internal-controls akuntansi sistem informasi(1).ppt

Internal controls
risk m
anagem
ent service

Learning goals
• Defining Internal Control & Understanding the Internal Control Framework
• GAO’s Standards for Internal Control in the Federal Government
• OMB Uniform Grant Guidance—requirements for internal controls
• ED’s A123 Internal Control Review Process
• Internal Controls and YOU
• Implementing Strong Internal Controls in Your Agency
• Consequences of Not having Strong Internal Controls-Avoiding the Pitfalls
• Case Study
• Case Study Discussion & Analysis
• Conclusion/Wrap Up
• Questions

Defining internal control
• Internal Control: a process effected by an entity’s oversight body, management and/or
other personnel that provides reasonable assurance that the objectives of an entity will
be achieved. These objectives and related risks can be classified into one or more
categories:
• 1. Operations: effectiveness and efficiency of operations and safeguarding of assets
necessary to carry out operations.
• 2. Reporting: reliable reporting for both internal and external use; this includes
financial and non-financial reporting.
• 3. Compliance: compliance with applicable laws and regulations.
• What is an Internal Control System: a continuous built in component of operations,
effected by people, that provides reasonable assurance, not absolute assurance that an
entity’s objectives will be achieved.
• How does all of this come together—the five components of Internal Control, as
established by the General Accountability Office (GAO).

GAO’s Standards for Internal Controls
• Recently revised: GAO revised their standards--aka the Green Book--in
2014, which then became effective in 2016.
• Standards to guide agency’s operations: GAO established these
standards so that government agencies know what internal control is
(and isn’t), how it should work effectively within agencies, how entities
should use the Green Book and identification of the five key components
of internal control. (The revised version highlights 17 principles within
these 5 components.)
• Resource not just for federal entities: The Green Book may also be used
and adopted by state & local government agencies, as well as non
profits. Management can determine how to appropriately apply the
elements of within the Green Book to their particular agencies’ needs.

Five Components of Internal Control

Control Environment
Control environment: this is the foundation of any internal control system.
5 principles
1. Management demonstrates commitment to integrity and ethical values.
2. Management/oversight body oversees the entity’s internal control system.
3. Management establishes an organizational structure, assigns responsibilities and
delegates authority to achieve the agency’s mission and objectives.
4. Management demonstrates a commitment to recruit, train and retain competent
people.
5. Management evaluates performance and holds individuals accountable for their
internal control responsibilities.
Management establishes the control environment and this is the system under which
employees will operate.

Control Environment (cont.)
The Control Environment should ensure controls are in
place, covering areas such as:
• Hiring Practices
• Training Programs
• Whistleblower Policies
• Code of Ethics
• Clear lines of responsibility and authority
• Grants/program administration
• Fiscal management and operations
Monitor & Update the
Control Environment

Control Environment (cont.)
The Control Environment should be documented. Types of
documentation that can be used are:
• Process narratives
• Organizational Charts
• Flowcharts
• Questionnaires
• Memorandums
• Checklists
• Etc.

Risk assessment
Risk Assessment: identifying and assessing the potential risks facing the agency, and
developing the appropriate risk mitigation tools and strategies to minimize risk
occurrences.
4 Principles
1. Management defines agency objectives so that risks can be identified and risk
tolerance (or risk appetite) levels can be established.
2. Management identifies, analyzes and responds to risks related to the agency
achieving its mission and objectives.
3. Management considers the risk for potential fraud.
4. Management identifies, analyzes and responds to significant changes that could
impact the internal control system.
At all levels, management establishes the organizational priorities for how it handles
its risk assessment process.

