Internal Control Self Assessment

Internal Control Self-Assessment Checklist

Unit management throughout the University is responsible to establish internal controls to keep their unit on course toward its financial goals, to help it achieve its mission, to minimize surprises and risks, and to allow the organization to successfully deal with change. Internal controls are defined as activities undertaken to increase the likelihood of achieving management objectives in three areas:

 Efficiency and effectiveness of operations  Reliability of financial reporting  Compliance with laws and regulations Some internal controls are established at the institutional level; others are established by unit management. To achieve success, unit management needs to (1) be knowledgeable about, and support, institutional controls, and (2) implement practical and effective internal controls specific to the particular unit. The following checklist is provided to facilitate a self-assessment of internal controls by management of individual departments. It is intended to address general aspects of internal controls, and does not include specific controls applicable to individual units. Organization of the checklist is consistent with the five interrelated components of internal control defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We encourage department heads and other unit management to use this self-assessment checklist to evaluate internal controls in their areas of responsibility. Management should also add to the checklist other controls that apply specifically their units. Internal Audit would be pleased to consult on methods to improve your internal controls.

Index 1. Control Environment 3. Control Activities 1. Integrity and Ethical Values 10. Written Policies and Procedures 2. Commitment to Competence 11. Control Procedures 3. Management's Philosophy and 12. Controls over Information Systems Operating Style 4. Information and Communication 4. Organizational Structure 5. Assignment of Authority and 13. Access to Information Responsibility 14. Communication Patterns 6. Human Resource Policies and 5. Monitoring Practices 15. Management Supervision 2. Risk Assessment 16. Outside Sources 7. Organizational Goals and 17. Response Mechanisms Objectives 18. Self-Assessment Mechanisms 8. Risk Identification and Prioritization 9. Managing Change Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Section 1 – Control Environment

