Risks, Controls, & Ethics

1. INDIANA UNIVERSITY Risks, Controls, & Ethics Financial Administrator Development Series

2. Session Objectives • Understand and apply INTERNAL CONTROL concepts to accomplish your organization’s objectives • RISK Assessment and Management • ETHICALVALUES and CONDUCT

3. What are Internal Controls and why should I care ?

4. Why should you care? Internal Controls minimize the RISKS to your Organization!!!

5. RISKS your Organization faces • Financial Reporting • Compliance • Operational • Loss of Assets

6. Why should you care? IT’S YOUR JOB TO CARE

7. Financial Institutional Policy I-1 Role of Fiscal Administrator, Account Manager, and Account Supervisor. • Account Supervisor has a leadership or executive role. • Account Manager has an operational role. • Fiscal Officer has an oversight role.

8. It’s your Job Financial Institutional Policy I-1 “…trained and hired for the purpose of providing fiscal, policy, and internal control management of all funds...” “…responsible for ensuring that processes and related controls have been established to achieve the mission and objectives of their organization(s). “

9. What is Internal Control Internal control is a PROCESS of specific policies and procedures designed to provide reasonable assurance that organization’s objectives will be met • Provide reliable financial reporting • Promote efficient and effective operations • Helps ensure compliance with policy • Protect University Assets

10. Control Environment TONE AT THE TOP • Integrity, ethical values, and behavior of management • Management’s control consciousness • Management’s commitment to competence It’s the way you do Business • Organization structure • Assignment of authority and responsibility • Policies and practices

11. Promote ethical values & conduct Walk the walk Lead by example Be approachable Compliance w/Policy Don’t circumvent rules Full disclosure Fix problems Equal treatment for equal offenses Reward things that are done right Hug your Auditor What do we mean by “Tone at the Top” ?

12. Questions • Which attributes of a Super Fiscal Officer can be useful in exhibiting a strong “Tone at the top”? • When should you be demonstrating a strong “Tone at the top”?

13. What are Ethics?

14. Defining Ethics? eth·ic Pronunciation: 'e-thik Function: noun from Greek Éthos, Date: 14th century 1 the discipline dealing with what is good and bad and with moral duty and obligation2 a: a set of moral principles or values b : the principles of conduct governing an individual or a group <professional ethics>

15. Defining Ethics? ”Doing the right thing”

16. What’s the Right Thing? “What are the Rules”

17. Ethical Rules? • Is it legal and in compliance with IU policy? • Is it fair? • Honest, truthful, responsible, trustworthy, respect individual • Would it pass the newspaper test (or the Mom test)?

18. Why Ethics are important to your Organization? • Responsibility • Regulatory requirements • Return on integrity (the other ROI)

19. Return on integrity (the other ROI) Good Ethics = Good Business • Better employee decision making • Greater employee commitment to the organization • Reduced unethical or illegal behavior • Better work environment • Better reputation and image for IU

20. ETHICS Closing Thoughts

21. Silence is NOT Golden • Speak out! • Be outraged! • Silence implies your consent!!

22. Important to talk • Transparency • Get other perspectives/input • Hopefully Consensus

23. Who you going to call? • Supervisor • Human Resources • Purchasing • Accounting • University Legal Counsel • Internal Audit • Police

24. Causes of Ethical Failures • NO “Tone at the Top” • NO Consistency • Train Wrecks • Fear of Retaliation • No Reporting Mechanisms • No Education, Communication or Tools

25. QUESTION What specifically are you going to do to promote a strongethical environment in your organization?

26. Written goals and objectives? • Internal control is pointless without goals and objectives. • Written goals and objectives focus efforts toward desired outcomes. • Written goals and objectives provide a rationale for resource allocation. • Written goals and objectives are evidence of thoughtful management.

27. What objectives do we need? • Mission statement. • Operations objectives. • Financial reporting objectives. • Compliance objectives. • Objectives for all significant activities.

28. What are risks? • A risk is anything that could jeopardize the achievement of your organization’s objective. • Operate effectively and efficiently and achieve our goals • Provide reliable financial data • Comply with applicable laws, policies, and procedures • Protect the university’s assets from loss

29. Risk Assessment is a process to • Identify significant risks • Assess risks • What is the likelihood of occurrence? • What is the potential impact? • Manage these risks through • Avoidance • Acceptance and Sharing (Insurance) • Mitigate with Controls

30. How do we identify risks? • You know your risks. • For each objective, ask yourself: • What could go wrong? • What assets do we need to protect? • How could someone steal from us? • What is our greatest legal exposure? • What else?

