Internal Control
<ul><li>Audio is via phone-  </li></ul><ul><li>at 1-800-621-7432 </li></ul><ul><li>Pass Code: 7320616 </li></ul><ul><li>Cl...
Treatment of Recovery Act Funds <ul><li>Internal Control processes and procedures for ARRA funds follow the same guideline...
Learning Objectives <ul><li>Define & explain internal controls </li></ul><ul><li>Benefits </li></ul><ul><li>Roles and resp...
Internal Control <ul><li>“… comprises the plans,  </li></ul><ul><li>methods and procedures used to  </li></ul><ul><li>meet...
Origins of Internal Controls Key Legislation/Guidance <ul><li>Federal Managers Financial Integrity Act (FMFIA) </li></ul><...
Who Is Responsible? <ul><li>Finance </li></ul><ul><li>Security </li></ul><ul><li>Accounting </li></ul><ul><li>Procurement ...
When Do You Utilize Internal Control? <ul><li>Built in to each system  </li></ul><ul><li>Regulate & guide operations </li>...
Why Internal Control? <ul><li>… is the first line of defense in  safeguarding   assets  and  detecting  and  preventing   ...
Common State Finding <ul><li>Violation </li></ul><ul><li>Unallowable costs </li></ul><ul><li>Recommendation   </li></ul><u...
Common School District Findings <ul><li>Violation </li></ul><ul><li>Fraudulent contracts, false invoices, embezzlement </l...
Mandatory IG Reporting <ul><li>Agencies must include in all grants “the requirement that each grantee or sub-grantee award...
Transparency & Accountability <ul><li>Efficient </li></ul><ul><li>Economical </li></ul><ul><li>Effective </li></ul><ul><li...
Standards of Internal Controls Five Standards of Effective Controls <ul><li>Control environment </li></ul><ul><li>Risk ass...
Standards of Internal Controls Control Environment <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul...
Standards of Internal Controls Control Environment Factors - Examples Factor  Examples Integrity and Ethical Values Are vi...
Standards of Internal Controls Risk Assessment <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul...
<ul><li>What could go wrong? </li></ul><ul><li>How could we fail? </li></ul><ul><li>What must go right for us to succeed? ...
Standards of Internal Controls Risk Assessment – Risk Identification Methods <ul><li>Management conferences </li></ul><ul>...
<ul><li>Once risks are analyzed, consider how to: </li></ul><ul><li>Manage risks; i.e., accept, mitigate </li></ul><ul><li...
Standards of Internal Controls Control Activities <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul>...
Standards of Internal Controls  Control Activities – Example Control Activities <ul><li>Approvals  (proper person) </li></...
Standards of Internal Controls Control Activities – Factors to Consider Factor Examples General application Policies and p...
Standards of Internal Controls Control Activities – Types of Controls Type Definition Example Preventative Deters risk fro...
Standards of Internal Controls Information and Communication <ul><li>Control environment </li></ul><ul><li>Risk assessment...
<ul><li>What information should be communicated? </li></ul><ul><li>Performance data </li></ul><ul><ul><li>need to determin...
Standards of Internal Controls  Information and Communication <ul><li>Forms of communication: </li></ul><ul><li>Performanc...
Standards of Internal Controls  Information and Communication Factors <ul><li>Factors to be considered </li></ul><ul><li>I...
Standards of Internal Controls Monitoring <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>...
<ul><li>Factors to be considered: </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations ta...
<ul><li>Monitoring of grantees by reviewing and using the Single Audit reports to help assess grantee performance </li></u...
<ul><li>Factors to be considered </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations tak...
<ul><li>U.S. Department of Education  </li></ul><ul><li>Financial statement auditors </li></ul><ul><li>Peer reviews </li><...
<ul><li>Factors to be considered: </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations ta...
Internal Control - Recap <ul><li>Who – Everyone </li></ul><ul><li>What – Procedures to help meet goals </li></ul><ul><li>W...
Resource Documents <ul><li>EDGAR §80.20 </li></ul><ul><li>http://www.ed.gov/policy/fund/reg/edgarReg/edgar.html  </li></ul...
Resource Documents <ul><li>Monitoring Tools </li></ul><ul><li>http://www.agacgfm.org/intergovernmental/resources.aspx </li...
ARRA Contact Information <ul><li>  </li></ul><ul><li>State Fiscal Stabilization Fund:  </li></ul><ul><li>[email_address] ,...
<ul><li>Questions </li></ul><ul><li>Answers </li></ul>Further Recovery Act questions-  ED contact listed on the Grant Awar...