1 - Integrity and Ethical Values Unit management (faculty and supervisory staff) understand the University's policies 1.1 Acceptable business practices. Policies are poorly understood covering matters such as legitimate use of University resources. Unit management understand the University's policies governing relationships with sponsors, 1.2 Codes of conduct. Policies are poorly understood. suppliers, creditors, regulators, the community, and the public at large. Unit management understand the University's 1.3 Conflicts of interests. Policies are poorly understood. policies regarding potential conflicts of interest. Unit management sets a good example and Management does not set a good example 1.4 Integrity. regularly communicates high expectations and/or does not communicate high expectations regarding integrity and ethical values. regarding integrity and ethical values. 2 – Commitment to Competence Responsibilities are clearly defined in writing Responsibilities are poorly defined or poorly 2.1 Job descriptions. and communicated as appropriate. communicated. Unit management (faculty and supervisory Management does not adequately consider 2.2 Knowledge and Skills. staff) understand the knowledge and skills knowledge and skill requirements. required to accomplish tasks. Unit management is aware of competency Management is not adequately aware of 2.3 Employee competence. levels, and is involved in training and increased competency levels, or does not actively address supervision when competency is low. problems. 3 – Management’s Philosophy and Operating Style Unit management insists on full and open Management is secretive and reluctant to 3.1 Communication with Faculty, College disclosure of financial or business issues with conduct business or deal with issues in an open and University. appropriate faculty, college and University manner. personnel. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 There is active concern and effort to ensure Management is willing to risk the consequences 3.2 Laws and regulations. compliance with the letter and intent of laws of noncompliance. and regulations. Management is concerned with and exerts Management is willing to get the job done 3.3 Getting the job done. effort to get the job done right the first time. without adequate regard to quality. Exceptions to policy are infrequent. When they Exceptions to policy are the norm and are 3.4 Exceptions to policy. occur they must be approved and well rarely documented. documented. Management’s approach shows concern and appreciation for accurate and timely reporting. 3.5 Approach to financial accountability. Financial accountability is given low priority. Budgeting and other financial estimates are generally conservative. Realistic budgets are established and results are Management either shows little concern 3.6 Emphasis on meeting budget and other actively monitored. Corrective action is taken (climate of laxness), or makes unreasonable financial and operating goals. as necessary. The unit learns from, and does not demands (climate of fear). repeat, mistakes. Decision-making processes are deliberate and consistent. Decisions are made after careful Decision making is nearly always informal. 3.7 Approach to decision making. consideration of relevant facts. Policies and Management makes arbitrary decisions with procedures are in place to ensure appropriate inadequate discussion and analysis of the facts. levels of management are involved. 4 – Organizational Structure Complexity of the structure is commensurate Lines of responsibility are unclear or 4.1 Complexity of the organizational with the organization. Lines of reporting are unnecessarily complicated for the size and structure. clear and documentation is up-to-date. activities of the entity. Documentation does not exist or is out-of-date. 4.2 Organization charts. Documentation exists and is up to date. The documented structure does not correspond with actual responsibilities. Size is commensurate with the complexity of Size is not appropriate (e.g., too many levels, 4.3 Size of the management group. the unit and its growth. too dispersed, or too "thin"). 4.4 Stability of the management group. Low turnover. High turnover. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 5 – Assignment of Authority and Responsibility 5.1 Delegation of authority and assignment Delegation of authority and assignment of Decisions are dominated by one or a few of responsibility for operating and responsibility is clearly defined. Individuals are individuals. Roles and responsibilities of financial functions. held accountable for results. middle management are unclear. Authority limits are clearly defined in writing Policies and procedures covering authority 5.2 Authority limits. and communicated as appropriate. limits are informal or poorly communicated. Appropriate limits have been placed on each Signature authority is delegated without delegation of signature authority. Management adequate consideration. Delegated authority is 5.3 Delegated signature authority. reviews and updates signature records as not in line with employee knowledge, training, turnover occurs. or competence. Key personnel are knowledgeable and Key personnel are inexperienced. Management 5.4 Knowledge and experience. experienced. Management does not delegate delegates authority without regard to authority to inexperienced individuals. knowledge and experience. Management provides the resources needed for Management does not provide necessary 5.5 Resources. employees to carry out their duties. resources. 6 – Human Resource Policies and Practices A careful hiring process is in place. The The hiring process is informal, and sometimes Human Resources Department is involved in 6.1 Selection of personnel. proceeds without adequate involvement by identifying potential employees based on job higher-level supervisors. requirements. On-the-job and other training programs have Training programs are inconsistent, ineffective, 6.2 Training. defined objectives. They are effective and or are given low priority. important. Regular supervision does not exist or is Personnel are adequately supervised. They have 6.3 Supervision policies. ineffective. Employees are frustrated and feel a regular resource for resolving problems. they ‘have nowhere to go’ with issues. Inappropriate behavior is consistently Reprimands are not timely, direct, or are not 6.4 Inappropriate behavior. reprimanded in a timely and direct manner, consistently applied (climate of favoritism). regardless of the individual's position or status. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 The evaluation process is ad hoc and 6.5 Evaluation of personnel. An organized evaluation process exists. inconsistent. Performance issues are not formally addressed. Compensation decisions are based on a formal process with meaningful involvement of more Compensation decisions are ad hoc, 6.6 Methods to compensate personnel. than one level of management. The effect of inconsistent, or inadequately reviewed by performance evaluations on compensation management. decisions is defined and communicated. There is inadequate staffing and frequent Critical functions are adequately staffed, with 6.7 Staffing of critical functions. periods of overwork and "organizational reasonable workloads. stress." 6.8 Turnover. Particularly turnover in Low turnover. Management understands root High turnover. Management does not financially responsible positions. causes of turnover. understand root causes. Section 2 – Risk Assessment

