Establishing Internal Control

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Financial and Grants Management Institute - March 18-20, 2008 1

Establishing Internal

Controls


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Session Objectives

1. Provide an understanding of why anorganization should have internal

controls and the impact of not havingadequate controls

2. Understand the key components ofinternal controls

3. Work hands on with participants toreview examples of various policies


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3

Natl & Community Svc. Act of 1990

Code of Fed. Regulations (CFR)OMB Circulars (part of CFR)

State & Local RegulationsNOFO

Notice of Grant Award

ProvisionsCertifications and Assurances


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What are Internal Controls?

Internal controls are processes adopted by

an organizations board, management and

other personnel designed to providereasonable assurance regarding the

achievement of:

Effectiveness and efficiency of operations

Reliability of financial reporting

Compliance with laws and regulations


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What are Internal Controls?

System of checks and balances

Protect the organization from financial

abuse and enhance its ability to achieve itsgoals

Not a organizational burden, it is a way to

optimize of resources


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Why Have Internal Controls?

Improve accountability to customers (Federal

Government, CNCS, trustees, etc.)

Help organization achieve performance andbudget targets

Improve reliability of financial reporting

Improve compliance with laws, regulations Prevent loss of resources, public assets and

public trust


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Internal Control Objectives

Adequacy of audit trail Can a transaction be traced from the accounting records back

to the original documentation (invoice, timesheet)?

Segregation of duties

Are the various aspects of the accounting functions separatedand performed by more than one person?

Physical safeguard of assets Protection of the assets of the organization to ensure its

mission can be carried out

Adequacy of RecordsAre adequate records maintained to provide a proper trail for

the audit


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Internal Controls Interrelated

Components Control environment

What is the atmosphere of the work environment?

Risk assessment Is your organization considered low risk or high risk?

Control activities What activities provide control within your organization? Information and communication

Is information communicated clearly to staff and is there ameans for staff to provide feedback?

MonitoringAre the controls monitored and reviewed to ensure that they areappropriate and meeting compliance requirements?


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A Good Control Environment

Includes: Positive atmosphere in the work environment

Existence of a code of conduct and code of ethics

Written job descriptions

Timely communications with board of directors Written policies to hire, train, promote and

compensate employees

Safeguards for employees related to whistle-

blowing (Sarbanes-Oxley) A clear chain of command


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Elements of Good Internal

Controls Documented policies and procedures

Adequate review process for financial reports and budgets

Adequate cash management procedures (e.g., monthly bank

reconciliations by supervisory personnel)

Physical safeguarding of assets

System to track participants & employees activities

System to follow up on problems to ensure resolution


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How Can Internal Controls

Impact an Organization? Potential impacts of insufficient internal

controls:Audit findings

Federal funds may be managed inappropriately

Funding sources are jeopardized

Inconsistencies Inefficient use of time and resources


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Audit Findings

Two types of audit findingsA questioned cost is what is believed to be a violation

of a provision of law, regulation, contract, grant,

cooperative agreement or other agreement ordocument governing the expenditures of federal funds.

A material weakness is a reportable condition in whichthe design or operation of one or more of the internalcontrol components does not reduce, to a relativelylow level, the risk that errors or irregularities, inamounts which would be material to the financialschedules. This is also known as a reportablecondition.


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Examples of Audit Findings

Due to Inadequate Internal

ControlsGeneral: Late submission of financial status reports

Timesheet/evaluations not signed or datedAmeriCorps: Enrollment/exit of members not in WBRS or not

submitted on time

Inappropriate documentation for changes made totimesheets

Senior Corps: FGP: No written improvement plan for students


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Creation and Documentation

of Internal Controls

through Policies and

Procedures


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Policies & Procedures

Documented policies and procedures are

important because:

They are the standards for the organizationsoperations

They help in maintaining information that is crucial to

operations that would otherwise remain in employees

heads They help in orienting new employees and substitutes

if the appropriate personnel are absent


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Policies & Procedures

Policies should be established, followed,

monitored, updated and reviewed

As times change, so does the need for our

policies Example: Internet access to cash accounts and

ability to make electronic transfers


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Written Policies and

ProceduresAssist with consistency and clear

communication of expectations:

Policies set expectations: what is to be done Procedures or processes describe how is it to be

done

Effective ones explain rationale and include

examples of principal transactions and completedforms


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Examples of Key Items Included

in Policies & ProceduresAuthorizations of transactions

Payroll procedures

Cash receipts procedures

Procurement policies

Travel regulations

Specific Policies Governing Federal Funds:

FSR completion

Drawdown of federal funds

Matching requirements

Financial reporting

Budgeting

Record retention

Conflict of interest

Timekeeping


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Small Group Breakout

Lets Review YOUR Policies


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Staff Timesheet - Basic

Criteria Signed and dated by employee or by supervisor

Reflect after-the-fact time determination of actual activity

Are prepared at least monthly and coincide with one or

more pay periods Account for the total activity for which employees are

compensated and which is required in fulfillment of theirobligations to the organization

Provide support for charges for salaries and wages must

also be supported by records indicating the total numberof hours worked each day in conformance with the Dept.of Labor


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In-kind Contribution - Basic

Criteria Document the donors basis for determining value of

personal services, material, equipment, building, andland

Obtain written acknowledgement from the donor toinclude: Date and location of donation

Detailed description of item/service

Estimated value of contribution, how value was determined,

and who made the determination Confirm that the contribution was or was not obtained with

federal funds

Name and signature of donor


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Job Description - Basic Criteria

Job title:

Reports to:

Supervises:

Basic function:

Duties and responsibilities:

Qualifications:

Classification:


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Accounting Systems - Basic

Criteria System must be capable of:

Distinguishing grant versus non-grant relatedexpenditures

Identifying costs by program year Identifying costs by budget category

Differentiating between direct and indirect costs(administrative costs)

Maintains federal/non-federal matching fundsseparately from grant funds

Records in-kind contribution as bothrevenues and expenses


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Chart of Accounts - Basic

Criteria Numerical outline of accounts

Narrative description of each line item

Note special accounts created to track CNCSspecific grant funds


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Budgetary Controls - Basic

Criteria

Monitoring of budgets to actual year-to-date andcurrent period expenditures or outlays

Explaining any budget variations that are unexpected

or unusual and determining necessary adjustments Ensuring compliance with laws, regulations, andCNCS provisions, particularly matching percentagerequirements

Requesting prior approvals for modification, if

necessary Assuring budget changes are properly approved

Reviewing movements between line items andverifying if they are within provisions and/orguidelines

D t ti B i


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Documentation - Basic

CriteriaDocumentation should ensure that costs: Conform to grant/contract limitations

Are allowable under the budget

Are treated consistently

Determined in accordance with Generally AcceptedAccounting Principles (GAAP)

All documentation should support: What services or goods were obtained

Why the transaction is allowable for the grant purposes

The value of the contribution


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Documentation Information

Costs need to be:

Allowable

Allocable Reasonable and Necessary

Documentation should also reflect that

these requirements were met


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Take it Home!

1. Ensure accountability and transparency

2. Know that internal controls affect every level in all

organizations irregardless of size

3. Creation and monitoring of internal controls is a

continual process

4. Strong internal controls allow an organization to

achieve its goals effectively and efficiently

5. Review current policies and procedures to be sure

they will guide you to compliance

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Establishing Internal Control

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