Audits and Reports as Internal Control
From the Editor’s Desk
It has been said numerous times that reconciliations, reports and even meetings are a form of internal control. For example, a report can compare the budget to actuals. The reporting system allows for the collection and dissemination of data to aid in planning and even adjusting to economic matters. This yields an efficient process and promotes an effective internal control system. Additionally, if the activity relates to a research project, reports can help guide and manage projects and, in some instances, assure compliance and secure funding. Reconciliations find errors and omissions and meetings bring about transparency and awareness.
I recall an instance where a new manager was concerned after they took over their department. They were concerned about trends like increased costs, budgetary matters and expenditures that appeared unusual, unnecessary and too costly. And reconciliations, or the lack thereof, showed errors, omissions, alterations, etc. The previous team had missed several deadlines and reconciliations, and they even failed to answer outstanding questions from managers and other agencies. After several meetings and thoroughly combing through documents and files, the numbers were telling a story.
After categorizing the business documents, assembling the reconciliations and reviewing previous reports, a timeline of activities was charted. The visual of the charted events and activities within the timeline pointed to a total disregard of requirements, there was an indication of unauthorized activities and a lack of overview and oversight. Unfortunately, it also showed that there were no follow-up and accountable measures or consequences. There was also no direction and most activities and responses pointed to a disregard for requirements, regulations and policy. There were numerous violations. When those responsible for collecting reconciliations, ensuring deadlines, and industry reports do not do things appropriately, it opens the door for opportunity and rationalization of bad behavior. Additionally, when individuals do not follow up on missing, incomplete or altered documents, it sends the wrong message and that can fester into additional problems and even violations. All these instances should be done timely, tracked, recorded and reported appropriately.
The numbers did not lie, they told a very compelling story. It was found that those individuals who were responsible for reconciliations plugged numbers to force reconciliation and hide errors and omissions. Furthermore, they were circumventing policy and hiding transactions and unauthorized contracts. There were even purchases and agreements made where individuals personally gained from non-authorized channels. There were all kinds of problems. For example, employees were not properly managed, there was separation of duties issues, blatant violations of policy, there was misuse, and evidence that documents were altered. There were also various issues of conflict of interest found. As individuals worked to unfold these issues, it was the numbers that helped detect and point out the various problems.
by Rod Smith, Director of Internal Controls
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This is an excerpt from the Internal Controls Update newsletter, a monthly publication that provides information regarding fiscal responsibility and fraud prevention and highlights best practices for the University. All members of the University community are invited to subscribe.