7 – Organizational Goals and Objectives A formal unit-wide mission or value statement A unit-wide mission or value statement does 7.1 Unit-wide objectives. is established and communicated throughout not exist. the unit. Factors that are critical to achievement of unit- wide objectives are identified. Resources are 7.2 Critical success factors. Success factors are not identified or prioritized. appropriately allocated between critical success factors and objectives of lesser importance. Realistic objectives are established for all key 7.3 Activity-level objectives. activities including operations, financial Activity-level objectives do not exist. reporting and compliance considerations. Unit-wide and activity level objectives include Performance regarding objectives is not 7.4 Measurement of objectives. measurement criteria and are periodically measured. Targets are not set. evaluated. Employees at all levels are represented in Management dictates objectives without 7.5 Employee involvement. establishing the objectives. adequate employee involvement. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Long and short-range plans are developed and No organized planning process exists. There 7.6 Long and short-range planning. are written. Changes in direction are made only are frequent shifts in direction or emphasis. after sufficient study is performed. Detailed budgets are developed by area of responsibility following prescribed procedures Budgets do not exist or are "backed into" 7.7 Budgeting system. and realistic expectations. Plans and budgets depending on desired outcome. support achievement of unit-wide action steps. Planning for future needs is done well in 7.8 Strategic planning for information The information system lags significantly advance of expected needs and considers systems. behind the needs of the business. various scenarios. 8 – Risk Identification and Prioritization A process exists to identify and consider the implications of external risk factors (economic changes, changing sponsor, student and 8.1 Identification and consideration of Potential or actual external risk factors are not community needs or expectations, new or external risk factors. effectively identified or evaluated. changed legislation or regulations, technological developments, etc.) on unit-wide objectives and plans. A process exists to identify and consider the implications of internal risk factors (new 8.2 Identification and consideration of personnel, new information systems, changes in Potential or actual internal risk factors are not internal risk factors. management responsibilities, new or changed effectively identified or evaluated. educational or research programs, etc.) on unit- wide objectives and plans. The likelihood of occurrence and potential impact (monetary and otherwise) have been 8.3 Prioritization of risks. Risks have not been prioritized. evaluated. Risks have been categorized as tolerable or requiring action. In-depth, cost / benefit studies are performed 8.4 Approach to studying risks. Risks are accepted with little or no study. before committing significant unit resources. Exposure is dealt with on a case by case basis. A risk management program is in place to 8.5 Process for monitoring risks. Regular efforts or programs to manage risks do monitor and help mitigate exposures. not exist. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Internal expertise regarding risk and control External advisors are consulted as needed to 8.6 Consultation with external advisors. issues is inadequate. Assistance is never sought supplement internal expertise. from outside sources. 9 – Managing Change Management promotes continuous Management promotes the status quo, even 9.1 Commitment to change. improvement and solicits input and feedback on when changes are needed to meet important the implications of significant change. business needs. Management is willing to commit resources to Management offers no resources to facilitate 9.2 Support of change. achieve positive change. change. Mechanisms exist to identify, prioritize, and react to routine events (i.e., turnover) that affect 9.3 Routine change. Procedures are not present or are ineffective. achievement of unit-wide objectives or action steps. Mechanisms exist to identify and react to 9.4 Economic change. Procedures are not present or are ineffective. economic changes. Mechanisms exist to identify and react to regulatory changes (maintain membership in 9.5 Regulatory change. Procedures are not present or are ineffective. associations that monitor laws and regulations, participate in University forums, etc.). Mechanisms exist to identify and react to 9.6 Technological change. technological changes and changes in the Procedures are not present or are ineffective. functional requirements of the unit. Section 3 – Control Activities

