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Internal Control Concepts. A Guide for Deans, Directors, and Department Chairs. What are internal controls and why are they important?.

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internal control concepts

Internal Control Concepts

A Guide for Deans, Directors, and Department Chairs

slide3

Internal control is a process, effected by an organization’s people, 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 applicable laws and regulations
consider your own personal internal control system
Consider your own personal internal control system:
  • When you came to work today, did you lock the doors to your house?
  • Do you keep the PIN number for your ATM card confidential and in a safe place?
  • Do you balance your checking account each month?
  • Do you compare credit card statement charges with your signed receipts?
  • Are you planning and saving for retirement?
in our university environment internal controls serve the same purpose
In our University environment internal controls serve the same purpose:
  • Protect the University’s assets
  • Ensure records are accurate
  • Promote operational efficiency
  • Encourage adherence to policies
most internal controls can be classified as preventive or detective
Most internal controls can be classified as PREVENTIVE or DETECTIVE
  • Preventive - designed to discourage errors or irregularities.
  • Detective - designed to identify an error or irregularity after it has occurred.
examples of preventive controls
Examples of Preventive Controls
  • Reading and understanding applicable areas of the University Electronic Handbook
  • A manager’s review of purchases for a proper business purpose prior to approval
  • A computer application that requires password protection
examples of detective controls
Examples of Detective Controls
  • An exception report from the electronic timekeeping system
  • A comparison of transactions on monthly operating reports with departmental source documents
  • A manager’s review of long distance telephone charges
slide12

An organization’s leaders are ultimately responsible and must assume“ownership” of the internal control system for theirareas of responsibility.

slide13

Provides leadership and direction to senior administrators. Together with them, the president shapes the values, principles, and major operating policies that form the foundation of the institution’sinternal control system.

The President

vice presidents

Vice Presidents

  • Colleges
  • Departments
  • Auxiliary Operations
  • Support Services

Provide direction to senior administrators responsible for major functional areas such as:

deans directors and department chairs

Deans, Directors, andDepartment Chairs

Have line responsibility for designing and implementing control systems at unit levels.

Are responsible to execute institution-wide control policies and procedures.

These responsibilities should come with authority and accountability to the next higher level.

slide17

You, as a manager, are responsible for ensuring that internal controls are established and functioning to achievethe mission and objectivesof your unit.

to evaluate internal controls first think about the following general objectives
To evaluate internal controls, first think about the followinggeneral objectives:
  • Propriety of transactions
  • Reliability and integrity of information
  • Compliance with University policies and government regulations
  • Safeguarding assets
  • Economy and efficiency of operations
next identify your unit s specific objectives within these same broad categories
Next, identify your unit’s specific objectives within these same broad categories:
  • Propriety of transactions
  • Reliability and integrity of information
  • Compliance with University policies and government regulations
  • Safeguarding assets
  • Economy and efficiency of operations
slide20

Identify what controls currently exist or that should be established to reasonably assure the achievement of each specific objective of your unit.

slide23

Internal Auditing provides an independent evaluation of the adequacy of internalcontrols and reports the results to theUniversity Administration.

the auditor s evaluation includes an examination of the following internal control elements
The auditor’s evaluation includes an examination of the following internal control elements:
  • Personnel
  • Authorization Procedures
  • Segregation of Duties
  • Physical Restrictions
  • Documentation and Record Retention
  • Monitoring Operations
slide26
Inadequate segregation of duties
  • Inappropriate access to assets
  • Inadequate knowledge of University policies
  • Form over substance
  • Control override
  • Inherent limitations
the cost of implementing a specific control should not exceed the expected benefit of the control
The Cost of Implementing a Specific Control Should Not Exceed the Expected Benefit of the Control.
  • The potential loss of a computer printer may justify the cost of a door lock but not an alarm system.
slide29

Sometimes there is no out-of-pocketcost to establish an adequate control.A realignment of duty assignmentsmay be all that is necessary toaccomplish the objective.

  • Voided receipts are approved by someone (preferably a manager) other than the person preparing receipts.
a well designed internal control structure
A well designed internal control structure:
  • Enhances operations by improving overall efficiency and effectiveness
  • Reduces the risk of loss through fraud or theft
questions about internal control and your specific area of responsibility
Questions about internal control and your specific area of responsibility?
  • Contact the Office of Compliance and Audit, C-260 ASB
  • Telephone ext. 8-3853

Information for this presentation was obtained from “Internal Control Concepts”, NC State University, Internal Audit Division,

http://www2.acs.ncsu.edu/audit/selfaccs/intcont/controls.htm