Download - Risks, Controls, & Ethics
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Risks, Controls, & Ethics
INDIANA UNIVERSITY
Financial Administrator Development Series
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Session Objectives
• Understand and apply INTERNAL CONTROL concepts to accomplish your organization’s objectives
• RISK Assessment and Management
• ETHICAL VALUES and CONDUCT
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What are Internal Controls and why should I care ?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Why should you care?
Internal Controls minimize the RISKS to your Organization!!!
Kuali Financial Systems – Financial Administrator Development Series – October 2006
RISKS your Organization faces
• Financial Reporting• Compliance• Operational• Loss of Assets
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Why should you care?
IT’S YOUR JOB TO CARE
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Financial Institutional Policy I-1
Role of Fiscal Administrator, 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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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). “
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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”?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What are Ethics?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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>
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Defining Ethics?
”Doing the right thing”
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What’s the Right Thing?
“What are the Rules”
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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)?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Why Ethics are important to your Organization?
Responsibility
Regulatory requirements
Return on integrity (the other ROI)
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
ETHICS
Closing Thoughts
Kuali Financial Systems – Financial Administrator Development Series – October 2006
• Speak out!
• Be outraged!
• Silence implies your consent!!
Silence is NOT Golden
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Important to talk
• Transparency• Get other perspectives/input• Hopefully Consensus
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Who you going to call?
• Supervisor• Human Resources• Purchasing• Accounting• University Legal Counsel• Internal Audit• Police
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Causes of Ethical Failures
1. NO “Tone at the Top”2. NO Consistency3. Train Wrecks4. Fear of Retaliation5. No Reporting Mechanisms6. No Education, Communication or Tools
Kuali Financial Systems – Financial Administrator Development Series – October 2006
QUESTION
What specifically are you going to do to promote a
strong ethical environment in your
organization?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What objectives do we need?
• Mission statement.• Operations objectives.• Financial reporting objectives.• Compliance objectives.• Objectives for all significant activities.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What needs to be approved?
• Per policy, all financial transactions must be approved by the dept Financial Administrator.– Financial Administrator can delegate
signature authority• What to approve and what to delegate?• It depends on the risk assessment.• Generally, the higher the risk activities
the higher level of approval/authorization.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What needs to be reconciled?
• It depends on the risk assessment. 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?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What activities should be reviewed?
• It depends on the risk assessment• 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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
What assets need to be secured?
• It depends on the risk assessment • 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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Monitor Performance
• Evaluating your Internal Controls to determine– Adequately designed– Properly executed, and– Effective
• How can we KNOW?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Why Internal Controls fail?
• Human Errors - Bad Judgment• Management Override• Collusion• Cost versus Benefit
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Internal Control components
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Controls
NoYes
Action
Define Organization’s Goals and Objectives?
Define goals and objectives in relation to
Mission, Activities and
processes, Financial reporting
requirements, and Compliance issues
Identify & Assess Residual Risks
Kuali Financial Systems – Financial Administrator Development Series – October 2006
SMART Goals & Objectives
S pecific
M easurable
A ttainable
R ealistic
T imeframe
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Controls
NoYes
Action
Identify and assess potential RISKs by asking
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Residual Risks
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Control s
NoYes
Action
What controls are in place to achieve your objectives ?
Control Environment Tone at Top Competence Roles &
Responsibilities Information &
Communication Control Activities
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Controls
NoYes
Action
What could still go wrong given existing controls ?
Look at your risks, and your existing controls to identify any gaps.
Identify & Assess Residual Risks
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Controls
NoYes
Action
Can you live with the Residual Risk ?
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Identify & Assess Risks
Document Risk Acceptance Decision
Acceptable
Organizational Objectives
Identify Current Controls
NoYes
Action
Action Planning
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
QUIZ
• Name four Control Activities:1. 2. 3. 4.
Kuali Financial Systems – Financial Administrator Development Series – October 2006
QUIZ
The most important Internal Control component is:
1. Risk assessment/management process2. Hug your auditor3. Positive “Tone at the Top”4. Strong ethical climate5. Control environment with answers 3 & 4
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Quiz
Risk Assessment/Management is:1. Planning a surprise birthday party2. A department at IU3. A process to assess risks and controls
as they impact on the achievement of a business objective
Kuali Financial Systems – Financial Administrator Development Series – October 2006
QUIZ
Effective Internal Control Systems will:1. Provide reasonable assurance that your
organizations objectives will be met2. Promote reliable financial reporting3. Provide efficient and effective operations 4. Help ensure compliance with policy5. Protect university assets6. All of the above
Kuali Financial Systems – Financial Administrator Development Series – October 2006
Quiz?
• Short Definition of Ethics?
• What are the Rules?
Kuali Financial Systems – Financial Administrator Development Series – October 2006
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