<ul><li>Thank you for attending! </li></ul><ul><li>Please complete an evaluation--   </li></ul>http://www.ed.gov/policy/ge...
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  1. 1. Internal Control
  2. 2. <ul><li>Audio is via phone- </li></ul><ul><li>at 1-800-621-7432 </li></ul><ul><li>Pass Code: 7320616 </li></ul><ul><li>Close any boxes you don’t need. </li></ul><ul><li>Move Q&A box so that slides are visible. </li></ul>Sound check
  3. 3. Treatment of Recovery Act Funds <ul><li>Internal Control processes and procedures for ARRA funds follow the same guidelines, rules and regulations that apply to other ED grants for Government Organizations </li></ul><ul><li>(State and Local Government Agencies) </li></ul>
  4. 4. Learning Objectives <ul><li>Define & explain internal controls </li></ul><ul><li>Benefits </li></ul><ul><li>Roles and responsibilities </li></ul><ul><li>Internal controls & program objectives </li></ul><ul><li>Key components in assessing controls </li></ul><ul><li>Deficiencies and material weaknesses </li></ul>
  5. 5. Internal Control <ul><li>“… comprises the plans, </li></ul><ul><li>methods and procedures used to </li></ul><ul><li>meet missions, goals and objectives, </li></ul><ul><li>and in doing so, </li></ul><ul><li>support performance-based management. </li></ul><ul><li>It includes the processes for planning , organizing , directing , controlling and reporting on operations.” </li></ul><ul><li>Results via effective stewardship </li></ul>
  6. 6. Origins of Internal Controls Key Legislation/Guidance <ul><li>Federal Managers Financial Integrity Act (FMFIA) </li></ul><ul><li>OMB Circular A-123 </li></ul><ul><li>GAO Standards for Internal Control in the Federal Government </li></ul><ul><li>GAO Internal Control Self-Assessment Tool </li></ul>
  7. 7. Who Is Responsible? <ul><li>Finance </li></ul><ul><li>Security </li></ul><ul><li>Accounting </li></ul><ul><li>Procurement </li></ul><ul><li>Project Personnel </li></ul>“ Management should ensure that all personnel in the organization … know their roles and responsibilities… … it is every user’s responsibility to safeguard the information to which they have access, making security the job of every City employee.”
  8. 8. When Do You Utilize Internal Control? <ul><li>Built in to each system </li></ul><ul><li>Regulate & guide operations </li></ul>CONTINUALLY! “… as the organization evolves the security structures will change as well. With this in mind, the computer security is not a one-time task, but a continual effort to improve data protection.”
  9. 9. Why Internal Control? <ul><li>… is the first line of defense in safeguarding assets and detecting and preventing errors and fraud . </li></ul><ul><li>… helps achieve desired results through effective stewardship of public resources. </li></ul>“ Audit results indicate there is an increased risk to system vulnerabilities due to weak administrative, physical and logical security controls...”
  10. 10. Common State Finding <ul><li>Violation </li></ul><ul><li>Unallowable costs </li></ul><ul><li>Recommendation </li></ul><ul><li>Return $1.3M </li></ul><ul><li>Document $52M or return funds </li></ul><ul><li>Outcome </li></ul><ul><li>High-risk designation & special conditions </li></ul>
  11. 11. Common School District Findings <ul><li>Violation </li></ul><ul><li>Fraudulent contracts, false invoices, embezzlement </li></ul><ul><li>Outcome </li></ul><ul><li>Home searched by FBI, property & assets seized, incarceration, probation, repay $92,000 </li></ul>
  12. 12. Mandatory IG Reporting <ul><li>Agencies must include in all grants “the requirement that each grantee or sub-grantee awarded funds made available under the Recovery Act shall promptly refer to an appropriate inspector general any credible evidence that a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person has submitted a false claim under the False Claims Act or has committed a criminal or civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds.” </li></ul>1-800-MISUSED [email_address] FAX 202-260-0230
  13. 13. Transparency & Accountability <ul><li>Efficient </li></ul><ul><li>Economical </li></ul><ul><li>Effective </li></ul><ul><li>Ethical </li></ul><ul><li>Equitable </li></ul>Federal Funding Accountability & Transparency Act
  14. 14. Standards of Internal Controls Five Standards of Effective Controls <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>
  15. 15. Standards of Internal Controls Control Environment <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>Control Environment Risk Control Activities Assessment Monitoring I n f o r m a t i o n I n f o r m a t i o n C o m m u n i c a t i o n C o m m u n i c a t i o n
  16. 16. Standards of Internal Controls Control Environment Factors - Examples Factor Examples Integrity and Ethical Values Are violators of Codes of Conduct or policy and procedures disciplined? Commitment to competence Do employees receive candid, constructive feedback? Management’s philosophy and operating style Does management endorse performance-based management? Does management evaluate risks? Organizational structure Are there sufficient employees/managers for the work? Delegation of authority and responsibility Are delegations appropriate? With increased delegation, does management monitor results? Human capital policies and practices Is performance linked to goals and objectives in the strategic plan? Relationship with Oversight agencies Does the agency maintain close, good working relationships?
