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STATEMENT OF AUDITING STANDARDS 112 (SAS112) Communicating Internal Control Matters Identified in an Audit UC Riverside June 2007.

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Presentation on theme: "STATEMENT OF AUDITING STANDARDS 112 (SAS112) Communicating Internal Control Matters Identified in an Audit UC Riverside June 2007."— Presentation transcript:

1 STATEMENT OF AUDITING STANDARDS 112 (SAS112) Communicating Internal Control Matters Identified in an Audit UC Riverside June 2007

2 " Today's audit environment encourages transparency and accountability. Therefore, an integrated campuswide effort is needed to effectively steward the funds entrusted to UCR.” Chancellor Córdova

3 1- Why SAS112 2- What is SAS112 3- Impact of SAS112 SAS112 4- Internal Control 5- Minimizing risk in dept. operations dept. operations 6- What to do? AGENDA

4 WorldComEnron - American Institute of Certified Public Accountants - American Institute of Certified Public Accountants For non-profit organizations (UCR) For non-profit organizations (UCR) - SAS 112 Why SAS112? - United States Federal Law and SEC For Public Companies For Public Companies -Sarbanes–Oxley (SOX): -Sarbanes–Oxley (SOX): Requires conducting an assessment of the effectiveness of internal controls by management, to be audited and approved by the company’s independent accountants SAS112 is our SOX

5 Northwestern University (2003). Fine = $5.5m Harvard University (2004). Fine = $2.6m Florida International University (2005). Fine= $11.5m University of Alabama Birmingham (2005). Fine =$3.4 m Non-Compliance Fine$ - Contract & Grants Mayo Foundation (Mayo Clinics). Fine = $6.5m University of California (2002). Fine =$1.8 m

6 What is SAS112? Establishes standards for communicating internal control issues relating to: -integrity of financial reporting -compliance with applicable laws and regulation Establishes standards that classifies communicated control issues as: - control deficiencies - significant deficiencies - significant deficiencies - material weaknesses - material weaknesses SAS112 standards have been adopted by the federal agencies and the Government Audit Standards has been updated to incorporate SAS112

7 Impact of SAS 112 on UCR Due to significant changes in the evaluation of control exceptions and more stringent audit standards, UCR is more likely to encounter control issues being identified and reported - Increased scrutiny - Larger audit samples - More evidence and documentation required during audits - Lower audit materiality thresholds

8 Impact of SAS 112 on UCR SAS 112 requires UCR to disclose deficiencies to 3rd parties: Regents Sponsors (Federal, State & Private) 3rd party creditors Accrediting agencies Rating agencies Insurers

9 Impacts of deficiencies and weaknesses disclosures: -negative impact on reputation for UC, UCR, VCA, and Department -increased internal and external audits -audit disallowances, fines and penalties -potential negative impact on resource allocation

10 Control Issues with - Ledger reconciliation & review - Ledger reconciliation & review - Budget variance analysis - Budget variance analysis - Revenue monitoring - Cash handling - Payroll processing - Payroll processing - Timekeeping & billing - Timekeeping & billing - Cost Transfers - Cost Transfers - Fiscal Year End Processes - Fiscal Year End Processes - PAN Reviews - PAN Reviews Generally, internal controls at UCR are in order and adequate, but there are departments, functions and areas where we noted…. The campus goals, related to SAS112, are to: - Enhance understanding of Internal Controls - Enhance understanding of Internal Controls - Minimize Control Issues - Minimize Control Issues

11 Internal Control Internal control is broadly defined as a process, effected by the UC Regents, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations. Reliability of financial reporting. Compliance with applicable laws and regulations. INTERNAL CONTROL

12 Who is responsible for implementing internal controls?

13 ExecutiveManagement Departments (Chair/ Director, MSO, Staff) Central Offices Offices ( Accounting, Audit & Advisory Services, AP&B, OR, etc.) PARTNERSHIP Control Units (Deans/VC & CFAO) & CFAO)

14 Minimizing the Risks  Department Head: Oversees and is integrated into the financial management process Ensures proper controls and monitoring procedures are in place Ensures financial reports are accurate and meaningful Ensure SAAs, transactors and reviewers are appropriately trained and supported in their key business process roles

15 Minimizing the Risks  Timely reconciliation and review of monthly ledgers Budget to Actual review  Analysis of causes for variances Review of payroll transactions by financial staff and responsible manager Regular review of financial reports by department manager and business officer Evidence of ledger reconciliation and review  New Ledger Recon Tool-coming soon

16 Minimizing the Risk  Timely resolution of errors Frequent and late cost transfers can be a symptom of a deficiency  Ensure sufficient segregation of duties No one person should have complete control over the key processing functions for financial transactions Provides for prevention and detection  Errors  Inappropriate activities  Post Audit Notification (PAN) Reviews Payroll/Personnel System and UCRFS transactions Timely Adequate

17 What to do: TrainingTraining 1- Self-report 2-Assistance Everyone is responsible Control AssessmentControl Assessment When issues are identified: 3-Escalate/Remediate 4-Proactive Approach When control issues or policy non-compliance are recurring and systemic : It will be transparent and there will be consequences

18 Contacts  Gretchen Bolar, Vice Chancellor-Academic Planning & Budget  Bobbi McCracken, Asst. Vice Chancellor-Financial Services  Mike Jenson, Director-Audit & Advisory Services  Bruce Morgan, Asst. Vice Chancellor-Office of Research  Toffee Jeturian, Asst. Director-Audit & Advisory Services  Marc Guerra, Director-Financial Control & Accountability

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