Internal Controls, Risks and You. Click mouse or press the Enter key to proceed!. March 2012. Created by: Dorraine Teitsch & Margie Harvey. What is Internal Control?. Definition –
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Created by: Dorraine Teitsch & Margie Harvey
It is a combination of activities, plans, attitudes, policies and efforts of CDTA employees working together to provide reasonable assurance that CDTA will achieve its objectives and mission.
Everyone at CDTA has responsibility for ensuring the internal control system is effective. We do this by maintaining a positive work environment, fulfilling our duties and responsibilities, while striving to meet performance standards and following company policies and procedures.
There are four:
“The COSO Model”
Information & Communication
Biweekly, the Chief Executive Officer invites 8 to 10 employees from various departments to meet with him during lunch. The purpose of these meetings is to exchange thoughts and ideas about CDTA. During these meetings he discusses CDTA’s goals and asks for feedback. He also expresses that everyone is key to CDTA’s success.
Yes.It encompasses “tone at the top” and management’s style, philosophy and supportive attitude.
Yes. The meetings address his operating style, attitude, philosophy, integrity, ethical values and organizational structure.
The probability that an unfavorable event will occur.
A measure of the magnitude of the effect on CDTA if the unfavorable event were to occur.
Questions to keep in mind:
A CDTA bus returns to the Albany garage with various defects during a snow storm. The defects include a small crack in the windshield and inoperable ADA announcements. The bus was evaluated and returned to tripper service.
Yes. The small crack in the windshield did not obstruct the operator’s view and it was less than an inch in size. As the radio announcements were inoperable, the operator was able to call out the various stops along his trip for the passengers.
Causes of Fraud
Poor internal controls create opportunity for fraud!
An employee’s spouse lost his job. Several bills are delinquent and the monthly mortgage is due. The employee’s time is recorded as 18 hours of overtime, but she only worked 2 hours overtime. She notices that the incorrect time was submitted for her, but failed to alert her supervisor of the error. She needed the money and felt she had worked hard over the years and deserved it.
Yes. All three elements of fraud exist: pressure, opportunity and rationalization.
A department supervisor submitted a travel voucher that included personal expenses incurred on a trip not covered under the CDTA’s travel policy amounting to $750. This supervisor also happens to be responsible for approving all of the department’s travel expenses, including his own.
And the answer is...
No employee should be permitted to approve their own expense reimbursements. In this case, the supervisor’s manager should have reviewed the expense reimbursement documents and approved the reimbursement before submission for payment.
This is a weak control activity regarding authorization & approval.
CDTA performed a benefits dependent audit for cost savings. The criteria for a dependent needed to be provided, which included a spouse, child, step-child, adopted child, and legal custody of a minor, as per the health insurance contracts held by CDTA with the various health care providers. The health care providers supplied a list to CDTA of each employee with covered dependents. The employee was then asked to provide proof of dependency (ie. marriage certificate, family court documents, birth certificate, etc.). HR staff then reviewed the documents and verified dependent eligibility and notified the health care providers accordingly to adjust their records. CDTA saved over $100,000.
Establishing criteria for a dependent; the health insurance contracts; the list; providing employee proof of dependency; HR review & verification; notification of adjustments to the health care providers.
Every October CDTA must report to the federal government various performance measures that occurred during the previous fiscal year. Failure to do so impacts our external funding substantially. As part of the report, some of the performance measures include ridership per revenue hour, the mean distance between failures, passenger boardings, missed trips, on-time performance, fuel usage, accidents, operational expenses by mode (fixed or flexible), etc. Prior to the submission, this information is reviewed regularly by CDTA personnel and tied to various goals and objectives. Eventually our information is then reviewed and compared to other transit agencies.
Yes, the continual review and monitoring of information provides a wealth of knowledge internally and externally to ultimately meet CDTA’s goals and objectives.
An operator notices the check engine light come on during his run. The operator radios Central Communications to notify them of the light. Central Communications in turn contacts a foreman. They also instruct the driver to pull the bus over in a safe location and shut it down. The foreman dispatches a mechanic and tow truck to perform a road call. The mechanic assesses the situation and calls the foreman to let him know the bus will be towed. In the meantime, another bus has been dispatched so as not to interrupt service.
Yes. The radio system provided an effective system of communication between transportation and maintenance, while the paths of communication flowed up and down demonstrating coordinating activities to meet the needs of CDTA and its customers.
Well, let’s look at another example of a lack of controls…
Supervisory approval should not be given until all relevant backup documentation has been carefully reviewed and reconciled to applicable charges. Receipts should provide an itemized list of goods purchased.
Let’s Talk Turkey…
Adequate documentation supporting all reimbursements must be reviewed
Internal Control Officer (ICO):
Internal Audit Assistant (IAA):
Who is the Internal Control Officer?
Who has a role in Internal Control?
What are the 5 elements of Internal Control?
What are risks?
What is the importance of internal control and risk assessment?
Answers: a, c, b, e, e
You’re on a roll with Internal Control and Risk Assessment!