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Simple Definition
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Internal Controls Are Common Sense
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Internal Controls are everywhere:
You exercise internal control principles in your personal life
when you:
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Objectives of Internal Controls
Strategic – high-level goals and objectives,
aligned with and supporting the mission.
Operational – effective and efficient use of
resources.
Reporting – integrity and reliability of
reporting.
Compliance – compliance with applicable laws
and regulations.
Stewardship – protection and conservation of
assets.
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Business analysis, program design or …
think C.A.R.E.S.
Safeguarding of assets.
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The big picture
Internal controls are a key component to
Enterprise Risk Management (ERM)
“a process, effected by an entity’s board of
directors, management and other personnel,
applied in strategy setting and across the
enterprise, designed to identify potential events that
may affect the entity, and manage risk to be within
its risk appetite, to provide reasonable assurance
regarding the achievement of entity objectives.”
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Weak Internal Controls Increase Risk
Through…
Business Interruption - system breakdowns or catastrophes, excessive
re-work to correct for errors.
Erroneous Management Decisions - based on erroneous, inadequate
or misleading information.
Fraud, Embezzlement and Theft -by management, employees,
customers, vendors, or the public-at-large.
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But too much of a good thing….
When looking at controls
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COSO’S Internal Control Framework…
Five Inter-Related Standards:
Risk
Monitoring
Assessment
Control
Environment
Information &
Communication Control
Activities
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1. Control Environment
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2. Risk Assessment
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3. Control Activities
Tools - policies, procedures, processes -designed and
implemented to help ensure that management directives
are carried out.
Help prevent or reduce the risks that can impede the
accomplishment of objectives.
Occur throughout the organization, at all levels, and in all
functions.
Includes training, approvals, authorizations, verifications,
reconciliations, security of assets, reviews of operating
performance, and segregation of duties.
Types of Controls
Preventative
Detective
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4. Communication and Information
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5. Monitoring
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Benefits from Strong Internal Controls
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Effective Internal Controls…
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Important Concepts…
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Five Key Internal Control Activities…
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1. Separation of Duties
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2. Documentation
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3. Authorization & Approvals
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4. Security of Assets
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5. Reconciliation & Review
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Today, tomorrow and the next day
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