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Chapter-5 Internal Controls
Primary Objectives of Internal Controls  Accurate Financial Information  Compliance with Policies and Procedures  Safeguarding Assets  Efficient Use of Resources  Accomplishment of Objectives and Goals
Why are Internal Controls Important? Internal controls are designed to provide reasonable assurance regarding the achievement of objectives in the following categories:  Effectiveness and Efficiency of Operations  Reliability of Financial Reporting  Compliance with Laws and Regulations
Effectiveness and Efficiency of Operations  addresses an entity's basic business objectives, including performance and profitability goals and safeguarding of resources. Reliability of Financial Reporting  preparation of reliable financial statements and publicly reported financial data. Compliance with Laws and Regulations  compliance with those laws and regulations to which the entity is subject.
Internal control consists of five interrelated components:  Control Environment  Risk Assessment  Control Activities  Information and Communication  Monitoring -COSO Integrated Framework Executive Summary
The Five Interrelated Components Control Environment The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Control environment factors include the integrity, ethical values and competence of the entity's people; management's philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the board of directors.
Creating the Control Environment  Create environment that fosters internal controls  Expect Ethical Behavior  Hire qualified staff  Get to know your staff  Clear assignment of responsibility/Job Description  Supervision  Clear Communication
The Five Interrelated Components Risk Assessment Every entity faces a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is establishment of objectives, linked at different levels and internally consistent. Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change. -COSO Integrated Framework Executive Summary
Types of Risk  Financial  Research  Student  Academic  Athletic  Human Resources  Faculty  Crime and Safety  Information Technology  Enrollment  Facilities
Examples of Financial Risk:  Accounting processes  Auditing Matters  Compliance with Regulatory Issues  Falsification of reports/records  Fraud  Improper receipt of gifts  Improper vendor activity  Theft  Waste and Abuse  Misuse of Resources
The Five Interrelated Components Control Activities Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity's objectives. Control activities occur throughout the organization, at all levels and in all functions. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. -COSO Integrated Framework Executive Summary
Key Components – Control Activities  Policies and Procedures Administrative Policies and Procedures (http://www.busfin.uga.edu/manual/)  Staff Training  Organization Charts/Job Descriptions  Performance Measures  Segregation of Duties Preventing one individual from having virtually complete control over a financial process.
Key Components-Control Activities  Adequate Transaction Documentation A record of (paper or electronic) for Revenue  Receipt  Transfer  Deposit for Expense  Purpose  Authorization for Other  Delegation of Signature Authority  Monthly Account Status Report Reconciliation  Annual Property Inventory  Properly Designed Documentation  Unique numbering  Independent Verification
The Five Interrelated Components Information and Communication Pertinent information must be identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities. Information systems produce reports, containing operational, financial and compliance-related information, that make it possible to run and control the business. They deal not only with internally generated data, but also information about external events, activities and conditions necessary to informed business decision-making and external reporting. Effective communication also must occur in a broader sense, flowing down, across and up the organization. All personnel must receive a clear message from top management that control responsibilities must be taken seriously. They must understand their own role in the internal control system, as well as how individual activities relate to the work of others. They must have a means of communicating significant information upstream. There also needs to be effective communication with external parties, such as customers, suppliers, regulators and shareholders. -COSO Integrated Framework Executive Summary
The Five Interrelated Components Monitoring A process that assesses the quality of the system's performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations. It includes regular management and supervisory activities, and other actions personnel take in performing their duties. The scope and frequency of separate evaluations will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the board. -COSO Integrated Framework Executive Summary
Why Monitoring is Important:  Inherent Risks  Complexity  Decentralization – many hands, need accountability  Repeat Problems  Unresponsive to prior weaknesses  Exposures  Changes in Regulatory Environment  Personnel Changes  System and Process Changes  Rapid Growth  New Programs, services and staff
Types of Controls Preventive Controls  Forestall errors and thereby avoid the cost of correction  Discourage fraud Detective Controls  Measure the effectiveness of preventive controls  Uncover errors and misappropriations  Provide the means to establish accountability
Are Internal Controls Foolproof ?  Controls will not always prevent fraud or misappropriation.  Making controls infallible is cost prohibitive and unnecessarily cumbersome.  Controls do not eliminate the “human factor”. To a significant extent, systems of internal control rely on people and their actions.
Real World Summary Why Internal Controls Are Important  Provides management with confidence that the entity is operating according to standards which are monitored-someone is watching.  Indicates to staff that what they are doing is important and that QUALITY is important.  Sends a signal that certain behaviors will not be tolerated.
The term “cash receipts” includes:  Currency  Checks  Credit cards  Wire transfers received by mail or in person
Use of Revenue Object Codes amounts received for  Payment of delivery of goods or services  Reimbursement of expenses or  Contributions Examples of third party receipts include:  General revenues for tuition and fees  Auxiliary income  Parking income  Sponsored awards and events  Revenues from sale of goods and services  Gifts and other designated funds  Reimbursements from:  affiliated institutions  conferences and seminars  alumni functions
Use of Expense Credits  Refunds from vendors  Price adjustment of goods or services Use same object code of the original expense. Examples include:  Returned or rejected items  Overpayments
Objective Ensure that all funds are timely deposited in the bank and are properly recorded in the appropriate account. Risks  Theft/fraud.  Mismanagement of funds.  Mis-statement of revenue and expenditures.  Noncompliance with University, BOR, State and Federal policies.
Audit Check List  Persons verifying the monthly Account Status Reports do not process cash receipts.  Timely and adequate restrictive endorsement of checks  Documentation and procedures are sufficient so that loss or misappropriation of funds can be traced to the responsible individual(s).
Documentation and Procedures Types of documentation  Pre-numbered cash receipt form  Payment log  Cash register tape using locked-in sales totals  Workshop attendance roster
Documentation and Procedures Verification Procedures  Depositing cash receipts timely and intact.  Independently tracing cash receipt forms, logs and/or register tapes to the Bursar’ Office receipt and the Account Status Reports.  Comparing attendance rosters to revenue posted to workshop account.  Reviewing deposit documentation before gift acknowledgement letters are signed and mailed.  Accounting for unsold tickets.  Maintaining control over pre-numbered receipts.  Immediate notification to the Controller’s Office of detected shortages or inappropriate activity.
Transactions must be reviewed and approved by those officers under whose responsibility the project lies. Signatory authority may be delegated however, primary responsibility for funds and transactions remains with the budgetary unit head. It is therefore necessary for a policy to be in writing to ensure the delegation is authorized.
The written signatory authority document should be:  Initiated by the budgetary unit head.  Contain:  A description of the documents for which authority is being conveyed. Examples:  Vouchers.  Purchase requests.  Specimen signatures of persons to whom authority is conveyed.  Signed by the appropriate department head, dean/director or vice president.  Copies sent to:  Accounts Payable  Payroll Budgetary units should revise the policy when personnel or job assignments change.
