Internal Controls What Are They And Why Should I Care? 1

Three Concepts that Supervisors should understand: 1.The supervisor is responsible for the internal controls in their area. 2.The supervisor’s attitude significantly impacts their employees attitude. 3.The supervisor designs the internal control system. 2

Who is Responsible for Internal Controls? 3

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How does Attitude Affect Internal Controls? 5

It is important to understand that your attitude will set the standard that will impact the actions of your employees. 6

Control Environment Foundation for Good Internal Controls 7

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Changing the time sheets in this manner is fraudulent behavior and sends a message to the other employees that rules can be ignored. 9

Control Environment or Ethical Climate is Established by: Examples set by leaders Core values of the institution Rewarding those who appropriately raise issues 10

Ensures that: Information and communication flows freely between employees and the supervisor. Management is responsive. Responsibilities are well defined and reasonable. Employees are given the necessary tools to do their job. 11

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It is important that our communications with our employees are clear and consistent. Be careful that the messages you send verbally are consistent with written departmental policies. 13

Who Creates, Implements and Manages Internal Control? 14

Questions to ask in reviewing/designing the system of internal controls: What assets need to be protected? What are the risks to these assets? What procedures could be implemented to reduce the risks to those assets? 15

Risk Assessment Control Environment 16 Identify Assets that Need to be Protected

Protecting assets. Ensuring Accuracy of records. Promoting operational efficiency. Encouraging adherence to policies, rules, regulations, and laws. Reducing the opportunity for fraudulent activity. 17

Personal Controls: Lock homes & vehicles Keep PIN numbers secure Keep checkbooks and cash secure Review bills before paying University Controls: Lock offices & cabinets Keep passwords confidential Current and check stock are kept in secure locations Monthly p-reports are reconciled to ensure accuracy of department records 18

Control Activities Risk Assessment Control Environment Actions Taken to Control Risk 19

1.Ensuring Employees have appropriate: System Access Physical Access (Keys) Safe Combinations 2.All Access is Terminated when Employees Leave 3.Duties are Segregated 4.A System for Authorizing Activities is Developed 20

Reconciliations Logs Checklists Backup procedures Contracts 21

One person’s responsibilities are restricted so that they can’t both cause and conceal errors. For example one person doesn't record the transaction, make the deposit, and reconcile the bank statement. 22

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It is important to evaluate processes to ensure that there is adequate review and/or segregation of duties. 24

Monitoring Control Activities Risk Assessment Control Environment Ensures Control System is Functioning Appropriately 25

Status and Exception Reports Process Reviews – Internal – External Feedback processes – Hotlines – Surveys – Employees/Customers 26

Good Internal Controls ensure you will never be in the following situation: 27

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Good internal controls would have provided a log of art work with pictures of each piece. This would ensure that any art could be easily found. In this case a simple log could have ensured a million dollar donation. 29

Internal Audit is located in Old Main, Room 415 For additional information, please contact the Internal Audit Department Kathleen Miller, CIA, Internal Auditor Phone: Jonnie Jenkins, CPA, Senior Auditor Phone:

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