Risk assessment (Cont.)
Risk Assessment Categories to help identify and assess risks:
Strategic Risk—political risk, talent and succession planning risk, risk from
dependence on other organizations
Financial Risk—risk of audit findings and other things that would undermine reporting
integrity
Compliance Risk—fraud, theft, embezzlement and/or noncompliance with regulations
and requirements
Operational Risk—risk that Programs may fail to meet their objectives, mishandle
federal grant funds, natural disasters, lack of accessible technology, etc.
Risk assessment is critical especially when agencies are facing constrained resources
because it allows for targeted and strategic use of available resources.

Risk Assessment vs. Risk Management
Risk Assessment is an element of internal control within the risk management process
that allows management to identify and assess key risks to achieving its objectives;
this assessment forms the basis upon which control activities are determined.
Risk Management is a process applied in a strategic manner across the entity, that is
designed to identify and manage risks to stay within a risk appetite or risk tolerance
level, to provide reasonable assurance about achieving entity goals and objectives.

Once objective is established, apply these risk assessment factors
Materiality of the amount of funds/dollars in question
Complexity or difficulty of the process
History of accounting or procedural (operational) adjustments
Propensity for change or deviations in the process or controls
This helps to assess the risk, the risk likelihood and potential impact.

Internal Risks
• Use of
qualitative/quantitative
methods
• Change in management
• Weak or unresponsive tone
set by leadership
• Human capital—quality
and/or quantity of personnel
• Rapid growth or reduction
• Change in processes
External Risks
• Technological advances
• Impact of program
changes
• Changing legislature
• Decentralized
organization operations
• Natural disasters
• Changing client or
constituent needs or
expectations
Risk assessment (cont.)

Risk assessment (cont.)
Risk Strategies

Control activities
Control Activities: actions management establishes through policies and procedures
to achieve objectives and respond to risks in the internal control system, which
includes the agency’s information system.
3 Principles
1. Management designs control activities to achieve objectives and respond to risks.
2. Management designs the entity’s information system and related control
activities to respond to risks.
3. Management implements control activities through written policies.
Control Activities should be established by management.

Control activities (cont.)
Control Activities are the heart of the internal control
system.
Understanding the Types of internal control activities
• Preventive—these controls help management to avoid problems
before they occur. Prevent the occurrence of negative events.
• Detective—these controls help to uncover issues after they’ve
occurred. Identify the occurrence of a negative event.
• Corrective—these controls detect if risk is present, and then elicits a
response and/or corrective action.

Control Activities (cont.)
Examples of Control Activities
• Approvals and authorizations (Preventive)
• Reconciliations (Detective)
• Independent Reviews (Detective)
• Segregation of Duties (Preventive)
• Training (Preventive)
• Corrective Action Plan (Corrective)
• Monitoring (Corrective)
• Update/Implement SOPs (Corrective and/or Preventive)
• Asset Security (Preventive)

Control Activities (cont.)
Manual vs. automated controls
Manual controls require action(s) to be taken by an employee;
automated controls are built into the network infrastructure and
software applications. Automated controls are always preferable.
Manual controls:
•Obtain supervisor’s approval for Overtime
•Reconciliation of bank accounts
Automated controls:
•Password protections
•Data entry validation checks

Control activities (cont.)
Compensating Control
• If a weakness or limitation exits within the control environment, a compensating
control may be implemented to help mitigate risk.
• Compensating controls can be preventive or detective.
• Potential compensating controls could be: automation of certain transaction data
and management review.
• Compensating controls are put in place when management knows the
recommended control activity is not possible with existing resources.
• Segregation of duties is a very important compensating control activity.
• Creates checks and balances within critical functions
• One person is not responsible for initiation and approval
• Fraud and error are major risks in payroll management
• Always establish segregation of duties in financial and operational functions

Information and communication
Information and Communication: high quality information that management and
personnel communicate and use to support the internal control system.
3 Principles
1. Management should use quality information to achieve the agency’s goals and
objectives.
2. Management should internally communicate the necessary quality information to
achieve the entity’s objectives.
3. Management should externally communicate the necessary information to
achieve the agency’s mission and objectives.
Management establishes expectations regarding what a quality information and
communication system should look like, and staff follows suit.