Objectives  Documents are properly authorized.  Budgetary unit heads and principal investigators understand their responsibility. Risks  Noncompliance with federal regulations.  Noncompliance with University policies.  Misappropriation of funds/fraud.  Disallowance of costs.  Personal liability.
Audit Check List  The department has identified faculty and staff members authorized to sign documents in either paper or electronic form.  The list is up-to-date.  Budgetary unit heads and principal investigators understand their responsibility.  Documents are signed by the appropriate individuals at both the departmental and college/school levels  Delegated faculty / staff members sign their own name and not the dean or budgetary unit head’s name.
Procurement  The University Procurement Office has sole responsibility for the coordination of all University procurement activities.  Departments are authorized to make direct purchases with P-Cards and Petty Cash.  Streamline payment procedures  Reduce the administrative burden  All purchasing is subject to:  State of Georgia purchasing regulations  Board of Regents' policies  University of Georgia policies  The budgetary unit heads have the primary responsibility for the approval of all purchases charged against the accounts under their administration.  Budgetary units should maintain a file of their own purchasing documents.
Procurement  Purchase requests may be generated electronically or manually.  Purchase requests should be limited to items that can be supplied by one vendor.  When formal quotations are needed:  Complete as much of the Purchase Request Form as possible.  Forward the departmental copy (blue) directly to the Procurement Office for use in obtaining quotations.  Place a note on the face of the purchase request providing the reason for using this procedure.  All check requests must be accompanied by an original of the invoice for payment.  The responsibility for receiving and inspecting supplies and equipment rests with:  The central receiving units.  Budgetary units requesting the supplies and equipment.
Accounts Payable  The Accounts Payable Department is responsible for:  examining all accounts, claims, and demands against the University, and  making payment of all the University's legally incurred obligations  No payments are to be made:  Unless there is money in the account for such payments.  Until the Accounts Payable Department has been presented with supporting documents.  Purchase Authorization  Original Invoice  Receiving Report
Accounts Payable  The department will encumber all:  Purchase orders  Physical plant work orders  Requests for authority to travel
Objectives  Expenses charged are reasonable and allowable.  Expenses are properly coded.  Unallowable charges are separately designated.  Purchase order processing is completed promptly and accurately. Risks  Misappropriation of funds.  Loss of sponsored funding.  Disallowance of costs.  Noncompliance with federal regulations.  Delay of future funding.  Delay of delivery of goods and services.  Delay of payments to vendors.  Jeopardized relationships with vendors.  Jeopardized credit standing of the University.
Audit Check List  Transactions are properly approved and the stated purpose is reasonable.  Invoices are submitted to Accounts Payable timely.  Account Status Reports are independently reviewed for accuracy of encumbrances and charges.
Payroll disbursements represent the single largest expense category to the University. All payrolls are processed electronically through a web based electronic payroll system. All new employees are required to have their payments made through direct deposit. The University processes four types of payrolls:  Monthly Payroll  Academic Payroll  Salaried Biweekly  Hourly Biweekly
Monthly Payroll  Faculty (other than those on an "A" or "L" contract code).  Administrative personnel.  Graduate assistants (other than those on a "S" contract code).  Employees exempt from coverage under the Fair Labor Standards Act (Wage and Hour Law) Academic Payroll  Faculty with a contract code of "A" or "L“.  Graduate assistants with a contract code of "S“.  Compensation is earned at the rate of one-half of the contract salary for each academic semester.  Additional payments for Maymester & summer session classes can be made.
Salaried Biweekly  Payroll employees covered under the Fair Labor Standards Act.  The hourly rate of pay is determined by dividing the annual rate by the number of available work hours in the fiscal year.  The gross amount of each check is determined by multiplying the hourly rate of pay by the number of hours reported on the time sheet. Hourly Biweekly  Employees covered under the Fair Labor Standards Act.  Temporary or part-time employees (paid from lump sum positions in the University budget).  The gross amount of each check is determined by multiplying the hourly rate of pay by the number of hours reported on the time sheet.
The basic documents used to effect payroll payments are:  Personnel Report  Payroll Voucher  Time Records
The Personnel Report is used to document:  Employment  Termination  Change in status of all personnel Approved by:  Department heads  Deans  Vice presidents (in some cases ) Personnel Reports are electronically routed to the appropriate units.
Payroll Vouchers contain:  Names of all persons paid on the preceding payroll  Social security numbers  Hourly rate of pay or gross salary Approved by:  Department heads Payroll vouchers are sent to the Payroll Department.
Time Records, are prepared for each employee who is covered and nonexempt under the Federal Fair Labor Standards Act. The document records:  Name of employee  Pay period  Hours worked Approved by:  employee,  Supervisor These signatures and dates are important in complying with Federal Regulations. The time records should be retained by the Department for 5 years after the fiscal year ends.
International Employees  All international employees are required to complete the UGA Tax Information Form for Internationals  The completed form must be submitted to the International Tax Coordinator along with:  Immigration documents  Passport  I-94 card and  Visa  The International Tax Coordinator will perform a tax analysis and will provide the appropriate payroll withholding forms to the employee for review and signature.
Objectives  Proper authorization and payment of salary and wages.  Responsibility for payroll processing separated between:  authorization/processing  distribution of the pay check  Proper allocation of resources and system access privileges.  Current submission of payroll documents. Risks  Noncompliance with federal/state regulations.  Civil liability/lawsuits.  Non-compliance with University policies.  Penalties/fines.  Fraud/theft.  Retroactive transactions.  Personal/employer tax liabilities.  Overpayments/unallowable costs.
Audit Check List  Staff members who approve or process payroll documents do not have access to payroll checks.  Payroll vouchers are properly approved by an appropriate supervisor having knowledge of the hours worked.  Payroll vouchers agree with time sheets and leave records.  Payroll vouchers are signed and approved on the last working day of the pay period.  Time cards are checked for accuracy.  Overtime if paid is allowable and approved in advance.  Time cards are not returned to employees after they are approved by supervisors.  Terminated employees are removed promptly from payroll.  New hires are processed and paid in the appropriate pay cycle.  Visa expiration dates are monitored.  I-9 documentation is complete and on file for all employees.
Independent Contractors  General Rule: the employer has the right to control or direct only the result of the work, and not the means and methods of accomplishing the result  Some of the other factors to determine if a worker is an independent contractor include:  Has the contractor other clients?  Is the person an employee of any State of Georgia agency or institution?  Is there a contract for services?  Does the service involve an independent profession, trade, or business?
Independent Contractors - Minimum standards of documentation to use of independent contractors as consultants require evidence that:  The services are needed.  Cannot be met by direct salaries provided under the contract or grant.  A selection process was used to identify the most qualified individual available.  The individual or firm qualifies as an independent contractor.  The fee is appropriate considering the qualifications and services to be provided.  The express advance approval by the sponsoring and parent Federal agency of a consultant who is also a full-time employee of the Federal government.
