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Fundamentals of Internal ControlPresented by: Tracy Arner and Beth Horacek

tarner@uga.edu beth.horacek@uga.edu

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Learning Objectives At the end of this session, you will be able to • Recall two of the frameworks for internal control• Identify the definition of internal control• Recognize the five components of internal control

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What Is Internal Control

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Both organized around 5 components and 17 principles

2 Internal Control Models

Committee of Sponsoring Organizations (COSO)

Standards for Internal Control in the Federal Government aka Green Book

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COSO

A process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance

GREEN BOOK

A process effected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieve…within three broad categories:OperationsReportingCompliance

Internal Control(s) Defined

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5 Components

17 Principles

Points of Focus

COSO ModelObjectivesPrerequisite to internal controlObjective-setting not a part of internal control

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Green Book Model

5 Components

17 Principles

Attributes

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Achievement of objectives directs internal control activities

Definition Concepts

Obje

ctive

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Operations

Reporting

Compliance

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Internal control is a

a) processb) set of policy and proceduresc) a plan for communicationd) reporting objective

Polling Question

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Control Environment

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Control environment is defined as:Tone at the topOrganizational attitude toward internal control

Control Environment Defined

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Principles of Control EnvironmentIntegrity and ethical valuesOversight by governing bodyOrganizational structure, roles and responsibilitiesCommitment to attract develop and retain qualified employees Accountability for actions

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Which of the control environment principle(s) was violated in the opening scenarioa) Ethics and integrityb) Attract, train and retain competent individualsc) Accountability for internal control responsibilitiesd) All of the above

Polling Question

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Risk Assessment

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• Component of internal control system• Risk is possibility that an event will occur and

adversely affect the achievement of objectives• Risk assessment is the process for identifying and

assessing risks that could affect the achievement of objectives

Risk Assessment Defined

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Risk affects organization’sAbility to succeedFinancial strengthPositive reputationOverall quality of people and services

No way to reduce risk to zero

Risk Assessment Defined

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Risk Assessment PrinciplesSpecific objectives to allow risk assessmentIdentification and analysis of the risks to the objectivesConsiders potential for fraudReviews changes that can affect internal control

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Risk Response Accept AvoidReduceShare

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Control Activities

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Third component of frameworkActions put into place by management to reduce risk of not achieving objectivesMechanisms for managing risk to achievement of objectives

Control Activities Defined

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Control Activities PrinciplesDevelop control activities to mitigate the riskDevelop general control activities over technology to support the achievement of objectives Deployment of policies and procedures

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PollingWhat is a control activity to lessen the risk associated with the objective to hire competent employees?

a) Require the chair of the board to approve all hiresb) Require trained hiring committees make employment

decisionsc) Allow departments to make all hiring decisions

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Information and Communication

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Component of Internal Control SystemInformation = data combined and summarized based on needed requirements and used to support internal control systemCommunication = enables organization to share relevant and quality information internally and externally

Information and Communication

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PrinciplesRelevant and quality informationInternal communicationExternal communication

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Monitoring

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Fifth component of Internal Control SystemAssess whether all components of internal control and relevant principles are present and functioningSometimes difficult to determine if monitoring is control activity or monitoring activity

Monitoring Activities

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Monitoring Activities PrinciplesDevelopment and performance of ongoing and/or separate evaluations to determine internal control is present and functioning

Evaluation and communication of internal control deficiencies so corrective action can be taken by responsible parties

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What kind of monitoring activities could be used to ensure the hiring practices of a government are consistently followed?a) Periodic internal audit for a sample of positions filledb) Final hire decision is reviewed by HR directorc) Violators required to submit corrective action pland) All of the above

Polling Question

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Roles and Responsibilities

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• Every individual has a role in internal controls• Management is primarily responsible for internal

controls• Governing body is ultimately responsible for internal

controls

Roles and Responsibilities

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Other roles

Senior management EmployeesInternal auditorsExternal parties Independent auditor

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Online Internal Control

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Online Internal Control details• 100% self-study• 12 CPE

• NASBA approved

• Cost $339• $299 in-state price if purchased by May 7

• 30 days to complete

https://t.uga.edu/5Tt

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Internal Control Course Content13 lessons• COSO model is presented separately from Green Book• Animated scenarios to introduce content • Activities to assess learning include

• Drag and drop interactions• Hangman designed for testing terminology• Risk assessment activity for planning a river trip

• Each lesson has a quiz• Final objective question exam

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Alternate Certificate ProgramFour Course Internal Control Certificate

• Each course focuses on a transaction cycle• Accounts Receivable and Cash Receipts• Accounts Payable and Cash Disbursements• Capital Assets• Payroll

• Each course is $259• 6 hours of CPE for each course• University of Georgia certificate at completion of all

four courses

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Other Online Self-Study CoursesGovernmental Accounting Certificate Program 3 courses

• Introductory Governmental Accounting Part I • Introductory Governmental Accounting Part II• Intermediate Governmental Accounting

• 84 CPE• Three months to complete each course • Total cost $1,700

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Join us for our Next WebinarJune 23, 2020, 2:00 P.M. (EDT).

Fundamentals of Purchasing

Presented by Dave Lakly

https://t.uga.edu/5F5

4040

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