Information and communication (Cont.)
Information employees and stakeholders need to know.
• Agency initiatives
• Goals
• Challenges
• Opportunities
• Feedback
• Questions
• Policies and Procedures
• Standards
• Expectations
• Incentives/Rewards
• Consequences for non compliance
Communication strategies have evolved in the era of social media. Agencies utilize email, text messages,
Twitter, Facebook, LinkedIn, apps, mail, phone, etc. to communicate internally and externally.

monitoring
Monitoring: activities management establishes to assess the quality of performance
over time and to promptly resolve management reviews or audit findings. This
helps to determine if controls are working as they should.
2 Principles
1. Management establishes and operates monitoring activities to assess the
internal control system and evaluate results.
2. Management remediates identified internal control deficiencies in a timely
manner.
Management makes monitoring a priority and uses the results of monitoring to
improve and strengthen internal controls and agency operations.

Monitoring (cont.)
Monitoring activities help to determine whether internal controls are present and
functioning as intended.
Types of Evaluations
• Ongoing Evaluations
• Built into business practices
• Provide timely information
• Frequently conducted
• Separate Evaluations
• Conducted periodically
• Variation in scope and frequency
Evaluations can sometimes reveal deficiencies or findings. These need to be
addressed and rectified in a timely manner.

Monitoring (cont.)
Monitoring/Validating Controls
Deficiency in Design
• A critical control is not properly designed and does not meet the control objective,
or is simply ineffective.
Deficiency in Operations
• A critical control is designed properly but does not perform in the intended
manner and is unable to address the identified risks.
Monitor frequently for effectiveness
• Review supporting documentation
• Review reconciliations
• Review policies and procedures and observe demonstrations to ensure
procedures are being followed properly

Monitoring (cont.)
The Importance of supporting documentation
Documentation should always be maintained to determine SOPs and protocols are
being followed and authorized activities have occurred.
Documentation must contain adequate information that:
• Identifies who performed the work and when
• Indicates the nature, timing, extent and results of the procedures performed
• Enables understanding of the evidence obtained
• Supports the conclusions, activities and/or purchases that are made

OMB Uniform Grant guidance
Part 200—Uniform Administrative Requirements, Cost Principles and Audit
Requirements for Federal Awards, §200.303 “Internal Controls”
Non Federal Entities must execute the following (5) five actions:
• (a) establish and maintain effective internal control over the Federal award that
provides reasonable assurance that the non-Federal entity is managing the
Federal award in compliance with Federal statutes, regulations, and the terms
and conditions of the award. See the Green Book and Internal Control Integrated
Framework by COSO (Committee of Sponsoring Organizations of the Treadway
Commission).
• (b) Comply with Federal statutes, regulations, and the terms and conditions of
Federal awards.
• (c) Evaluate and monitor the non Federal entity’s compliance with statute,
regulations and terms of conditions of Federal awards.

OMB Uniform Grant guidance (cont.)
Part 200—Uniform Administrative Requirements, Cost Principles and Audit
Requirements for Federal Awards, §200.303 “Internal Controls”
Five actions cont.
• (d) Take prompt action when instances of non compliance are identified including
non compliance identified in audit findings.
• (e) Take reasonable measures to safeguard protected personally identifiable
information (PII).
TAKEAWAYS: 1. Establish and implement an internal control system that
complies with laws and requirements.
2. Evaluate and monitor compliance with laws and requirements.
3. Identify and communicate findings/deficiencies with key
stakeholders.
4. Develop and implement a corrective action plan when
deficiencies occur. Ensure CAP completion.
5. Implement procedures to protect important information.
6. Look for ways to constantly improve internal control system.