10 – Written Policies and Procedures Unit staff have available up to date University 10.1 Access to University policies and University policy and procedures are not policy and procedures and know how to use procedures. available or are rarely used. them. The unit has documented its own policies and 10.2 Unit policies and procedures. procedures. They are well understood by unit Unit policies and procedures do not exist. staff. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 11 – Control Procedures 11.1 Senior management (University or Senior management monitors the unit's Senior management does not monitor unit College) reviews. performance against objectives and budget. performance. Reviews are made of actual performance 11.2 Top level (unit-wide) objective compared to objectives and previous periods Analyses are not performed or management performance reviews by unit for all major initiatives. Management analyzes does not follow up on significant deviations. management. and follows up as needed. Reviews are made of actual performance versus 11.3 Top level (unit-wide) financial budgets, forecasts, and performance in prior Analyses are not performed or management performance reviews by unit periods for all major initiatives. Management does not follow up on significant deviations. management. analyzes and follows up as needed. Performance reviews are made of specific 11.4 Direct functional or activity management functions or activities, focusing on compliance, No performance reviews occur. by unit management. financial or operational issues. Unexpected operating results or unusual trends 11.5 Performance indicators. Operating results and trends are not monitored. are investigated. Accounting statements and key reconciliations Reconciliations are not performed timely or 11.6 Accounting statements and key are completed timely. Management performs a regularly. Management does not carefully reconciliations. diligent review and signifies approval by review or formally approve statements or signature and date. reconciliations. Sponsored project accounts are reviewed and reconciled. PIs certify the expenditures timely. Sponsored project accounts are not monitored; 11.7 Sponsored project account management. Unit management monitors the portfolio of reconciliations and certifications are not timely. sponsored accounts for compliance and fiscal responsibility. Restrictions on use are well documented, and Restrictions are not clearly documented. are understood by employees who administer 11.8 Use of restricted funds (gifts). Restricted fund accounts are not monitored; the funds. Usage is monitored by management, usage may not match restrictions. accounts are reconciled. Controls exist to monitor the accuracy and No information processing controls are in 11.9 Information processing. completeness of information as well as place. authorization of transactions. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Equipment, supplies, inventory, cash and other Equipment, supplies, inventory, cash and other assets are physically secured and periodically 11.10 Physical controls. assets are not protected. Control records do not counted and compared to the amounts shown exist or are not up to date. on control records. 11.11 Training and guidance for asset Adequate guidance and training are provided to No training or guidance is provided. custodians. personnel responsible for cash or similar assets. Financial duties are divided among different people (responsibilities for authorizing No significant separation of financial duties 11.12 Separation of duties. transactions, recording them and handling the among different employees. asset are separated). Unit employees understand which records they Unit employees do not understand which are responsible to maintain and the required 11.13 Record retention. records they are responsible for maintaining. retention period. Records are appropriately The filing system is inadequate. filed. A disaster response and recovery plan has been 11.14 Disaster response plan. No disaster response or recovery plan exists. developed and is understood by key personnel. 12 – Controls over Information Systems System operations are documented; software is appropriately acquired and maintained; access to the system, programs and data is controlled; Inadequate controls over local information 12.1 Local information systems and LANs. the system is maintained in a secure systems or LANs. environment; applications are appropriately developed and maintained. The unit controls its computer applications by diligent and timely response to edit lists, rejected transactions and other control and 12.2 Application controls. balancing reports. Controls ensure a high level Application controls are not used. of data integrity including completeness, accuracy, and validity of all information in the system. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Key data and programs on LANs or desktop No formal back up procedures exist. computers are appropriately backed up and 12.3 Back Up. Management has not informed staff of back up maintained. Off-site storage is adequate requirements. considering possible risks of loss. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Section 4 – Information and Communication