31. Assess Risks • Likelihood – probability of occurrence • Impact – effect on IU/your organization • Loss of resources • Loss of public trust • Violation of policies, laws, regulations • Bad publicity • Decreased enrollment • What else?

32. Control Activities • The policies and procedures that help ensure that actions identified as necessary to manage risks are carried out properly and in a timely manner • must be implemented thoughtfully, conscientiously, and consistently • unusual conditions identified must be investigated and appropriate corrective action taken • Should be proactive, value added, and cost effective

33. Control Activities • Approvals, Authorizations, and Verifications • Having written policies and procedures and limits to authority • Reconciliations • Explanations of the differences between two different sets of data

34. Control Activities • Reviews of Performance • For programs, departments, and individual employees • Security of Assets • Limiting access, keeping records, and making periodic counts to compare to our records

35. Control Activities • Segregation of Functions • The approval, recording/reconciling, and custody functions should be segregated • Controls over Information Systems • Application and development, controls within applications, security of data and machines

36. What control activities do I need? • Enough to help ensure that you are managing your significant risks. • Actions should be taken and control activities should be performed to mitigate significant risks to acceptable levels. • An action to manage a risk can be anything.

37. What needs to be approved? • Per policy, all financial transactions must be approved by the dept Financial Administrator. • Financial Administrator can delegate signature authority • What to approve and what to delegate? • It depends on the risk assessment. • Generally, the higher the risk activities the higher level of approval/authorization.

38. What needs to be reconciled? • It depends on the risk assessment. Information about high risk activities should be reconciled to ensure its accuracy and completeness. • Monthly operating reports must be reconciled to departmental records. • Payroll voucher reports should be reviewed and compared to departmental records. • What else?

39. What activities should be reviewed? • It depends on the risk assessment • Information about high risk activities must be reviewed by management. • Generally, the Chair/Director/PI should review reports which compare budget to actual • To measure performance. • To detect problems. • Performance reviews of staff • Management’s review should be documented.

40. What assets need to be secured? • It depends on the risk assessment • Liquid assets, assets with alternative uses, dangerous assets, vital documents, critical systems, and confidential information need to be secured. • Access to these assets should be restricted. • Perpetual records should be maintained; periodic physical counts should be performed--differences should be checked.

41. What duties need to be segregated? • It depends on the risk assessment • The approval, accounting/reconciling, and asset custody functions should be segregated. • Generally, duties related to cash receipts, payroll and purchases are high risk and should be segregated.

42. How do we control our computers? • It depends on the risk assessment • If critical or confidential information then both the information and the computer need to be controlled. • Basic controls are • Password protecting information. • Backing-up information. • Virus Scanning • Practicing safe computing • What else?

43. Information and Communication • Communicate policies and procedures • Supervisors and employees understand objectives and job responsibilities • Get the information you (and staff) need • Do performance evaluations • Measure customer satisfaction • Open door policy • Hear the good and the bad news

44. Monitor Performance • Evaluating your Internal Controls to determine • Adequately designed • Properly executed, and • Effective • How can we KNOW?

45. Monitor Performance • Internal Controls are effective if you know: • The extent to which your organization’s goals and objectives are being achieved • In compliance with relevant policies, etc. • Financial records are reliable • Assets are safeguarded • Resources are use to advance organization’s mission

46. Who is Responsible for Control? • EVERYONE • Management is responsible for establishing a controlled environment. • Faculty and staff are responsible for carrying out internal controls by following policies and procedures. • Internal Audit, in an advisory/consultant role, is responsible for evaluating whether appropriate controls have been implemented and if they are functioning as intended.

47. Internal Control • Is a Process • Designed to provide reasonable assurance that organization’s objectives will be met • Provides reliable financial reporting • Promotes efficient and effective operations • Helps ensure compliance with policy • Protects university Assets

48. Why Internal Controls fail? • Human Errors - Bad Judgment • Management Override • Collusion • Cost versus Benefit

49. Internal Control components

50. Define Organization’s Goals and Objectives? Identify Current Controls Acceptable Document Risk Acceptance Decision Organizational Objectives Identify & Assess Risks • Define goals and objectives in relation to • Mission, • Activities and processes, • Financial reporting requirements, and • Compliance issues Identify & Assess Residual Risks Action No Yes