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Session Objectives. Understand and apply INTERNAL CONTROL concepts to accomplish your organization’s objectives RISK Assessment and Management ETHICAL VALUES and CONDUCT. Why should you care?. Internal Controls minimize the RISKS to your Organization!!!. RISKS your Organization faces.

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session objectives
Session Objectives
  • Understand and apply INTERNAL CONTROL concepts to accomplish your organization’s objectives
  • RISK Assessment and Management
  • ETHICALVALUES and CONDUCT

Fiscal Officer Development Series September 11, 2008

why should you care
Why should you care?

Internal Controls minimize the RISKS to your Organization!!!

Fiscal Officer Development Series September 11, 2008

risks your organization faces
RISKS your Organization faces
  • Financial Reporting
  • Compliance
  • Operational
  • Loss of Assets

Fiscal Officer Development Series September 11, 2008

financial institutional policy i 1
Financial Institutional Policy I-1

Role of Fiscal Officer, Account Manager, and Account Supervisor.

  • Account Supervisor has a leadership or executive role.
  • Account Manager has an operational role.
  • Fiscal Officer has an oversight role.

Fiscal Officer Development Series September 11, 2008

it s your job
It’s your Job

Financial Institutional Policy I-1

“…trained and hired for the purpose of providing fiscal, policy, and internal control management of all funds...”

“…responsible for ensuring that processes and related controls have been established to achieve the mission and objectives of their organization(s). “

Fiscal Officer Development Series September 11, 2008

what is internal control
What is Internal Control

Internal control is a PROCESS of specific policies and procedures designed to provide reasonable assurance that organization’s objectives will be met

  • Provide reliable financial reporting
  • Promote efficient and effective operations
  • Helps ensure compliance with policy
  • Protect University Assets

Fiscal Officer Development Series September 11, 2008

internal control components

Information

Goals &

Objectives

Establish

Control

Environment

Perform

Risk

Assessment

Monitor

Performance

and

and

Implement

Control

Activities

Communication

Internal Control Components

Fiscal Officer Development Series September 11, 2008

control environment
Control Environment

TONE AT THE TOP

  • Integrity, ethical values, and behavior of management
  • Management’s control consciousness
  • Management’s commitment to competence

It’s the way you do Business

  • Organization structure
  • Assignment of authority and responsibility
  • Policies and practices

Fiscal Officer Development Series September 11, 2008

what do we mean by tone at the top
Promote ethical values & conduct

Walk the walk

Lead by example

Be approachable

Compliance w/Policy

Don’t circumvent rules

Full disclosure

Fix problems

Equal treatment for equal offenses

Reward things that are done right

Hug your Auditor

What do we mean by “Tone at the Top” ?

Fiscal Officer Development Series September 11, 2008

questions
Questions
  • Which attributes of a Super Fiscal Officer can be useful in exhibiting a strong “Tone at the top”?
  • When should you be demonstrating a strong “Tone at the top”?

Fiscal Officer Development Series September 11, 2008

defining ethics
Defining Ethics?

eth·ic Pronunciation: 'e-thik Function: noun from Greek Éthos, Date: 14th century

1 the discipline dealing with what is good and bad and with moral duty and obligation2 a: a set of moral principles or values b : the principles of conduct governing an individual or a group <professional ethics>

Fiscal Officer Development Series September 11, 2008

defining ethics1
Defining Ethics?

”Doing the right thing”

Fiscal Officer Development Series September 11, 2008

what s the right thing
What’s the Right Thing?

“What are the Rules”

Fiscal Officer Development Series September 11, 2008

ethical rules
Ethical Rules?
  • Is it legal and in compliance with IU policy?
  • Is it fair?
    • Honest, truthful, responsible, trustworthy, respect individual
  • Would it pass the newspaper test (or the Mom test)?