  17. 17. Standards of Internal Controls Risk Assessment <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>Control Environment Risk Control Activities Assessment Monitoring I n f o r m a t i o n I n f o r m a t i o n C o m m u n i c a t i o n C o m m u n i c a t i o n
  18. 18. <ul><li>What could go wrong? </li></ul><ul><li>How could we fail? </li></ul><ul><li>What must go right for us to succeed? </li></ul><ul><li>Where are we vulnerable? </li></ul><ul><li>What assets do we need to protect? </li></ul><ul><li>Do we have liquid assets or assets with alternative uses? </li></ul><ul><li>How could someone steal from the organization? </li></ul><ul><li>How could someone disrupt our operations? </li></ul>Standards of Internal Controls Risk Assessment – Risk Identification
  19. 19. Standards of Internal Controls Risk Assessment – Risk Identification Methods <ul><li>Management conferences </li></ul><ul><li>Executive round tables </li></ul><ul><li>Forecasting and strategic planning </li></ul><ul><li>Consideration of findings from audits and other assessments </li></ul>
  20. 20. <ul><li>Once risks are analyzed, consider how to: </li></ul><ul><li>Manage risks; i.e., accept, mitigate </li></ul><ul><li>How to schedule periodic re-evaluation of risks and evaluation of the effectiveness of risk mitigation mechanisms; i.e., control activities </li></ul>Standards of Internal Controls Risk Assessment – Risk Management
  21. 21. Standards of Internal Controls Control Activities <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>Control Environment Risk Control Activities Assessment Monitoring I n f o r m a t i o n I n f o r m a t i o n C o m m u n i c a t i o n C o m m u n i c a t i o n
  22. 22. Standards of Internal Controls Control Activities – Example Control Activities <ul><li>Approvals (proper person) </li></ul><ul><li>Authorization (proper usage) </li></ul><ul><li>Verification </li></ul><ul><li>Reconciliation </li></ul><ul><li>Independent checks on performance </li></ul><ul><li>Access controls </li></ul><ul><li>Recording/documenting </li></ul>
  23. 23. Standards of Internal Controls Control Activities – Factors to Consider Factor Examples General application Policies and procedures Top-level and program reviews Tracking of achievements against strategic plans and goals/outcomes Human capital mgmt. Written job descriptions, supervision Information processing Edit checks, access control Physical control over vulnerable assets Valuable assets secured in locked area, sprinkler systems Performance measures Measures are defined and tracked Segregation of duties Key duties of authorization, record keeping and custody Documentation Who, what, when, why documented. Is available to others
  24. 24. Standards of Internal Controls Control Activities – Types of Controls Type Definition Example Preventative Deters risk from being realized Eligibility requirements are verified against independent party information prior to award Detective Finds if risk does get realized Data mining to detect fraud patterns Corrective Detects if risk realized and reacts Thermostat in computer room that protects valuable equipment
  25. 25. Standards of Internal Controls Information and Communication <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>Control Environment Risk Control Activities Assessment Monitoring Information Communication Information Communication
  26. 26. <ul><li>What information should be communicated? </li></ul><ul><li>Performance data </li></ul><ul><ul><li>need to determine progress towards organization’s mission and vision </li></ul></ul><ul><li>Operational data </li></ul><ul><ul><li>need to determine organization's compliance with laws and regulations </li></ul></ul><ul><li>Financial data </li></ul><ul><ul><li>need to develop financial statements, budget reports, and other accounting based data </li></ul></ul>Standards of Internal Controls Information and Communication
  27. 27. Standards of Internal Controls Information and Communication <ul><li>Forms of communication: </li></ul><ul><li>Performance management systems </li></ul><ul><li>Information systems </li></ul><ul><li>Policy & procedures manuals </li></ul><ul><li>Management directives </li></ul><ul><li>Memos & emails </li></ul><ul><li>Internet & Intranet </li></ul><ul><li>Speeches & briefings </li></ul><ul><li>“ Grapevine” </li></ul>
