Internal Audit Department
What is Internal Control?
Internal control is broadly defined as a process, affected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
- The reliability and the integrity of information.
- Compliance with policies, plans, procedures, laws, and regulations.
- The safeguarding of assets.
- The economical and efficient use of resources.
- The accomplishment of established objectives and goals for operations and programs.
In other words, internal controls are operating practices used to help ensure the achievement of an objective. Internal controls help assure that departments operate according to plan. They are tools used every day by the managers, from the departmental levels to the Chancellor. The internal control structure included such things as written policies and procedures, organizational design, and physical barriers. Simply put, internal controls are good business practices. For example, the following are internal controls used to achieve objectives:
- Implementing procedures to encourage compliance.
- Using passwords to restrict computer access.
- Locking your office or filing cabinets to discourage theft.
- Reviewing your monthly accounting reports to verify transactions.
Most internal controls can be classified as preventive or detective. Preventive controls are designed to discourage errors or irregularities. For example: A manager's review of purchases for propriety and validity prior to approval prevents inappropriate expenditures.
Detective controls are designed to identify an error or irregularity after it has occurred. For example: A comparison of deposit slips to monthly accounting reports will detect deposits posted to erroneous account numbers.
Through careful design, the system of internal controls can help departments operate more efficiently and effectively and provide a reasonable level of assurance that the processes, services, or assets for which they are responsible are adequately protected.
Who is responsible for internal control?
The administrator who is responsible for the accomplishment of goals and objectives is also responsible for establishment, maintenance, and monitoring of the internal control system which helps ensure the accomplishment of those goals and objectives. He or she is responsible for the sound financial condition of the unit, protection of the university's assets including its human resources, and compliance with federal, state, Board of Regents, and University rules, regulations, and procedures. He or she must ensure that the funds entrusted to the unit are used appropriately. The administrator may delegate some of the related duties but cannot delegate accountability.
Management's Responsibility
Management is responsible for ensuring that internal controls are established and functioning to achieve the missions and objectives of their unit or department. Changes in existing conditions may cause the effectiveness of a control to deteriorate or the degree of compliance to change. Management must respond to these changes by creating additional controls or alter existing controls to protect against loss.
Internal Audit's Responsibility
The Internal Audit Department provides an independent evaluation of the adequacy of internal controls and reports the results to UW-Extension and UW Colleges management, as well as UW-System Internal Audit. The internal audit function is an internal control itself, in that it evaluates and appraises other University controls. The audit department reviews the effectiveness of internal controls and makes specific recommendations for improvement.
Why are good Internal Controls important?
Good internal controls are essential to assuring the accomplishment of goals and objectives. They provide reliable financial reporting for management decisions. They ensure compliance with applicable laws and regulations to avoid the risk of public scandals. Poor or excessive internal controls reduce productivity, increase the complexity of processing transactions, increase the time required to process transactions and add no value to the activities.
Good internal controls help ensure efficient and effective operations that accomplish the goals of the unit and still protect employees and assets.