Fiscal Officer Development Series September 11, 2008

why ethics are important to your organization
Why Ethics are important to your Organization?
  • Responsibility
  • Regulatory requirements
  • Return on integrity (the other ROI)

Fiscal Officer Development Series September 11, 2008

r esponsibility r egulatory requirements
Responsibility/Regulatory requirements
  • Expected to be good stewards of $ given to us by
    • State/Feds
    • Students
    • Parents
    • Donors

Fiscal Officer Development Series September 11, 2008

return on integrity the other roi
Return on integrity (the other ROI)

Good Ethics = Good Business

  • Better employee decision making
  • Greater employee commitment to the organization
  • Reduced unethical or illegal behavior
  • Better work environment
  • Better reputation and image for IU

Fiscal Officer Development Series September 11, 2008

ethics
ETHICS

Closing Thoughts

Fiscal Officer Development Series September 11, 2008

silence is not golden
Silence is NOT Golden
  • Speak out!
  • Be outraged!
  • Silence implies your consent!!

Fiscal Officer Development Series September 11, 2008

important to talk
Important to talk
  • Transparency
  • Get other perspectives/input
  • Hopefully Consensus

Fiscal Officer Development Series September 11, 2008

who you going to call
Who you going to call?
  • Supervisor
  • Human Resources
  • Purchasing
  • Accounting/FMS
  • University Legal Counsel
  • Internal Audit
  • Police

Fiscal Officer Development Series September 11, 2008

causes of ethical failures
Causes of Ethical Failures
  • NO “Tone at the Top”
  • NO Consistency
  • Train Wrecks
  • Fear of Retaliation
  • No Reporting Mechanisms
  • No Education, Communication or Tools

Fiscal Officer Development Series September 11, 2008

factors of an ethical environment
Factors of an Ethical Environment
  • Integrity of senior management
    • Are they leading by example? Walking the talk?
  • Clear ethical expectations
    • Stake in the ground (Code of Ethical Conduct, discussions)
    • Understand why
  • Consistency
    • Doesn’t count unless price is paid
  • What else?

Fiscal Officer Development Series September 11, 2008

question
QUESTION

What specifically are you going to do to promote a strongethical environment in your organization?

Fiscal Officer Development Series September 11, 2008

written goals and objectives
Written goals and objectives?
  • Internal control is pointless without goals and objectives.
  • Written goals and objectives focus efforts toward desired outcomes.
  • Written goals and objectives provide a rationale for resource allocation.
  • Written goals and objectives are evidence of thoughtful management.

Fiscal Officer Development Series September 11, 2008

what objectives do we need
What objectives do we need?
  • Mission statement.
  • Operations objectives.
  • Financial reporting objectives.
  • Compliance objectives.
  • Objectives for all significant activities.

Fiscal Officer Development Series September 11, 2008

what are risks
What are risks?
  • A risk is anything that could jeopardize the achievement of your organization’s objective.
    • Operate effectively and efficiently and achieve our goals
    • Provide reliable financial data
    • Comply with applicable laws, policies, and procedures
    • Protect the university’s assets from loss

Fiscal Officer Development Series September 11, 2008

risk assessment is a process to
Risk Assessment is a process to
  • Identify significant risks
  • Assess risks
    • What is the likelihood of occurrence?
    • What is the potential impact?
  • Manage these risks through
    • Avoidance
    • Acceptance and Sharing (Insurance)
    • Mitigate with Controls

Fiscal Officer Development Series September 11, 2008

how do we identify risks
How do we identify risks?
  • You know your risks.
  • For each objective, ask yourself:
    • What could go wrong?
    • What assets do we need to protect?
    • How could someone steal from us?
    • What is our greatest legal exposure?
    • What else?

Fiscal Officer Development Series September 11, 2008

assess risks
Assess Risks
  • Likelihood – probability of occurrence
  • Impact – effect on IU/your organization
    • Loss of resources
    • Loss of public trust
    • Violation of policies, laws, regulations
    • Bad publicity
    • Decreased enrollment
    • What else?