  28. 28. Standards of Internal Controls Information and Communication Factors <ul><li>Factors to be considered </li></ul><ul><li>Internal and external information on operational performance provided to management </li></ul><ul><li>Information distributed to the &quot;right&quot; people </li></ul><ul><li>Effective internal communications </li></ul><ul><li>Effective external communications </li></ul><ul><li>Diverse organization information systems </li></ul>
  29. 29. Standards of Internal Controls Monitoring <ul><li>Control environment </li></ul><ul><li>Risk assessment </li></ul><ul><li>Control activities </li></ul><ul><li>Information and communication </li></ul><ul><li>5. Monitoring </li></ul>Control Environment Risk Control Activities Assessment Monitoring I n f o r m a t i o n I n f o r m a t i o n C o m m u n i c a t i o n C o m m u n i c a t i o n
  30. 30. <ul><li>Factors to be considered: </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations take place </li></ul><ul><li>Findings are resolved </li></ul>Standards of Internal Controls Monitoring Factors
  31. 31. <ul><li>Monitoring of grantees by reviewing and using the Single Audit reports to help assess grantee performance </li></ul><ul><li>Monitoring contractor performance against terms and conditions of contract </li></ul><ul><li>Monitoring usage of cell phones, purchase/phone cards </li></ul><ul><li>Source: U.S. Department of Education </li></ul>Standards of Internal Controls Monitoring Ongoing Examples
  32. 32. <ul><li>Factors to be considered </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations take place </li></ul><ul><li>Findings are resolved </li></ul>Standards of Internal Controls Monitoring Factors
  33. 33. <ul><li>U.S. Department of Education </li></ul><ul><li>Financial statement auditors </li></ul><ul><li>Peer reviews </li></ul><ul><li>Inspector General/Public Auditor </li></ul><ul><li>Management control reviews </li></ul>Standards of Internal Controls Examples of Separate Evaluations
  34. 34. <ul><li>Factors to be considered: </li></ul><ul><li>Monitoring should be ongoing </li></ul><ul><li>Separate evaluations take place </li></ul><ul><li>Findings are resolved </li></ul>Standards of Internal Controls Monitoring Factors
  35. 35. Internal Control - Recap <ul><li>Who – Everyone </li></ul><ul><li>What – Procedures to help meet goals </li></ul><ul><li>When – All the time </li></ul><ul><li>Where – Everywhere </li></ul><ul><li>Why – Avoid mistakes – ACHIEVE RESULTS ! </li></ul>
  36. 36. Resource Documents <ul><li>EDGAR §80.20 </li></ul><ul><li>http://www.ed.gov/policy/fund/reg/edgarReg/edgar.html </li></ul><ul><li>Internal Control and Management & Evaluation Tool </li></ul><ul><li>http://www.gao.gov/new.items/d011008g.pdf </li></ul><ul><li>Standards for Internal Control in the Federal Government </li></ul><ul><li>http://www.gao.gov/special.pubs/ai2131.pdf </li></ul>
  37. 37. Resource Documents <ul><li>Monitoring Tools </li></ul><ul><li>http://www.agacgfm.org/intergovernmental/resources.aspx </li></ul><ul><li>Federal Managers Financial Integrity Act of 1982 </li></ul><ul><li>http://www.whitehouse.gov/omb/financial_fmfia1982/ </li></ul><ul><li>OMB Circular A-123 http://www.whitehouse.gov/omb/rewrite/circulars/a123/a123.html </li></ul>
  38. 38. ARRA Contact Information <ul><li>  </li></ul><ul><li>State Fiscal Stabilization Fund: </li></ul><ul><li>[email_address] , Subject = ARRA </li></ul><ul><li>Title I, Part A Grants to LEAs: </li></ul><ul><li>[email_address] , Subject = ARRA </li></ul><ul><li>IDEA, Parts B & C: </li></ul><ul><li>[email_address] </li></ul><ul><li>Voc-Rehab, Independent Living Services & Centers for Independent Living: </li></ul><ul><li>[email_address] </li></ul><ul><li>Impact Aid: </li></ul><ul><li>[email_address] </li></ul><ul><li>ED-OIG Hotline: </li></ul><ul><li>[email_address] , 1-800-MIS-USED </li></ul><ul><li>General Info: 1-800-USA-LEARN (1-800-872-5327) </li></ul><ul><li>  </li></ul>For archived and future web conferences see - http://www.ed.gov/policy/gen/leg/recovery/web-conferences.html#schedule
  39. 39. <ul><li>Questions </li></ul><ul><li>Answers </li></ul>Further Recovery Act questions- ED contact listed on the Grant Award Notification or, email [email_address]
  40. 40. <ul><li>Thank you for attending! </li></ul><ul><li>Please complete an evaluation-- </li></ul>http://www.ed.gov/policy/gen/leg/recovery/web-conferences.html
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