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Practical Guide to Internal Controls
Introduction and Purpose:
There are tens of thousands of internal controls at work at the College of Southern Nevada. Without being aware of it CSN employees deal with internal controls every day. In the simplest form, an internal control is the combination of three things:
- A standard or a requirement to do something (examples might include a daily operating task, a job performance standard, locking a filing cabinet containing student information, not leaving a computer unattended that is logged into SIS)
- A result or feedback of having performed the standard or requirement (examples might include coming to work by 8:00am, an unattended computer with no one signed in, a locked cabinet or door, a purchase request).
- Monitoring or Confirmation by a supervisor or a second employee to see if the standard was met or the requirement performed (examples might include a supervisor’s signature on a document, an employee who did not make the original entry confirming an account, a manager’s visual check of a locked cabinet or door).
Internal controls can be associated with a single task (like coming to work at 8:00am) or the most sophisticated tasks involving hundreds or thousands of internal controls in combination (like the sequence of events that happens when a college meets accreditation standards or produces an annual financial statement).
This document’s purpose is to help every CSN employee understand why internal controls are important and why they make a difference in your job – even if you don’t consciously think about using them.
Responsibility
Internal controls are usually specific to a particular person or a position or a requirement, an expected result or an outcome, and a supervisory check of an outcome. It should be apparent that all CSN employees work collectively to apply internal controls and that our college’s success depends on the participation of all employees at every level. Accordingly, all employees should be aware of CSN’s policies and goals, and their role in complying with those policies and attaining those goals.
Important components of a sound internal control program at CSN also include employee responsibility, competence and integrity. Employees’ awareness of their responsibilities help provide reasonable assurance that our internal control systems are adequate and operating in an efficient manner, the college is accomplishing its mission, and the public’s favorable understanding of the college because we play by the rules, and we produce educated and competent students.
It is the responsibility of the Board of Regents of the Nevada System of Higher Education, CSN’s administration, deans, directors, department heads and supervisors to make clear the standards and requirements we should be following. It is the responsibility of all employees to fulfill those standards and requirements.
Formal Components of Internal Control.
In the introduction above, we talked internal control in its simplest form: a standard or a requirement to do something, a result or feedback that shows something was done, and monitoring or confirmation to see if the standard was met or the requirement performed. In the more formal definition of internal control, we consider five concepts:
Control Environment - includes the concept of organizational culture, and what is an acceptable behavior of employees. This includes such things as integrity, ethical values, staff competence, management's philosophy and operating style.
Risk - involves identifying the likelihood that something will go wrong in your work area, trying to prevent those incidents, and measuring whether objectives are being adequately met. This also involves assessing risks associated with external sources.
Activities - details the policies and procedures that provide direction as to how management expects actions or activities to be performed. Are duties segregated so that one person doesn't control an entire process? Are procurement card reconciliations done on a timely basis? Are proper procedures followed when hiring a new employee? Do managers monitor their department's spending to operate within their office budget?
Information and Communication - explains how necessary information (both internal and external) must be obtained and disseminated at the appropriate time, using the proper means and addressing the right people, so that they may carry out their duties.
Monitoring - assesses whether controls are working and the quality of the outcome. Is your supervisor involved and engaged in whether the job is being done right? What do you do to make sure you are doing your job well?
What do Auditors Look for in Terms of Internal Control?
What are the activities that the department or unit performs?
Is it clear to employees what the rules are? (Are the standards clear? Is the environment the same as the organization expects it to be?)
Do the products and outcomes from employees performing their jobs show successful and adequate completion of efforts? (Are outcomes tangible and measureable? Are employees hindered from performing at the expected level?)
Is the director, department head, manager, and / or supervisor involved in checking and monitoring products and outcomes?
What is the culture of the department? Does the examination of the collective picture presented by system documents, observations, and interviews of employees reflect an ethical environment?
Summary
Internal controls are part of our daily operations. The controls developed and exercised by managers and their staffs are the substance of the CSN Internal Control Program.
As available resources decline, the need for adequate internal control is more and more important. Fewer people are asked to do more work with less time and less funding. Opportunities for fraud, waste, and abuse increase significantly in a weak internal control environment. Internal controls are everyone's responsibility; therefore we are all responsible for knowing what internal controls exist and how to evaluate their effectiveness. The single most important success factor of the Internal Control Program is a high level of individual awareness and understanding.
A successful Internal Control Program will improve the quality of CSN services. The result will be a better, more enjoyable work place and a quality institution of higher education.
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