Fiscal Officer Development Series September 11, 2008

question1
QUESTION

What are the three major RISKS facing your school or department?

Fiscal Officer Development Series September 11, 2008

internal control components1

Information

Goals &

Objectives

Establish

Control

Environment

Perform

Risk

Assessment

Monitor

Performance

and

and

Implement

Control

Activities

Communication

Internal Control Components

Fiscal Officer Development Series September 11, 2008

control activities
Control Activities
  • The policies and procedures that help ensure that actions identified as necessary to manage risks are carried out properly and in a timely manner
    • must be implemented thoughtfully, conscientiously, and consistently
    • unusual conditions identified must be investigated and appropriate corrective action taken
    • Should be proactive, value added, and cost effective

Fiscal Officer Development Series September 11, 2008

control activities1
Control Activities
  • Approvals, Authorizations, and Verifications
    • Having written policies and procedures and limits to authority
  • Reconciliations
    • Explanations of the differences between two different sets of data

Fiscal Officer Development Series September 11, 2008

control activities2
Control Activities
  • Reviews of Performance
    • For programs, departments, and individual employees
  • Security of Assets
    • Limiting access, keeping records, and making periodic counts to compare to our records

Fiscal Officer Development Series September 11, 2008

control activities3
Control Activities
  • Segregation of Functions
    • The approval, recording/reconciling, and custody functions should be segregated
  • Controls over Information Systems
    • Application and development, controls within applications, security of data and machines

Fiscal Officer Development Series September 11, 2008

what control activities do i need
What control activities do I need?
  • Enough to help ensure that you are managing your significant risks.
  • Actions should be taken and control activities should be performed to mitigate significant risks to acceptable levels.
  • An action to manage a risk can be anything.

Fiscal Officer Development Series September 11, 2008

what needs to be approved
What needs to be approved?
  • Per policy, all financial transactions must be approved by the dept Fiscal Officer.
    • FO can delegate signature authority
  • What to approve and what to delegate?
  • Generally, the higher the risk activities the higher level of approval/authorization.

Fiscal Officer Development Series September 11, 2008

what needs to be reconciled
What needs to be reconciled?
  • Information about high risk activities should be reconciled to ensure its accuracy and completeness.
  • Monthly operating reports must be reconciled to departmental records.
  • Payroll voucher reports should be reviewed and compared to departmental records.
  • What else?

Fiscal Officer Development Series September 11, 2008

what activities should be reviewed
What activities should be reviewed?
  • Information about high risk activities must be reviewed by management.
  • Generally, the Chair/Director/PI should review reports which compare budget to actual
    • To measure performance.
    • To detect problems.
  • Performance reviews of staff
  • Management’s review should be documented.

Fiscal Officer Development Series September 11, 2008

what assets need to be secured
What assets need to be secured?
  • Liquid assets, assets with alternative uses, dangerous assets, vital documents, critical systems, and confidential information need to be secured.
  • Access to these assets should be restricted.
  • Perpetual records should be maintained; periodic physical counts should be performed--differences should be checked.

Fiscal Officer Development Series September 11, 2008

what duties need to be segregated
What duties need to be segregated?
  • It depends on the risk assessment
  • The approval, accounting/reconciling, and asset custody functions should be segregated.
  • Generally, duties related to cash receipts, payroll and purchases are high risk and should be segregated.

Fiscal Officer Development Series September 11, 2008

how do we control our computers
How do we control our computers?
  • It depends on the risk assessment
  • If critical or confidential information then both the information and the computer need to be controlled.
  • Basic controls are
    • Password protecting information.
    • Backing-up information.
    • Virus Scanning
    • Practicing safe computing
    • What else?

