Internal Controls Back to Basics, Slides of Credit and Risk Management

Download Internal Controls Back to Basics and more Slides Credit and Risk Management in PDF only on Docsity!

Internal

Controls

Back

to

Basics

An overview of some key fundamentals

Presentation

Topics

-^

What

does

Internal

Controls

mean?

-^

Fraud

• Definition,

Statistics,

and

Common

Culprits

-^

U

‐M

Compliance

Hotline

-^

Standard

Practice

Guide

(SPGs)

-^

Annual

Unit

Internal

Controls

Certification

Process

-^

Key

Financial

Related

Training

-^

The

Benefits

of

Documented

Procedures

-^

Components

of

an

Effective

Internal

Controls

Environment

1

2 3 ‐^45 ‐^67 ‐^8

‐^14

Slide

Financial

Statement

Fraud

Fraud

3

Organizations

lose

an

average

of

of

their

annual

revenues

to

fraud

Intentional

deception

resulting

in

unauthorized

personal

gain

Internal

Control

weaknesses

are

responsible

for

nearly

of

frauds

Types

of

Fraud

Asset

Misappropriation

86%of

Fraud Cases

Median

Loss

Median

Loss Statistics

from

of^ Certified

Fraud

Examiner’s

2020

Global

Study

on^ Occupational

the Association

Fraud

and

Abuse

10%of^

Fraud Cases

Who

Commits

Fraud?

4

41% 37% Fraudsters

who

had

been

with

their

company

longer

stole

twice

as

much

Behavioral

Red

Flags

of

Fraud

1.^

Living

Beyond

Means

Financial

Difficulties

3.^

Unusually

Close

Association

with

Vendor/Customer

Control

Issues,

Unwillingness

to

Share

Duties

Irritability,

Suspiciousness,

or

Defensiveness

“Wheeler

‐Dealer”

Attitude

of

fraudsters

were

male

of

frauds

were

committed

by

low

‐level

employees

of

perpetrators

were

between

the

ages

‐^

of

fraudsters

displayed

at

least

one

behavioral

red

flag

of

cases

they

exhibited

multiple

red

flags

and

in

Statistics

from

the Association

of^ Certified

Fraud

Examiner’s

2020

Global

Study

on^ Occupational

Fraud

and

Abuse

U

‐ M

Compliance

Hotline

Statistics

6

The

number

of

reports

to

the

U

‐M

Compliance Hotline

has

significantly

increased

over

the

past

years

Commonly

Reported

Concerns:

•^

Financial

Mismanagement

•^

Conflict

of

Interest

•^

Data

Privacy

Issues

•^

Hostile

Work Environment

•^

Discrimination

-^

Theft

of

Services

or

Time

of

tips

were

reported

over

the

internet

In

FY

of

tips

were reported

over

the

phone

of

tips

were

anonymous

594

667

844

FY

FY

FY

Standard

Practice

Guide

(SPG)

7

The

official

repository

for

the

institution

‐wide

policies

of

the

University

of

Michigan

Key

Aspects

of

the

SPGs

-^

Define

and

set

a

standard

for

organizational

and

individual

conduct

-^

Approved

by

university

leadership

and

apply

to

the

entire

institution

-^

Reviewed

and

updated

every

five

years

Standard

Practice

Guide

Overview

presentation

can

be

found

at

http://www.finance.umich.edu/controls/training

Receive

quarterly

notifications

of

new,

changed

or

decommissioned

policies by

joining

the

self

opt

‐in

email

group.

See

http://spg.umich.edu/policies/revisions for

more

details.

Annual

Internal

Controls

Certification

9

•^

Designed

to

improve

awareness

and

accountability

related

to

fiscal

stewardship

and

internal

controls

•^

Leverages

best

practices

from

Sarbanes

‐Oxley

Act

Deans/Directors/Vice

Presidents

Sign

annual

Certification

Form

to

attest

that

they: •^

Meet

fiscal

stewardship

responsibilities

-^

Review

understand

unit's

financial

performance

confirm

it

fairly

represents

activities

-^

Are

aware

of

and

committed

to

enforcing

appropriate

internal

controls

in

unit

Certifying

Units:

-^

Schools

Colleges

-^

Athletics

-^

Flint

-^

Dearborn

-^

Michigan

Medicine

-^

VP

Offices

-^

Other

Units

Key

Unit

Certification

Elements

/

Tasks

10

Review

internal

controls

of

financial

related

processes

‐^ Unit

focused

decentralized

environment

Internal

Controls

Gap

Analysis

•^

Annual

review

of

key

unit

internal

control

points

•^

Validates

controls

are

in

place

•^

Should

be

completed

by

individuals

involved

in

process

Written

Procedures

Documentation

•^

Clarify

roles

responsibilities

•^

Ensure

process

is

happening

as

intended

-^

Help

with

employee

turnover

Management

Oversight

Reporting

•^

Identifies

key

trends

/^

exceptions

•^

High

level

summaries

(by

month,

year,

etc.)

•^

Many

with

drill

‐down

functionality

Dept Sub

‐Certification

(optional)

•^

Provides

support

for

Dean

Director

/^

VP

Certification

•^

Performed

at

the

department

level

•^

Same

questions

as

Annual

Certification

The

Benefits

of

Documented

Procedures

12

-^

Clarifies

responsibilities

and

documents

expectations

-^

Improves

efficiency and

productivity

-^

Makes

it

easier

to

train

new

employees

-^

Assures

consistent

quality

and

performance

The

Written

Procedure

Templates

found

on

the

Internal

Controls

website

include:

•^

Key

control

points

from

the

gap

analysis

tools

•^

Links

to

related

training,

SPGs,

websites,

etc.

•^

Units

can

customize

the

templates

as

appropriate

to

reflect

unit

specific

procedures

http://www.finance.umich.edu/controls/tools

Five

Components

of

an

Effective

Internal

Controls

Environment

13

Monitoring

Activities

Activities

used

to

monitor

processes

or

internal

controls

Information

&

Communication

How

management

communicates

the

culture

of

compliance

&

specific

policies

individuals

need

to

follow

Control

Activities

Procedures

and

internal

controls

put

in

place

to

mitigate

identified

risks

Risk

Assessment

All

of

the

processes

and

associated

risks

in

an

organization

are

assessed

based

on

level

of

risk

and

likelihood

of

occurrence to

determine

how

they

should

be

addressed

Control

Environment

Represents

the

culture

of

Internal

Controls

at

an

organization

(i.e.

a^

culture

of

discipline

&

compliance

or

a^ culture

of

lax

policies

&

procedures

‐^ This

culture

begins

with

the

actions

of

executive

management

‐^ "The

Tone

at

the

Top"

The

COSO

Framework

provides

a^

model

for

evaluating

the

effectiveness

of

Internal

Controls

In

an

effective

internal

control

system,

the

following

five

components work

to

support

the

achievement

of

an

entity’s

mission,

strategies,

and

related

business

practices