Honoraria  An honorarium is:  A onetime tax-reportable payment  To a non-University employee  For general service in education, research, or public service  Where the University does not expect nor is payment contingent upon a particular result.  Examples are  Guest lecturers  Workshop leaders.  An "Honoraria and Fees Information Sheet" must be completed and attached to the check request when payment is requested.  Payments can not be prepared in advance of service performance.
Prizes and Awards  Prizes and awards are classified by the IRS as tax-reportable income.  Prizes and awards to employees, which recognize professional achievements related to employment, are paid through payroll.  Prizes and awards to non-employees or students (whose part-time employment has no professional connection to the award) are paid through Accounts Payable and are issued an IRS Form 1099.
Stipends/Fellowships  A stipend / fellowship is in the form of financial aid for which no services are performed.  Three tests to determine whether or not payments for stipends and fellowships are taxable to the recipient:  Only students (candidates for a degree) qualify for exclusions.  Up to the total of tuition and required fees, books, supplies and equipment can be excluded.  Amounts related to services performed even if such services were requirements for the degree can not be excluded.
Objective Individuals are classified correctly as either an employee or consultant / independent contractor for tax withholding purposes. Risks  Noncompliance with federal regulations.  Noncompliance with University policies.  Fines and penalties.
Audit Check List  The department’s determination on the classification of an individual as either an independent contractor/consultant or employee meets the IRS criteria.  There is sufficient documentation for need, qualifications, and selection process.  The fee is reasonable considering the qualifications and services to be provided.  Departments have properly completed:  Honoraria and Fees Information Sheet.  Consulting Agreement Form. Forms are signed by consultant/contractor and the appropriate University official.
The University reimburses employees for approved, necessary, and reasonable travel expenses incurred while conducting business for the University. Each employee is required to have travel approved by his/her department head or other designated official. For out-of-state travel, it is necessary to obtain:  Prior approval from the appropriate dean's, director's, or other unit head's office.  A financial review by the Travel and Encumbrance Section of the Accounts Payable Department. Travel outside of the continental limits of the United States must be approved first by the appropriate vice president and then by the President's Office. Reimbursement for travel expenses (meals, lodging, transportation and miscellaneous expenses) is requested using an Employee Travel Expense Statement.
In general, services (as well as materials, goods, or supplies) must be received before payment can be remitted. Food, lodging or other non-conference related expenses must be paid by the employee. The employee will be reimbursed, as appropriate, using normal travel reimbursement procedures.
Non-employees or any other organization for rendering a service  Travel and subsistence expenses must be in accordance with the University of Georgia Travel Policy.  A "Honoraria and Fees Information Sheet" and check request is used to process reimbursement.  Charges are recorded as per diem and fees expense and not travel for non- employees.  Prospective employees may be reimbursed for travel expenses.
Objectives  Expenses charged are reasonable and comply with University policies.  Expenses are legitimate and approved by authorized department personnel.  Expenses are accurately calculated.  Expenses are coded to the proper object codes, and unallowable charges are separately designated.  Special Purpose Petty Cash Funds (travel advances) are properly requested, utilized, and accounted for in a timely manner. Risks  Improper use of University funds.  Noncompliance with Internal Revenue Service and other regulatory authorities.  Noncompliance with granting agencies.  Excessive aging of travel advances.
Audit Check List  Special Purpose Petty Cash Funds are approved, utilized appropriately and promptly returned.  Travel forms are signed by the traveler and an authorized approver.  Reported expenses are in compliance with the University’s policies and procedures:  Correct per diem rates  Correct currency conversion rates  forms are accurately totaled  Original receipts or other appropriate documentation attached to support charges on the Travel Expense Statement and Honoraria and Fees Information Sheet.  Paid consultant travel expenses are included in the consulting contract.
All University funds should be used only for activities related to the University’s mission of education, research, and public service. In general, University accounts cannot be used to pay for the cost of University related entertainment.  Sponsoring entities occasionally include a provision that funds may be expended for University related entertainment.  It is important to note that expenses, personal in nature, such staff social parties (celebrations of a birthday, marriage, birth…etc) or holiday celebrations are not reimbursable. Employees may be reimbursed for meals, not associated with overnight travel, if:  The meals are part of a required registration fee; or  The employees is on a work assignment more than 30 miles away from home or headquarters). Approved, necessary, and reasonable business expenses may be reimbursed by submitting a Travel Expense Statement or Reimbursement of University Related Entertainment Expenses Form.
Objectives  Reimbursements for business meals and entertainment are made only when considered necessary and reasonable to fulfill the University’s mission of education, research, and public service.  Entertainment expenses are supported by proper documentation.  Expenses are charged in accordance with University policies and sponsoring agency guidelines. Risks  Non-compliance with federal regulations.  Loss of funding.  Penalties/fines.  Disallowance of costs.  Personal liability.  Impairment of reputation.
Audit Checklist  Entertainment costs are in compliance with the University’s policies and procedures and sponsoring agency regulations.  The purpose for these types of expenses are of a business nature rather than personal.  Expense reimbursement requests include written documentation stating the business purpose of the activity, the names of all individuals present and original receipts.  The proper object codes are used when coding various entertainment expenses.  Departmental personnel approving such expenses are familiar with the University’s policies and procedures.
Monthly verification of the Account Status Reports is a critical control.  A certification of financial information at the department level.  Performed timely. The Controller’s Office distributes to departments each month the Account Status Reports for all accounts that had activity during the year.
A review of the account status reports can be called:  Account Reconciliation  Transaction Verification No matter what the procedure is called  Source documents retained by the department need to be compared to the account status report entries.  Timely.  Preferably by someone who is independent of the processed transaction. Prompt reconciliation of revenue, expenditures and encumbrances can reveal  Missing or misapplied deposits.  Unallowable charges  Duplicate payments or  Non-payment of invoices. Exceptions must be promptly researched and corrected.
Fiscal management responsibility rests with the department directors or principal investigators (PIs)  Transaction verification procedures may be delegated to the administrative staff.  Oversight of such delegated fiscal responsibilities remains with the department directors, or PIs.  Department directors or PIs should review the monthly Account Status Reports to ensure revenue and expenditure transactions are reconciled and reasonable.
Objectives  Revenue and expenditures are correct and reflected in the appropriate account with the proper object/revenue codes.  Expenditures are allowable and comply with federal regulations and University policies  The report reconciliation process is completed monthly  Department directors and PIs understand their fiscal responsibilities Risks  Non-compliance with federal regulations and University policies  Disallowance of costs  Delay or loss of future funding  Delay in the discovery of inappropriate transactions  No budgetary control  Loss of revenue
Audit Checklist  Revenue and expenditure transactions are reconciled monthly.  Verification of transactions are performed by staff who are knowledgeable of University and sponsoring agency cost policies.  When possible, verification procedures are performed by staff who do not:  Have access to cash or checks,  Make purchases, or  authorize payments.  The reconciliation between source documents and the Account Status Report would likely detect items:  On the report and not in departmental records.  In departmental records and not on the report.  All unresolved items are promptly researched and corrected.  The department director or PI review the monthly reports once the reconciliation is completed
Movable personal property must be inventoried and tracked if:  Estimated usable life of three or more years.  Acquisition cost of $3,000 or more. The University also inventories items costing under $3,000 but more that $500 which include:  Office Machines.  Electronic Audio/Visual Equipment.  Photographic Apparatus.