Ed’s A-123 Internal control review process
• Internal Control Review Shift: in 2008, A-123 internal control reviews at ED shifted
from financial compliance audits to include the evaluation of the internal
operations of ED grant-making offices.
• Federal Managers Integrity Act (FMFIA): agencies must establish internal control
and financial systems that provide reasonable assurance that the three objectives
of internal control are achieved (effectiveness and efficiency, compliance and
reliable financial reporting). FMFIA requires reporting of programs, financial
reporting and financial management systems.
• OMB Circular A-123 “Management’s Responsibility for Internal Controls:”
promulgates the FMFIA requirement and defines management’s responsibility for
implementing internal control within their agencies.
• Every year ED conducts A-123 internal control reviews. Operational
(programmatic/grants management) challenges are usually noted; controls and
corrective actions are implemented to address concerns.
• Training: employees take a mandatory annual Internal Control training to fortify
knowledge and understanding of requirements.

Your agency’s internal control review process
• Every unit within your organization should have an established and transparent internal
control system, codified by SOPs. This includes: property & procurement, budget,
payroll, accounting office, human resources, federal grants office, etc.
• Establish a system that allows for clear understanding of the entire process from start
to finish.
• Get staff invested and educated about what the internal control system looks like within
your agency.

Internal controls and you
• Understand what internal control is and is not. There are requirements, but make
sure your work is aligned with those requirements and not adding additional
stress, burden or undue complexity.
• Management establishes the internal control system. Employees must know and
understand the internal control system, what their responsibilities are and how
their actions contribute to and effect the overall system and their discreet duties.
• Standardize your process. Follow procedures and document operational activities.
• Personal Ownership: Take responsibility for your role and communicate any
challenges or concerns to management.
• Group Effort: Everyone is responsible for implementing strong internal controls in
their every day work environment.
• Value: Create meaning and purpose in work, so that executing the process is
engrained in staff culture and is not viewed as burdensome or time consuming.

Internal controls and you (cont.)
Basic concepts to make Internal Controls work for you!
• Establish responsibility—know who is supposed to be doing what. Key tasks need to
be assigned to specific individual(s) and communicated across the agency.
• Segregate Duties—maintain proper custody of assets, record transactions, authorize
transactions and reconcile transactions. Create a checks and balance system to
avoid theft, fraud or improprieties.
• Restrict Access—do not allow just anyone to have access to critical or sensitive
information. Access should be given only to those who need to complete assigned
duties.
• Document Procedures and Transactions—supporting documentation is critical to
every business practice and operational function. Always retain documentation
(electronic and manual).
• Independently Verify—corroborate information.

Implementing strong internal controls within your
agency
An Internal Control System is a Critical Component of Effective Grants Management
1. Any organization that is awarded federal grant funds must build a system of
internal controls to effectively manage the grant funds it receives.
2. A weak internal control system can lead to mismanagement of federal grant
funds.
3. Severe mismanagement can lead to serious problems, such as: special
conditions, restrictions on grants including: route payments/disbursements, high
risk designation, federal intervention (including monitoring and/or Technical
Assistance), etc.
4. Consider developing an Internal Audit division within your agency. If your agency
already has one, make sure it’s built up and operating with fidelity.

Implementing strong internal controls within youR
agency (cont.)
Build competence, understanding and sustainability.
Build capacity; have
the right people at the
table and invest in
training and
professional
development.
Implement: don’t be afraid
to try new things, experiment
and determine what works
best for your agency, and
continuously review the
processes implemented.

Avoiding the pitfalls
What happens when things go wrong and the internal control system fails?
1. Audit findings
2. Financial misstatements
3. Business or government losses
4. Federal Intervention
5. Criminal Investigations
6. Loss of public trust
7. Fraud or collusion
8. Program sustainability compromised
9. Reputational harm
10. Loss of funds

internal-controls akuntansi sistem informasi(1).ppt

More Related Content

Similar to internal-controls akuntansi sistem informasi(1).ppt (20)

Recently uploaded (20)

internal-controls akuntansi sistem informasi(1).ppt

Editor's Notes