, events or information • Supervision • Separation of Duties – division of key tasks and responsibilities among various employees • Safeguarding Assets – restricting access to resources and information to help reduce the risk of unauthorized use or loss • Reporting – helps promote accountability for actions and decisions

  18. Conclusion • All Employees Have Responsibility for Internal Controls • Senior Management sets the “tone at the top” that affects integrity, ethics and other factors of a positive control environment. • Management should consider risks to achieving established objectives and strategies and manage appropriately (accept, control or avoid). • Communication must occur up, down and across an organization. • An Internal Control Program is a good idea and IT’S THE LAW

  19. References • Standards for Internal Control in New York State Government, Office of the State Comptroller. • Control Environment – Tone at the Top, New York State Internal Control Association

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