Good Internal Control Practices and Fraud Prevention Tips

Good Internal Control Practices and Fraud Prevention Tips

Jayne Blackburn, CPA Audit Manager, UW Internal Audit

Laura Schrag Senior Auditor, UW Internal Audit

November 2017

Good Internal Control Practices and Fraud Prevention Tips

Table of Contents

Introduction ..................................................................................................................1

Course Objectives ................................................................................................................ 3 What are internal controls? ..........................................................................................5

A Broad Definition of Internal Controls ................................................................................... 7 Five Components of Internal Control ...................................................................................... 8 Why are internal controls necessary? ........................................................................13

Who is responsible for internal controls?...................................................................17

Roles and Responsibilities ................................................................................................... 19 How do I implement internal controls in my department? ........................................21

Type of Controls ................................................................................................................ 23 Control Design and Operating Effectiveness.......................................................................... 23 Basic Elements of Internal Control ....................................................................................... 24 Separation of Duties: Checks and Balances........................................................................... 25 Authorization ..................................................................................................................... 26 Documentation .................................................................................................................. 27 Reconciliation and Review ................................................................................................... 28 Monitoring ......................................................................................................................... 29 Safeguarding of Assets and Records .................................................................................... 30 Information Systems Security .............................................................................................. 31 Common Causes of Internal Control Breakdowns .................................................................. 33 A Guide to Creating Your Own System of Internal Controls .................................................... 34 Fraud ...........................................................................................................................35

What Is Fraud? .................................................................................................................. 37 Fraud Reporting ................................................................................................................. 39 Types of Fraud................................................................................................................... 40 Types of Fraud Perpetrators ................................................................................................ 40 Consistent Patterns in Fraud Cases ...................................................................................... 41 Fraud Prevention Tips .................................................................................................43

Payroll............................................................................................................................... 45 Purchasing: Departmental Revolving Fund............................................................................ 48 Purchasing......................................................................................................................... 50 Purchasing: ProCard ........................................................................................................... 51 Purchasing......................................................................................................................... 52 Cash Receipts .................................................................................................................... 54 Refunds............................................................................................................................. 58 Appendix .....................................................................................................................59

Good Internal Control Practices and Fraud Prevention Tips

Internal Controls--A Guide to Separation of Duties: Procard Functions .................................... 61 Internal Controls--A Guide to Separation of Duties: Petty Cash Functions ............................... 62 Internal Controls--A Guide to Separation of Duties: Cash Receipt Functions.............................63 Internal Controls--A Guide to Separation of Duties: Payroll Functions ...................................... 64 Common Audit Findings.......................................................................................................65 UW Administrative Policy Statement: Policy on Financial Irregularities and Other Related Illegal Acts 72

Good Internal Control Practices and Fraud Prevention Tips

Introduction

Good Internal Control Practices and Fraud Prevention Tips

1

Course Objectives

What are internal controls? Gain an understanding of concepts.

Why are internal controls necessary? Establish importance and basic elements.

Who is responsible for internal controls? Explain roles and responsibilities in implementing internal controls.

How do I implement internal controls in my department?

Provide guidelines for evaluating and enhancing internal controls in your unit.

Implement procedures that can prevent fraud. Create an awareness of fraud symptoms (red flags). Gain an understanding of the University's fraud investigation process.

Good Internal Control Practices and Fraud Prevention Tips

3

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