The following items are inventory controlled without regard to cost:  Books if procured through the Library Accounts and catalogued by the Libraries.  Firearms.  Art objects/Antiques.  Vehicles licensed for road use.
Items acquired through the University Procurement Office do not require any additional reporting by the custodian of the equipment for purposes of establishing the inventory records. Items received from other sources do require action initiated by the custodian.  Notice of Change in Departmental Equipment.  Notify the University Property Control Office.
Assistant Inventory Control Officer (AICO)  Designated by the head of each college, school, department, or other administrative office.  Responsible for the departmental procedures related to equipment.  Notification of equipment transfers.  Completion of an annual physical inventory.  Ensuring initial and annual authorization of off-campus equipment.
Surplus Property The Unassigned Property Unit is responsible for:  Acquisition,  Reutilization, and  Disposition of excess, surplus, unassigned, and unneeded equipment Each unit must initiate action with Property Control to remove items  Disposed,  Cannibalized,  Traded-in, or  Judged obsolete from the department's accountable records.  Whenever the loss or theft of equipment is discovered, the custodian must  Immediately report the loss to Campus Police  Submit a Notice of Change and copy of the police report to Property Control
Objectives  Equipment is properly identified.  Equipment is properly labeled with a tag.  Proper object codes are used.  Property Control is notified of equipment acquired other than through the standard University procedures.  Property Control is notified of equipment lost, stolen, salvaged, or scrapped  Inventory is conducted annually. Risks  Non-compliance with federal or state regulations.  Not identified as equipment (not in system).  No record for insurance claims or theft.  Reduced value of the inventory system (affects depreciation, which impacts the facility and administrative [F&A] cost rates).  Value of equipment inventory overstated.  Loss of public confidence.
Audit Checklist  Equipment purchases are made in accordance with purchasing guidelines, properly authorized, and recorded.  Proper equipment object codes are used for equipment with a per unit cost of $5,000 or more and with a useful life of more than three or more years.  All University equipment have a decal that is easily visible  Property Control are notified of:  Donations, transfers, or fabrication of equipment.  Equipment lost, stolen, salvaged, or scrapped.  Equipment moved to an off-campus location.  An annual departmental inventory report is completed and returned to Property Control by the due date.
The appearance of a conflict of interest exists when a reasonable person will conclude that the employee's ability to protect the public interest or perform public duties is compromised by personal interest. Unlawful for any full-time state employee to transact any business with the agency by which such employee is employed. A full-time employee is forbidden from acting for himself/herself, on behalf of any third party, or on behalf of any business in which the employee or a member of his/her family has a substantial interest.
The term "transact any business" includes  the sale or lease of any personal property, real property or services, or  the purchase of any surplus real or personal property.
Unlawful for any part-time state employee, on his own behalf or on behalf of any business, to transact business with the agency by which he is employed, unless:  the amount of any single transaction between the employee and the University does not exceed $250 and  the aggregate does not exceed $9,000 per calendar year.
Objectives  To provide effectiveness of operations by the safeguarding of human resources, i.e., faculty and staff members are devoted primarily to University objectives. Risk  Impairment of the University’s reputation.  Independent scholarly inquiry threatened.  Competition with the University’s business interests.  Impairment of the individual’s ability to perform the duties of his/her University position.  Non-compliance with federal regulations.  Financial penalties.
Audit Checklist  All faculty and staff members in the department have access to the University’s policies regarding conflict of interest.  Faculty and staff members know the conditions when special permission needs to be obtained before undertaking any commitment that may appear to be a conflict of interest.  Faculty and/or staff members have not made purchases with vendors where there is a personal interest or reward.  The department is free of situations where a staff member supervises or has significant control over the work or career of another staff member who is his/her relative or is someone with whom he/she shares a residence.
Information Security  Protect information from:  destruction,  unauthorized access, or  unauthorized change. Users are responsible for the security of data.  An assessment of the University’s business processes related to sensitive data is being performed.  Training.  Evaluations.  Monitoring.
Passwords – limiting unauthorized access  Passwords should be at least six characters long and have an alpha and numeric combination.  Do not share computer IDs or passwords.  Request a change in a computer password immediately if there is any suspicion that it has become known to another party.  User ID’s must be deactivated if an employee has transferred or terminated.  Passwords should be changed on a regular basis
Professional Use of University Resources Messages, sentiments, and declarations sent as electronic mail or as electronic postings should meet high and ethical standards Those users publishing their opinions electronically should  clearly and accurately identify such as their own opinion or the opinion of the group which they are authorized to represent.  Users are not permitted to transmit chain letters or display images, sounds, or messages that create an atmosphere of discomfort or harassment.
Important data should be backed up frequently.  Backup disks should be stored in a location away from the originals. Anti-virus software should be installed and frequently updated.
Unauthorized copying of licensed software is illegal.  Retain all documents on purchase and licensee agreements.  There should be license documentation for all software loaded on each machine
Objectives  University’s intellectual and electronic information is secured from inappropriate access or destruction  Information technology is used only for appropriate business purposes  Proper and reliable backup procedures are used.  All software is properly licensed Risks  Breach of system integrity and loss of critical data  Non-compliance with federal and state laws regarding computer and data communications use  Destruction of critical information by unauthorized users  Violation of software licensee agreements and possible fines  Employee dismissal and legal action  Impairment of the University’s reputation
AUDIT CHECKLIST  Employees with access to computer systems have an established need for the access.  Passwords are secure and not shared.  Procedures are in place to prevent unauthorized use or transmission of information.  Access to the system is removed for terminated or transferred faculty, and staff, timely.  Computers located in heavily traveled public areas have a screen saver with password activation invoked.  Each computer software package is licensed for the current user.  Computer files are backed up on a regular basis. Backup data is stored in a location away from the originals  The department has sufficient technical support for ongoing operations to keep downtime minimal.  The department has adequate resumption procedures for their automated systems that are considered critical or vital to their daily operations.

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INTERNAL CONTROLBestpracticesfinal (2).ppt

  • 1.
  • 2.
    Primary Objectives ofInternal Controls  Accurate Financial Information  Compliance with Policies and Procedures  Safeguarding Assets  Efficient Use of Resources  Accomplishment of Objectives and Goals
  • 3.
    Why are InternalControls Important? Internal controls are designed to provide reasonable assurance regarding the achievement of objectives in the following categories:  Effectiveness and Efficiency of Operations  Reliability of Financial Reporting  Compliance with Laws and Regulations
  • 4.
    Effectiveness and Efficiencyof Operations  addresses an entity's basic business objectives, including performance and profitability goals and safeguarding of resources. Reliability of Financial Reporting  preparation of reliable financial statements and publicly reported financial data. Compliance with Laws and Regulations  compliance with those laws and regulations to which the entity is subject.
  • 5.