13 – Access to Information Unit members receive relevant information regarding legislation, regulatory developments, 13.1 Relevant external information. Relevant information is not available. economic changes or other external factors that affect the unit. An executive information system exists. Information and reports are provided timely. A formal reporting system does not exist. 13.2 Management reporting system. Report detail is appropriate for the level of Reports are not timely or are not at appropriate management. Data is summarized to facilitate levels of detail. decision making. Information is evaluated and classified based on level of integrity, confidentiality and Information used by the unit has not been 13.3 Management of information security. availability. Individuals with access to evaluated and classified. Employees are not information are trained to understand their trained with respect to information security. responsibilities related to the information. 14 – Communication Patterns Management promotes and fosters trust Interactions among faculty, staff and/or with 14.1 Trust. between employees, supervisors and other other units is characterized by low levels of units. trust. Employees who violate an important policy are Violations, while not condoned officially, are 14.2 Policy enforcement and discipline. disciplined. Management's communications often overlooked. Management's actions are and actions are consistent with policies. inconsistent with official policies. Employees are encouraged to provide 14.3 Recommendations for improvement. recommendations for improvement. Ideas are Employees' ideas are not welcomed. recognized and rewarded. Formal methods are used to communicate unit policies and procedures (e.g., manuals, training To the extent that they exist, policies are buried 14.4 Formal communications. programs, written codes of conduct, and in unused manuals and documents. acceptable business practices). Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Standards and expectations are communicated to key outside groups or individuals (e.g., No external communication of standards and 14.5 External communications. vendors, consultants, donors, sponsors, expectations. subcontractors, sub-recipients). Employees are kept informed of important matters (downward communication) and are able to communicate problems to persons with Most information is received by the 14.6 Informal communications. authority (upward communication). There is "grapevine." effective functional coordination within the unit (lateral communication). Information is openly shared with outside Information is kept secret from outside 14.7 Communication with evaluators. evaluators. evaluators. Section 5 – Monitoring

15 – Management Supervision Management routinely spot-checks 15.1 Effectiveness of key control activities. transactions, records and reconciliations to Management never performs spot-checks. ensure expectations are met. Accounting policies are defined and adopted 15.2 Management supervision of accounting after appropriate consideration. Policies are Policies are ad hoc or poorly communicated. function. effectively communicated (in writing). Policies are defined for developing new systems or changes to existing systems 15.3 Management supervision of new systems Policies and procedures are ad hoc, poorly (cost/benefit analysis, team composition, user development. communicated, or ineffective. specifications, documentation, acceptance testing, and user approval). Budgets are compared to actual results and An analysis of actual versus budgeted results is deviations are followed up on a timely basis. 15.4 Budget analysis. not performed, or management does not follow Adequate consideration is given to up on deviations. commitments. 16 – Outside Sources Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Data is used to compare the unit’s performance 16.1 Industry and professional associations. Comparative data is not regularly monitored. with peers or industry standards. Reports from regulatory bodies are considered Response is limited to what is necessary to "get 16.2 Regulatory authorities. for their internal control implications. by" the regulators. Root causes of inquiries or complaints are 16.3 Sponsors, students, suppliers, creditors, Inquiries or complaints are dealt with case-by- investigated and considered for internal control and other third parties. case, with little or no follow-up. implications. Information provided by external auditors Findings are referred to lower levels or are 16.4 External auditors. about control-related matters are considered explained away. and acted on at high levels. 17 – Response Mechanisms 17.1 Management follow-up of violations of Timely corrective action is taken. Follow-up is sporadic. policies. Findings are considered and immediately acted Consideration of findings is delegated to lower 17.2 External or internal audit findings. upon at appropriate levels. levels or is given low priority. 17.3 Changes in conditions (e.g., economic, Changes are anticipated and routinely regulatory, technological, or integrated into ongoing long- and short-range Responses are reactive rather than proactive. competitive). planning. 18 – Self-Assessment Mechanisms Management periodically assesses employee attitudes, reviews the effectiveness of the 18.1 Monitoring of control environment. Assessment processes do not exist. organization structure, and evaluates the appropriateness of policies and procedures. Management periodically evaluates the 18.2 Evaluation of risk assessment process. Assessment processes do not exist. effectiveness of its risk assessment process. 18.3 Assessment of design and effectiveness Internal controls are subject to a formal and Assessment processes do not exist. of internal controls. continuous internal assessment process. Assessment Factor Indication of Stronger Controls Indication of Weaker Controls Assessment Strong - Weak 1 2 3 4 5 Management periodically evaluates the accuracy, timeliness and relevance of its 18.4 Evaluation of information and information and communication systems. Assessment process does not exist. communication systems. Management questions information on management reports that appears unusual or inconsistent.