Fiscal Officer Development Series September 11, 2008

internal control components2

Information

Goals &

Objectives

Establish

Control

Environment

Perform

Risk

Assessment

Monitor

Performance

and

and

Implement

Control

Activities

Communication

Internal Control Components

Fiscal Officer Development Series September 11, 2008

information and communication
Information and Communication
  • Communicate policies and procedures
    • Supervisors and employees understand objectives and job responsibilities
  • Get the information you (and staff) need
  • Do performance evaluations
  • Measure customer satisfaction
  • Open door policy
    • Hear the good and the bad news

Fiscal Officer Development Series September 11, 2008

monitor performance
Monitor Performance
  • Evaluating your Internal Controls to determine
    • Adequately designed
    • Properly executed, and
    • Effective
  • How can we KNOW?

Fiscal Officer Development Series September 11, 2008

how can we know
How can we KNOW?
  • Ongoing supervisory activities
  • Look at your processes
  • Periodic evaluations
    • Self-assessment
    • Peer review
    • Internal audit
    • External audits

Fiscal Officer Development Series September 11, 2008

monitor performance1
Monitor Performance
  • Internal Controls are effective if you know:
    • The extent to which your organization’s goals and objectives are being achieved
    • In compliance with relevant policies, etc.
    • Financial records are reliable
    • Assets are safeguarded
    • Resources are use to advance organization’s mission

Fiscal Officer Development Series September 11, 2008

who is responsible for control
Who is Responsible for Control?
  • EVERYONE
  • Management is responsible for establishing a controlled environment.
  • Faculty and staff are responsible for carrying out internal controls by following policies and procedures.
  • Internal Audit, in an advisory/consultant role, is responsible for evaluating whether appropriate controls have been implemented and if they are functioning as intended.

Fiscal Officer Development Series September 11, 2008

internal control
Internal Control
  • Is a Process
  • Designed to provide reasonable assurance that organization’s objectives will be met
    • Provides reliable financial reporting
    • Promotes efficient and effective operations
    • Helps ensure compliance with policy
    • Protects university Assets

Fiscal Officer Development Series September 11, 2008

why internal controls fail
Why Internal Controls fail?
  • Human Errors - Bad Judgment
  • Management Override
  • Collusion
  • Cost versus Benefit

Fiscal Officer Development Series September 11, 2008

internal control components3
Internal Control components

Fiscal Officer Development Series September 11, 2008

slide53

Identify Current Controls

Acceptable

Document Risk Acceptance Decision

Define Organization’s Goals and Objectives?

Organizational Objectives

Identify & Assess Risks

  • Define goals and objectives in relation to
    • Mission,
    • Activities and processes,
    • Financial reporting requirements, and
    • Compliance issues

Identify & Assess Residual Risks

Action

No

Yes

Fiscal Officer Development Series September 11, 2008

slide54

Identify Current Controls

Acceptable

Document Risk Acceptance Decision

Identify and assess potential RISKs by asking

Organizational Objectives

Identify & Assess Risks

What Could Go WRONG ?

What must go RIGHT?

How likely is it that the risk will happen?

What will be the impact) if it happens?

Identify & Assess Residual Risks

Action

No

Yes

Fiscal Officer Development Series September 11, 2008

slide55

Identify Current Control s

Acceptable

Document Risk Acceptance Decision

What controls are in place to achieve your objectives ?

Organizational Objectives

Identify & Assess Risks

  • Control Environment
    • Tone at Top
    • Competence
    • Roles & Responsibilities
  • Information & Communication
  • Control Activities

Identify & Assess Residual Risks

Action

No

Yes

Fiscal Officer Development Series September 11, 2008

slide56

Identify Current Controls

Acceptable

Document Risk Acceptance Decision

What could still go wrong given existing controls ?

Organizational Objectives

Identify & Assess Risks

  • Look at your risks, and your existing controls to identify any gaps.

Identify & Assess Residual Risks

Action

No

Yes

Fiscal Officer Development Series September 11, 2008

slide57

Identify Current Controls

Document Risk Acceptance Decision

Can you live with the Residual Risk ?