    Internal control consistsof five interrelated components:  Control Environment  Risk Assessment  Control Activities  Information and Communication  Monitoring -COSO Integrated Framework Executive Summary
  • 6.
    The Five InterrelatedComponents Control Environment The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Control environment factors include the integrity, ethical values and competence of the entity's people; management's philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the board of directors.
  • 7.
    Creating the ControlEnvironment  Create environment that fosters internal controls  Expect Ethical Behavior  Hire qualified staff  Get to know your staff  Clear assignment of responsibility/Job Description  Supervision  Clear Communication
  • 8.
    The Five InterrelatedComponents Risk Assessment Every entity faces a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is establishment of objectives, linked at different levels and internally consistent. Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change. -COSO Integrated Framework Executive Summary
  • 9.
    Types of Risk Financial  Research  Student  Academic  Athletic  Human Resources  Faculty  Crime and Safety  Information Technology  Enrollment  Facilities
  • 10.
    Examples of FinancialRisk:  Accounting processes  Auditing Matters  Compliance with Regulatory Issues  Falsification of reports/records  Fraud  Improper receipt of gifts  Improper vendor activity  Theft  Waste and Abuse  Misuse of Resources
  • 11.
    The Five InterrelatedComponents Control Activities Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity's objectives. Control activities occur throughout the organization, at all levels and in all functions. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. -COSO Integrated Framework Executive Summary
  • 12.
    Key Components –Control Activities  Policies and Procedures Administrative Policies and Procedures (http://www.busfin.uga.edu/manual/)  Staff Training  Organization Charts/Job Descriptions  Performance Measures  Segregation of Duties Preventing one individual from having virtually complete control over a financial process.
  • 13.
    Key Components-Control Activities Adequate Transaction Documentation A record of (paper or electronic) for Revenue  Receipt  Transfer  Deposit for Expense  Purpose  Authorization for Other  Delegation of Signature Authority  Monthly Account Status Report Reconciliation  Annual Property Inventory  Properly Designed Documentation  Unique numbering  Independent Verification
  • 14.
    The Five InterrelatedComponents Information and Communication Pertinent information must be identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities. Information systems produce reports, containing operational, financial and compliance-related information, that make it possible to run and control the business. They deal not only with internally generated data, but also information about external events, activities and conditions necessary to informed business decision-making and external reporting. Effective communication also must occur in a broader sense, flowing down, across and up the organization. All personnel must receive a clear message from top management that control responsibilities must be taken seriously. They must understand their own role in the internal control system, as well as how individual activities relate to the work of others. They must have a means of communicating significant information upstream. There also needs to be effective communication with external parties, such as customers, suppliers, regulators and shareholders. -COSO Integrated Framework Executive Summary
  • 15.
    The Five InterrelatedComponents Monitoring A process that assesses the quality of the system's performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations. It includes regular management and supervisory activities, and other actions personnel take in performing their duties. The scope and frequency of separate evaluations will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the board. -COSO Integrated Framework Executive Summary
  • 16.
    Why Monitoring isImportant:  Inherent Risks  Complexity  Decentralization – many hands, need accountability  Repeat Problems  Unresponsive to prior weaknesses  Exposures  Changes in Regulatory Environment  Personnel Changes  System and Process Changes  Rapid Growth  New Programs, services and staff
  • 17.
    Types of Controls PreventiveControls  Forestall errors and thereby avoid the cost of correction  Discourage fraud Detective Controls  Measure the effectiveness of preventive controls  Uncover errors and misappropriations  Provide the means to establish accountability
  • 18.
    Are Internal ControlsFoolproof ?  Controls will not always prevent fraud or misappropriation.  Making controls infallible is cost prohibitive and unnecessarily cumbersome.  Controls do not eliminate the “human factor”. To a significant extent, systems of internal control rely on people and their actions.
  • 19.
    Real World Summary WhyInternal Controls Are Important  Provides management with confidence that the entity is operating according to standards which are monitored-someone is watching.  Indicates to staff that what they are doing is important and that QUALITY is important.  Sends a signal that certain behaviors will not be tolerated.
  • 20.
    The term “cashreceipts” includes:  Currency  Checks  Credit cards  Wire transfers received by mail or in person
  • 21.
    Use of RevenueObject Codes amounts received for  Payment of delivery of goods or services  Reimbursement of expenses or  Contributions Examples of third party receipts include:  General revenues for tuition and fees  Auxiliary income  Parking income  Sponsored awards and events  Revenues from sale of goods and services  Gifts and other designated funds  Reimbursements from:  affiliated institutions  conferences and seminars  alumni functions
  • 22.
    Use of ExpenseCredits  Refunds from vendors  Price adjustment of goods or services Use same object code of the original expense. Examples include:  Returned or rejected items  Overpayments
  • 23.
    Objective Ensure that allfunds are timely deposited in the bank and are properly recorded in the appropriate account. Risks  Theft/fraud.  Mismanagement of funds.  Mis-statement of revenue and expenditures.  Noncompliance with University, BOR, State and Federal policies.
  • 24.
    Audit Check List Persons verifying the monthly Account Status Reports do not process cash receipts.  Timely and adequate restrictive endorsement of checks  Documentation and procedures are sufficient so that loss or misappropriation of funds can be traced to the responsible individual(s).
  • 25.
    Documentation and Procedures Typesof documentation  Pre-numbered cash receipt form  Payment log  Cash register tape using locked-in sales totals  Workshop attendance roster
  • 26.
    Documentation and Procedures VerificationProcedures  Depositing cash receipts timely and intact.  Independently tracing cash receipt forms, logs and/or register tapes to the Bursar’ Office receipt and the Account Status Reports.  Comparing attendance rosters to revenue posted to workshop account.  Reviewing deposit documentation before gift acknowledgement letters are signed and mailed.  Accounting for unsold tickets.  Maintaining control over pre-numbered receipts.  Immediate notification to the Controller’s Office of detected shortages or inappropriate activity.
  • 27.
    Transactions must bereviewed and approved by those officers under whose responsibility the project lies. Signatory authority may be delegated however, primary responsibility for funds and transactions remains with the budgetary unit head. It is therefore necessary for a policy to be in writing to ensure the delegation is authorized.
  • 28.
    The written signatoryauthority document should be:  Initiated by the budgetary unit head.  Contain:  A description of the documents for which authority is being conveyed. Examples:  Vouchers.  Purchase requests.  Specimen signatures of persons to whom authority is conveyed.  Signed by the appropriate department head, dean/director or vice president.  Copies sent to:  Accounts Payable  Payroll Budgetary units should revise the policy when personnel or job assignments change.
  • 29.
    Objectives  Documents areproperly authorized.  Budgetary unit heads and principal investigators understand their responsibility. Risks  Noncompliance with federal regulations.  Noncompliance with University policies.  Misappropriation of funds/fraud.  Disallowance of costs.  Personal liability.
  • 30.
