Knowledge Check – Internal Controls

Simply stated, internal controls are like mom’s house rules. If you want things to run smoothly, you must follow these processes and procedures. If you fail to do so, you will face serious consequences. The main difference between mom’s house rules and the Government Accountability Office’s (GAO’s) Standards for Internal Control in the Federal Government is that instead of being grounded and losing privileges, noncompliance with internal controls can lead to fraud, misappropriation of assets, and misuse of funding.

While Generally Accepted Government Auditing Standards (GAGAS) provide auditing guidelines, it is essential for government program managers, performance and financial auditors, resource managers, and personnel supervisors to be fully aware of the internal control requirements specified in Standards for Internal Control in the Federal Government, commonly known as the Green Book, to form a complete picture of an organization.

How do internal controls work?

In the infographic segment above, the purpose and process of developing and implementing internal controls is straightforward. These steps, as outlined by GAO, can be summarized as:

1. Control the Environment – Oversee an internal control system comprised of competent staff members who demonstrate a commitment to integrity and ethical values. Provide structure that authorizes delegation of responsibilities and assures accountability.
2. Assess Risk – Define objectives. Identify risks and weigh them against objectives. Consider the risk of fraud and evaluate the potential impact of changes.
3. Activate Internal Controls – In pursuit of achieving objectives, develop information systems, internal control activities, and related implementation policies while responding to risks.
4. Communication Status – Utilize and communicate quality information internally and externally to achieve objectives.
5. Monitor and Remediate – Establish and operate activities to monitor internal controls, evaluate, and act on results in a timely fashion.

Where should I begin?

We all have responsibilities that relate to internal controls, and it is in your best interest to have the most up-to-date information available. Here is some general advice:

• Consider your role – If you are an auditor, your needs will be much different than if you are a program manager or a grants recipient. Look for resources that are tailored for your role.
• Consider your current level of knowledge – Has it been a few years since you looked into internal controls, or is it completely new? Find resources that will provide the level of knowledge you need.
• Consider your availability – Are you in the midst of a busy season? Is getting out of the office not realistic due to travel costs or lack of coverage? Discover which options are available to you that will deliver the information you need within your limitations.
• Poll others around you – Does your whole team need to brush up on internal controls? Maybe tailored internal controls group training will deliver the best return for your investment.

What resources are available to me today?

Do you just need to double-check something? Are you looking for inspiration to develop an internal control system? Would it be helpful for you to review established best practices? Here are a few resources that you can go to right now to get closer to meeting your professional objectives.

• Management Concepts – We offer close to 30 courses that cover internal controls, available in live classrooms and online delivery formats. Many of our courses are accredited and may be applied to a certification program. In addition, we offer private group training that can be customized for the internal controls training needs of your organization.
• OMB – In August 2019, The Office of Management and Budget (OMB) issued a Compliance Supplement for 2 CFR Part 200, which is the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards commonly referred to as Uniform Guidance. Additional updates are anticipated in the coming weeks.
• GAO – While GAO’s Government Auditing Standards, commonly referred to as the Yellow Book, outlines the requirements for reviews of financial statements, financial audits, performance audits, audit organization quality control, audit reports, professional qualifications for auditors, and attestation engagements, it is GAO’s Standards for Internal Control in the Federal Government, commonly known as the Green Book, that provides the most comprehensive information available on internal controls.
• AICPA – The Auditing Standards Board (ASB), a senior technical committee designated by the American Institute of Certified Public Accountants (AICPA), published Clarified Statements on Auditing Standards that are designed to make the standards easier to read, understand, and apply.
• AGA – The Internal Controls Workgroup of the Association of Government Accountants (AGA) has developed numerous resources that provide detailed information about internal control business processes, individual components developed by The Committee of Sponsoring Organizations of the Treadway Commission (COSO), principles, attributes, and best practices.
• GFOA – The Government Finance Officers Association (GFOA) Accounting, Auditing, and Financial Reporting Committee offers best practices for internal control for grants, internal control deficiencies in audits, internal control environment, internal control framework, internal control management involvement, and whistleblowing.

Have you found any other valuable resources? Please share them with us in the comments below.