What are the 3 types of internal controls?
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For example, if properly segregating duties is not possible due to limitations of staffing resources, random or independent reviews of transactions, after-the-fact approvals, or
exception report reviews can mitigate the risk exposure. While preventive controls are preferred, detective controls are still critical to provide evidence that the preventive controls are functioning as intended. The action of approving transactions should not be taken lightly. An approval indicates that the supporting documentation is complete, appropriate,
accurate, and in compliance with University policy and procedures. Unusual items should be questioned. Persons approving transactions should have the authority to do so and the knowledge to make informed decisions. Authorization should always be obtained from a higher-level supervisor of the employee. This would include Department Heads, Directors, Vice Presidents, Deans, etc. who ordinarily would have signatory authority over such transactions. No one should be allowed to approve payments to him/herself or to suppliers and vendors for expenses they have personally incurred on behalf of the University. Access to confidential information must be relevant to work responsibilities (“need-to-know” access). Authorization and access privileges must be modified or deleted, as appropriate, immediately upon the transfer or termination of employees in order to protect the integrity of the internal control system. Examples of actions to take upon transfer or termination of an employee are as follows:
Accountability (Detective) LinkThe identity of all individuals involved in a process or transaction should be readily determinable to isolate responsibility for errors or irregularities. This is known as an audit trail and can take the form of signatures, initials, date/time stamps, computer login IDs, or other means of identification. The documents or IT records containing this information must be kept on file and available for examination for a reasonable time period, in line with the record retention policy. Separation of Duties (Preventive) LinkNo one person should be able to control a transaction or process from beginning to end without intervention or review by at least one other person. Specifically, an individual should not be in position to initiate, approve, undertake, and review the same action. This principle is not limited to financial activities alone (i.e., processing student grades). Involving two or more people to perform key responsibilities reduces the opportunity for misappropriation of funds or fraud. Examples include:
In all cases, independent post-transactional review or reconciliations by the person fiscally responsible for the budget should be performed to help achieve greater control. Reconciliations (Detective) LinkMonthly reconciliations of the detailed transactions posted to accounts are one of the most important controls that can be performed. These reviews provide a system of checks and balances to detect fraud, theft, inappropriate use of funds, or human error. Additionally, these reviews will assist in assessing the effectiveness and efficiency of business practices. Fiscal responsibility may be delegated to clerical, faculty, or administrative staff but ultimately is retained by Deans, Directors, and Department Heads who should at minimum:
Overall, the University is very fortunate to have honest, competent, and dedicated employees. And while the vast majority of employees are trustworthy, the University must have checks and balances in place to detect the small minority of employees who may not be. Management (i.e., Deans, Directors, Managers, Supervisors, etc.) needs to understand that ultimately the responsibility for oversight and review remains with them. Some of the types of fraudulent activity to be aware of include, but are not limited to, the following:
Management is responsible for ensuring that routine reviews of financial transactions are adequate to provide reasonable assurance this type of activity is detected on a timely basis. Indication that the reviews have taken place should be documented (i.e., initials or checklist). Any discrepancies should be investigated. Reconciliations can also serve to provide insight into the pattern of revenues and expenses that may provide opportunities to streamline or improve business processes. Financial activity should be compared on a regular basis to budgeted and/or projected amounts. Variances can indicate changes in the particular business environment, which may warrant changing certain aspects of how business is conducted. Other variances could indicate that processing errors or fraudulent activities are occurring. A variance threshold should be established based on key financial indicators. Variances in excess of the threshold should be investigated. Security/Safeguarding (Preventive and Detective) LinkAll reasonable efforts should be made to safeguard the physical assets of the organization from the risk of loss or damage. Examples of these assets include:
Accuracy of Data Entry (Preventive and Detective) LinkOriginal data entry into production computing systems should be checked, verified, or edited in some way to identify errors to ensure accuracy and reliability of the data. The most appropriate or efficient method will depend on the particular computing system and the type of data. Examples of methods commonly used include:
What are the 3 types of controls?Three basic types of control systems are available to executives: (1) output control, (2) behavioural control, and (3) clan control. Different organizations emphasize different types of control, but most organizations use a mix of all three types.
What are the 5 internal controls?There are five interrelated components of an internal control framework: control environment, risk assessment, control activities, information and communication, and monitoring.
What are the 9 common internal controls?Here are controls: Strong tone at the top; Leadership communicates importance of quality; Accounts reconciled monthly; Leaders review financial results; Log-in credentials; Limits on check signing; Physical access to cash, Inventory; Invoices marked paid to avoid double payment; and, Payroll reviewed by leaders.
What are the 3 types of internal audits?Types of Internal audits include compliance audits, operational audits, financial audits, and an information technology audits.
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