    Audit Check List The department has identified faculty and staff members authorized to sign documents in either paper or electronic form.  The list is up-to-date.  Budgetary unit heads and principal investigators understand their responsibility.  Documents are signed by the appropriate individuals at both the departmental and college/school levels  Delegated faculty / staff members sign their own name and not the dean or budgetary unit head’s name.
  • 31.
    Procurement  The UniversityProcurement Office has sole responsibility for the coordination of all University procurement activities.  Departments are authorized to make direct purchases with P-Cards and Petty Cash.  Streamline payment procedures  Reduce the administrative burden  All purchasing is subject to:  State of Georgia purchasing regulations  Board of Regents' policies  University of Georgia policies  The budgetary unit heads have the primary responsibility for the approval of all purchases charged against the accounts under their administration.  Budgetary units should maintain a file of their own purchasing documents.
  • 32.
    Procurement  Purchase requestsmay be generated electronically or manually.  Purchase requests should be limited to items that can be supplied by one vendor.  When formal quotations are needed:  Complete as much of the Purchase Request Form as possible.  Forward the departmental copy (blue) directly to the Procurement Office for use in obtaining quotations.  Place a note on the face of the purchase request providing the reason for using this procedure.  All check requests must be accompanied by an original of the invoice for payment.  The responsibility for receiving and inspecting supplies and equipment rests with:  The central receiving units.  Budgetary units requesting the supplies and equipment.
  • 33.
    Accounts Payable  TheAccounts Payable Department is responsible for:  examining all accounts, claims, and demands against the University, and  making payment of all the University's legally incurred obligations  No payments are to be made:  Unless there is money in the account for such payments.  Until the Accounts Payable Department has been presented with supporting documents.  Purchase Authorization  Original Invoice  Receiving Report
  • 34.
    Accounts Payable  Thedepartment will encumber all:  Purchase orders  Physical plant work orders  Requests for authority to travel
  • 35.
    Objectives  Expenses chargedare reasonable and allowable.  Expenses are properly coded.  Unallowable charges are separately designated.  Purchase order processing is completed promptly and accurately. Risks  Misappropriation of funds.  Loss of sponsored funding.  Disallowance of costs.  Noncompliance with federal regulations.  Delay of future funding.  Delay of delivery of goods and services.  Delay of payments to vendors.  Jeopardized relationships with vendors.  Jeopardized credit standing of the University.
  • 36.
    Audit Check List Transactions are properly approved and the stated purpose is reasonable.  Invoices are submitted to Accounts Payable timely.  Account Status Reports are independently reviewed for accuracy of encumbrances and charges.
  • 37.
    Payroll disbursements representthe single largest expense category to the University. All payrolls are processed electronically through a web based electronic payroll system. All new employees are required to have their payments made through direct deposit. The University processes four types of payrolls:  Monthly Payroll  Academic Payroll  Salaried Biweekly  Hourly Biweekly
  • 38.
    Monthly Payroll  Faculty(other than those on an "A" or "L" contract code).  Administrative personnel.  Graduate assistants (other than those on a "S" contract code).  Employees exempt from coverage under the Fair Labor Standards Act (Wage and Hour Law) Academic Payroll  Faculty with a contract code of "A" or "L“.  Graduate assistants with a contract code of "S“.  Compensation is earned at the rate of one-half of the contract salary for each academic semester.  Additional payments for Maymester & summer session classes can be made.
  • 39.
    Salaried Biweekly  Payrollemployees covered under the Fair Labor Standards Act.  The hourly rate of pay is determined by dividing the annual rate by the number of available work hours in the fiscal year.  The gross amount of each check is determined by multiplying the hourly rate of pay by the number of hours reported on the time sheet. Hourly Biweekly  Employees covered under the Fair Labor Standards Act.  Temporary or part-time employees (paid from lump sum positions in the University budget).  The gross amount of each check is determined by multiplying the hourly rate of pay by the number of hours reported on the time sheet.
  • 40.
    The basic documentsused to effect payroll payments are:  Personnel Report  Payroll Voucher  Time Records
  • 41.
    The Personnel Reportis used to document:  Employment  Termination  Change in status of all personnel Approved by:  Department heads  Deans  Vice presidents (in some cases ) Personnel Reports are electronically routed to the appropriate units.
  • 42.
    Payroll Vouchers contain: Names of all persons paid on the preceding payroll  Social security numbers  Hourly rate of pay or gross salary Approved by:  Department heads Payroll vouchers are sent to the Payroll Department.
  • 43.
    Time Records, areprepared for each employee who is covered and nonexempt under the Federal Fair Labor Standards Act. The document records:  Name of employee  Pay period  Hours worked Approved by:  employee,  Supervisor These signatures and dates are important in complying with Federal Regulations. The time records should be retained by the Department for 5 years after the fiscal year ends.
  • 44.
    International Employees  Allinternational employees are required to complete the UGA Tax Information Form for Internationals  The completed form must be submitted to the International Tax Coordinator along with:  Immigration documents  Passport  I-94 card and  Visa  The International Tax Coordinator will perform a tax analysis and will provide the appropriate payroll withholding forms to the employee for review and signature.
  • 45.
    Objectives  Proper authorizationand payment of salary and wages.  Responsibility for payroll processing separated between:  authorization/processing  distribution of the pay check  Proper allocation of resources and system access privileges.  Current submission of payroll documents. Risks  Noncompliance with federal/state regulations.  Civil liability/lawsuits.  Non-compliance with University policies.  Penalties/fines.  Fraud/theft.  Retroactive transactions.  Personal/employer tax liabilities.  Overpayments/unallowable costs.
  • 46.
    Audit Check List Staff members who approve or process payroll documents do not have access to payroll checks.  Payroll vouchers are properly approved by an appropriate supervisor having knowledge of the hours worked.  Payroll vouchers agree with time sheets and leave records.  Payroll vouchers are signed and approved on the last working day of the pay period.  Time cards are checked for accuracy.  Overtime if paid is allowable and approved in advance.  Time cards are not returned to employees after they are approved by supervisors.  Terminated employees are removed promptly from payroll.  New hires are processed and paid in the appropriate pay cycle.  Visa expiration dates are monitored.  I-9 documentation is complete and on file for all employees.
  • 47.
    Independent Contractors  GeneralRule: the employer has the right to control or direct only the result of the work, and not the means and methods of accomplishing the result  Some of the other factors to determine if a worker is an independent contractor include:  Has the contractor other clients?  Is the person an employee of any State of Georgia agency or institution?  Is there a contract for services?  Does the service involve an independent profession, trade, or business?
  • 48.
    Independent Contractors -Minimum standards of documentation to use of independent contractors as consultants require evidence that:  The services are needed.  Cannot be met by direct salaries provided under the contract or grant.  A selection process was used to identify the most qualified individual available.  The individual or firm qualifies as an independent contractor.  The fee is appropriate considering the qualifications and services to be provided.  The express advance approval by the sponsoring and parent Federal agency of a consultant who is also a full-time employee of the Federal government.
  • 49.