Organizational Objectives

Identify & Assess Risks

  • Do your existing controls, provide reasonable assurance that you will get achieve your objectives?
  • Something's you can’t control (changes in government regulations, weather)
  • Risk acceptance decision will depend on the culture of the organization

Identify & Assess Residual Risks

Action

Acceptable

No

Yes

Fiscal Officer Development Series September 11, 2008

slide58

Identify Current Controls

Acceptable

Document Risk Acceptance Decision

Action Planning

Organizational Objectives

Identify & Assess Risks

  • If the level of uncontrolled risk is too high/unacceptable then action plans are developed to reduce the residual risk to an acceptable level.

Identify & Assess Residual Risks

Action

No

Yes

Fiscal Officer Development Series September 11, 2008

slide59

Group Exercise

  • Case Study
    • Planning a SURPRISE 50th Birthday Party for your spouse
  • Objectives
    • identify
  • Risks
    • identify and assess

Fiscal Officer Development Series September 11, 2008

surprise 50 th birthday party
SURPRISE 50th Birthday Party
  • OBJECTIVES
  • Risks

Fiscal Officer Development Series September 11, 2008

assess risk
Assess Risk

Fiscal Officer Development Series September 11, 2008

surprise 50 th birthday party1
SURPRISE 50th Birthday Party
  • Controls
    • Control Environment - Competent team
    • Budget with authorizations and approvals
    • Segregation of Functions
    • Reconcilations
    • Controls over Information Systems
  • ResidualRisks
    • ?

Fiscal Officer Development Series September 11, 2008

identify controls
Identify Controls

Fiscal Officer Development Series September 11, 2008

quiz internal control is a
QUIZ - Internal control is a
  • PROCESS of specific policies and procedures
  • Designed to provide reasonable assurance that organization’s objectives will be met
    • Provide reliable financial reporting
    • Promote efficient and effective operations
    • Helps ensure compliance with policy
    • Protect university Assets

Fiscal Officer Development Series September 11, 2008

who is responsible for control1
Who is Responsible for Control ?
  • In a word, everyone
  • Management is responsible for establishing a controlled environment.
  • Faculty and staff are responsible for carrying out internal controls by following policies and procedures.
  • Internal Audit, in an advisory/consultant role, is responsible for evaluating whether appropriate controls have been implemented and if they are functioning as intended.

Fiscal Officer Development Series September 11, 2008

slide66
QUIZ
  • Name four Control Activities:

Fiscal Officer Development Series September 11, 2008

slide67
QUIZ

The most important Internal Control component is:

  • Risk assessment/management process
  • Hug your auditor
  • Positive “Tone at the Top”
  • Strong ethical climate
  • Control environment with answers 3 & 4

Fiscal Officer Development Series September 11, 2008

slide68
Quiz

Risk Assessment/Management is:

  • Planning a surprise birthday party
  • A department at IU
  • A process to assess risks and controls as they impact on the achievement of a business objective

Fiscal Officer Development Series September 11, 2008

slide69
QUIZ

Effective Internal Control Systems will:

  • Provide reasonable assurance that your organizations objectives will be met
  • Promote reliable financial reporting
  • Provide efficient and effective operations
  • Help ensure compliance with policy
  • Protect university assets
  • All of the above

Fiscal Officer Development Series September 11, 2008

slide70
Quiz?
  • Short Definition of Ethics?
  • What are the Rules?

Fiscal Officer Development Series September 11, 2008

slide71
Quiz
  • Short Definition of Ethics?
    • “Doing the Right Thing”
  • What Are the Rules?
    • Moral Values (Is it fair?)?
    • Is it legal and in compliance with IU policy?
    • Would it pass the newspaper test (or the Mom test)?

Fiscal Officer Development Series September 11, 2008

case study
Case Study
  • Identify 1- 3 SMART OBJECTIVES
  • Identify the 1- 3 possible RISKs that would prevent you from achieving your objectives
  • List the CONTROLS you would implement to mitigate these risks

Fiscal Officer Development Series September 11, 2008