    Honoraria  An honorariumis:  A onetime tax-reportable payment  To a non-University employee  For general service in education, research, or public service  Where the University does not expect nor is payment contingent upon a particular result.  Examples are  Guest lecturers  Workshop leaders.  An "Honoraria and Fees Information Sheet" must be completed and attached to the check request when payment is requested.  Payments can not be prepared in advance of service performance.
  • 50.
    Prizes and Awards Prizes and awards are classified by the IRS as tax-reportable income.  Prizes and awards to employees, which recognize professional achievements related to employment, are paid through payroll.  Prizes and awards to non-employees or students (whose part-time employment has no professional connection to the award) are paid through Accounts Payable and are issued an IRS Form 1099.
  • 51.
    Stipends/Fellowships  A stipend/ fellowship is in the form of financial aid for which no services are performed.  Three tests to determine whether or not payments for stipends and fellowships are taxable to the recipient:  Only students (candidates for a degree) qualify for exclusions.  Up to the total of tuition and required fees, books, supplies and equipment can be excluded.  Amounts related to services performed even if such services were requirements for the degree can not be excluded.
  • 52.
    Objective Individuals are classifiedcorrectly as either an employee or consultant / independent contractor for tax withholding purposes. Risks  Noncompliance with federal regulations.  Noncompliance with University policies.  Fines and penalties.
  • 53.
    Audit Check List The department’s determination on the classification of an individual as either an independent contractor/consultant or employee meets the IRS criteria.  There is sufficient documentation for need, qualifications, and selection process.  The fee is reasonable considering the qualifications and services to be provided.  Departments have properly completed:  Honoraria and Fees Information Sheet.  Consulting Agreement Form. Forms are signed by consultant/contractor and the appropriate University official.
  • 54.
    The University reimbursesemployees for approved, necessary, and reasonable travel expenses incurred while conducting business for the University. Each employee is required to have travel approved by his/her department head or other designated official. For out-of-state travel, it is necessary to obtain:  Prior approval from the appropriate dean's, director's, or other unit head's office.  A financial review by the Travel and Encumbrance Section of the Accounts Payable Department. Travel outside of the continental limits of the United States must be approved first by the appropriate vice president and then by the President's Office. Reimbursement for travel expenses (meals, lodging, transportation and miscellaneous expenses) is requested using an Employee Travel Expense Statement.
  • 55.
    In general, services(as well as materials, goods, or supplies) must be received before payment can be remitted. Food, lodging or other non-conference related expenses must be paid by the employee. The employee will be reimbursed, as appropriate, using normal travel reimbursement procedures.
  • 56.
    Non-employees or anyother organization for rendering a service  Travel and subsistence expenses must be in accordance with the University of Georgia Travel Policy.  A "Honoraria and Fees Information Sheet" and check request is used to process reimbursement.  Charges are recorded as per diem and fees expense and not travel for non- employees.  Prospective employees may be reimbursed for travel expenses.
  • 57.
    Objectives  Expenses chargedare reasonable and comply with University policies.  Expenses are legitimate and approved by authorized department personnel.  Expenses are accurately calculated.  Expenses are coded to the proper object codes, and unallowable charges are separately designated.  Special Purpose Petty Cash Funds (travel advances) are properly requested, utilized, and accounted for in a timely manner. Risks  Improper use of University funds.  Noncompliance with Internal Revenue Service and other regulatory authorities.  Noncompliance with granting agencies.  Excessive aging of travel advances.
  • 58.
    Audit Check List Special Purpose Petty Cash Funds are approved, utilized appropriately and promptly returned.  Travel forms are signed by the traveler and an authorized approver.  Reported expenses are in compliance with the University’s policies and procedures:  Correct per diem rates  Correct currency conversion rates  forms are accurately totaled  Original receipts or other appropriate documentation attached to support charges on the Travel Expense Statement and Honoraria and Fees Information Sheet.  Paid consultant travel expenses are included in the consulting contract.
  • 59.
    All University fundsshould be used only for activities related to the University’s mission of education, research, and public service. In general, University accounts cannot be used to pay for the cost of University related entertainment.  Sponsoring entities occasionally include a provision that funds may be expended for University related entertainment.  It is important to note that expenses, personal in nature, such staff social parties (celebrations of a birthday, marriage, birth…etc) or holiday celebrations are not reimbursable. Employees may be reimbursed for meals, not associated with overnight travel, if:  The meals are part of a required registration fee; or  The employees is on a work assignment more than 30 miles away from home or headquarters). Approved, necessary, and reasonable business expenses may be reimbursed by submitting a Travel Expense Statement or Reimbursement of University Related Entertainment Expenses Form.
  • 60.
    Objectives  Reimbursements forbusiness meals and entertainment are made only when considered necessary and reasonable to fulfill the University’s mission of education, research, and public service.  Entertainment expenses are supported by proper documentation.  Expenses are charged in accordance with University policies and sponsoring agency guidelines. Risks  Non-compliance with federal regulations.  Loss of funding.  Penalties/fines.  Disallowance of costs.  Personal liability.  Impairment of reputation.
  • 61.
    Audit Checklist  Entertainmentcosts are in compliance with the University’s policies and procedures and sponsoring agency regulations.  The purpose for these types of expenses are of a business nature rather than personal.  Expense reimbursement requests include written documentation stating the business purpose of the activity, the names of all individuals present and original receipts.  The proper object codes are used when coding various entertainment expenses.  Departmental personnel approving such expenses are familiar with the University’s policies and procedures.
  • 62.
    Monthly verification ofthe Account Status Reports is a critical control.  A certification of financial information at the department level.  Performed timely. The Controller’s Office distributes to departments each month the Account Status Reports for all accounts that had activity during the year.
  • 63.
    A review ofthe account status reports can be called:  Account Reconciliation  Transaction Verification No matter what the procedure is called  Source documents retained by the department need to be compared to the account status report entries.  Timely.  Preferably by someone who is independent of the processed transaction. Prompt reconciliation of revenue, expenditures and encumbrances can reveal  Missing or misapplied deposits.  Unallowable charges  Duplicate payments or  Non-payment of invoices. Exceptions must be promptly researched and corrected.
  • 64.
    Fiscal management responsibilityrests with the department directors or principal investigators (PIs)  Transaction verification procedures may be delegated to the administrative staff.  Oversight of such delegated fiscal responsibilities remains with the department directors, or PIs.  Department directors or PIs should review the monthly Account Status Reports to ensure revenue and expenditure transactions are reconciled and reasonable.
  • 65.
    Objectives  Revenue andexpenditures are correct and reflected in the appropriate account with the proper object/revenue codes.  Expenditures are allowable and comply with federal regulations and University policies  The report reconciliation process is completed monthly  Department directors and PIs understand their fiscal responsibilities Risks  Non-compliance with federal regulations and University policies  Disallowance of costs  Delay or loss of future funding  Delay in the discovery of inappropriate transactions  No budgetary control  Loss of revenue
  • 66.
    Audit Checklist  Revenueand expenditure transactions are reconciled monthly.  Verification of transactions are performed by staff who are knowledgeable of University and sponsoring agency cost policies.  When possible, verification procedures are performed by staff who do not:  Have access to cash or checks,  Make purchases, or  authorize payments.  The reconciliation between source documents and the Account Status Report would likely detect items:  On the report and not in departmental records.  In departmental records and not on the report.  All unresolved items are promptly researched and corrected.  The department director or PI review the monthly reports once the reconciliation is completed
  • 67.
    Movable personal propertymust be inventoried and tracked if:  Estimated usable life of three or more years.  Acquisition cost of $3,000 or more. The University also inventories items costing under $3,000 but more that $500 which include:  Office Machines.  Electronic Audio/Visual Equipment.  Photographic Apparatus.
  • 68.
    The following itemsare inventory controlled without regard to cost:  Books if procured through the Library Accounts and catalogued by the Libraries.  Firearms.  Art objects/Antiques.  Vehicles licensed for road use.
  • 69.
    Items acquired throughthe University Procurement Office do not require any additional reporting by the custodian of the equipment for purposes of establishing the inventory records. Items received from other sources do require action initiated by the custodian.  Notice of Change in Departmental Equipment.  Notify the University Property Control Office.
  • 70.
    Assistant Inventory ControlOfficer (AICO)  Designated by the head of each college, school, department, or other administrative office.  Responsible for the departmental procedures related to equipment.  Notification of equipment transfers.  Completion of an annual physical inventory.  Ensuring initial and annual authorization of off-campus equipment.
  • 71.
    Surplus Property The UnassignedProperty Unit is responsible for:  Acquisition,  Reutilization, and  Disposition of excess, surplus, unassigned, and unneeded equipment Each unit must initiate action with Property Control to remove items  Disposed,  Cannibalized,  Traded-in, or  Judged obsolete from the department's accountable records.  Whenever the loss or theft of equipment is discovered, the custodian must  Immediately report the loss to Campus Police  Submit a Notice of Change and copy of the police report to Property Control
  • 72.
    Objectives  Equipment isproperly identified.  Equipment is properly labeled with a tag.  Proper object codes are used.  Property Control is notified of equipment acquired other than through the standard University procedures.  Property Control is notified of equipment lost, stolen, salvaged, or scrapped  Inventory is conducted annually. Risks  Non-compliance with federal or state regulations.  Not identified as equipment (not in system).  No record for insurance claims or theft.  Reduced value of the inventory system (affects depreciation, which impacts the facility and administrative [F&A] cost rates).  Value of equipment inventory overstated.  Loss of public confidence.
  • 73.
    Audit Checklist  Equipmentpurchases are made in accordance with purchasing guidelines, properly authorized, and recorded.  Proper equipment object codes are used for equipment with a per unit cost of $5,000 or more and with a useful life of more than three or more years.  All University equipment have a decal that is easily visible  Property Control are notified of:  Donations, transfers, or fabrication of equipment.  Equipment lost, stolen, salvaged, or scrapped.  Equipment moved to an off-campus location.  An annual departmental inventory report is completed and returned to Property Control by the due date.
  • 74.
    The appearance ofa conflict of interest exists when a reasonable person will conclude that the employee's ability to protect the public interest or perform public duties is compromised by personal interest. Unlawful for any full-time state employee to transact any business with the agency by which such employee is employed. A full-time employee is forbidden from acting for himself/herself, on behalf of any third party, or on behalf of any business in which the employee or a member of his/her family has a substantial interest.
  • 75.
    The term "transactany business" includes  the sale or lease of any personal property, real property or services, or  the purchase of any surplus real or personal property.
  • 76.
    Unlawful for anypart-time state employee, on his own behalf or on behalf of any business, to transact business with the agency by which he is employed, unless:  the amount of any single transaction between the employee and the University does not exceed $250 and  the aggregate does not exceed $9,000 per calendar year.
  • 77.
    Objectives  To provideeffectiveness of operations by the safeguarding of human resources, i.e., faculty and staff members are devoted primarily to University objectives. Risk  Impairment of the University’s reputation.  Independent scholarly inquiry threatened.  Competition with the University’s business interests.  Impairment of the individual’s ability to perform the duties of his/her University position.  Non-compliance with federal regulations.  Financial penalties.
  • 78.
    Audit Checklist  Allfaculty and staff members in the department have access to the University’s policies regarding conflict of interest.  Faculty and staff members know the conditions when special permission needs to be obtained before undertaking any commitment that may appear to be a conflict of interest.  Faculty and/or staff members have not made purchases with vendors where there is a personal interest or reward.  The department is free of situations where a staff member supervises or has significant control over the work or career of another staff member who is his/her relative or is someone with whom he/she shares a residence.
  • 79.
    Information Security  Protectinformation from:  destruction,  unauthorized access, or  unauthorized change. Users are responsible for the security of data.  An assessment of the University’s business processes related to sensitive data is being performed.  Training.  Evaluations.  Monitoring.
  • 80.
    Passwords – limitingunauthorized access  Passwords should be at least six characters long and have an alpha and numeric combination.  Do not share computer IDs or passwords.  Request a change in a computer password immediately if there is any suspicion that it has become known to another party.  User ID’s must be deactivated if an employee has transferred or terminated.  Passwords should be changed on a regular basis
  • 81.
    Professional Use ofUniversity Resources Messages, sentiments, and declarations sent as electronic mail or as electronic postings should meet high and ethical standards Those users publishing their opinions electronically should  clearly and accurately identify such as their own opinion or the opinion of the group which they are authorized to represent.  Users are not permitted to transmit chain letters or display images, sounds, or messages that create an atmosphere of discomfort or harassment.
  • 82.
    Important data shouldbe backed up frequently.  Backup disks should be stored in a location away from the originals. Anti-virus software should be installed and frequently updated.
  • 83.
    Unauthorized copying oflicensed software is illegal.  Retain all documents on purchase and licensee agreements.  There should be license documentation for all software loaded on each machine
  • 84.
    Objectives  University’s intellectualand electronic information is secured from inappropriate access or destruction  Information technology is used only for appropriate business purposes  Proper and reliable backup procedures are used.  All software is properly licensed Risks  Breach of system integrity and loss of critical data  Non-compliance with federal and state laws regarding computer and data communications use  Destruction of critical information by unauthorized users  Violation of software licensee agreements and possible fines  Employee dismissal and legal action  Impairment of the University’s reputation
  • 85.
    AUDIT CHECKLIST  Employeeswith access to computer systems have an established need for the access.  Passwords are secure and not shared.  Procedures are in place to prevent unauthorized use or transmission of information.  Access to the system is removed for terminated or transferred faculty, and staff, timely.  Computers located in heavily traveled public areas have a screen saver with password activation invoked.  Each computer software package is licensed for the current user.  Computer files are backed up on a regular basis. Backup data is stored in a location away from the originals  The department has sufficient technical support for ongoing operations to keep downtime minimal.  The department has adequate resumption procedures for their automated systems that are considered critical or vital to their daily operations.