What Is Internal Control

What is Internal Control and Why Should I Care?: 

What is Internal Control and Why Should I Care?

Stewardship: Demonstrating Our Fiduciary Responsibility to Taxpayers: 

Stewardship: Demonstrating Our Fiduciary Responsibility to Taxpayers To be good stewards of the University resources committed to our care, assets (people, money, facilities, and intellectual property) must be: Properly safeguarded. Managed. Accounted for accurately and timely.

Stewardship: the careful and responsible management of something entrusted to one’s care:: 

Stewardship: the careful and responsible management of something entrusted to one’s care: People Money Facilities Intellectual Property

Option Finder Question: 

Option Finder Question

Internal Control Definition: 

A process implemented by management that provides reasonable assurance that: Operations are Effective and Efficient ; Financial and operational reports are Reliable; Applicable laws, regulations, and internal policies and procedures are Complied with. Internal Control Definition

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Good Stewardship: Why Should We Care? Poor stewardship can: Have a negative impact on the teaching, research, and public service missions of the University Impact our reputation Cost us our jobs

UC In The News: 

San Francisco Chronicle (8/1/95) Embezzlement Probe of UC Claims Manager - At Least $500K gone. San Francisco Examiner (8/2/95) Embezzlement Probe Exposes UC Oversights San Francisco Chronicle (8/2/95) Embezzlement Case is UC’s Third in 2 Year UC In The News Orange County Register (8/10/95) Meeting Urged on UC Handling of Finances

Other UC News Stories ...: 

Other UC News Stories ... UC Guardian (10/31/96) UC Settles National Lab Mismanagement Charges Out of Court for $2.7 Million Los Angeles, 1995 False Invoices Submitted to UCLA Medical Center San Diego Union Tribune (8/1/96) UC Davis Audit Cites Falsified Timecards, Lavish Parties Santa Cruz 1993 UC Administrative Assistant Embezzles $400,000

Other - UC in In the News : 

Other - UC in In the News Wall Street Journal UC Ignored Early Alert on Finances Wall Street Journal (12/11/96) Audit Finds Financial Irregularities at UC-Berkeley Business School Union Tribune (1996) U.S. Takes Over Suit Alleging False UCSD Research Claims

Most Recently..: 

Most Recently.. San Diego Union Tribune (2/20/97) Fertility doctor claims mentor stole her embryos. Los Angeles Times (2/20/97) Doctor who Studied at UCI says her eggs were Misused. Los Angeles Times 10/24/96 UC Settles 2 Fertility Cases for $1.1 Million Los Angeles Times 11/15/96 Ex-Director of Fertility Clinic at UC Irvine Is Indicted

Other UC News Stories ...: 

Other UC News Stories ... SF Chronicle July 16, 1999 $4.5 Million UC Embezzlement Orange Co Register November 15, 2000 Family Sues UCI Over Donation

Fraud: 

Fraud Costs employers an average of $9 a Day per employee Costs US organizations more than $400 billion annually Equates to 6% of total annual revenue Equates to 10%, or $100 Billion of the $1 trillion national health care expenditures Source: Association of Certified Fraud Examiners, 1996

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Option Finder Question ? ? ? ? ? ? ? ? ? ? ? ?

Who’s Responsible: 

Who’s Responsible The Faculty say the Central Administration is responsible. The Central Administration says the Department is responsible. The Department Chair says the Business Officer is responsible. A Regent once told an audience of administrators that we were the “guardians of the character and quality of the University.”

Whose Job is it?: 

Whose Job is it? The bottom line is that EVERYONE needs to participate in assessing risk and implementing strong systems of accountability and control to ensure continued good stewardship. This obligation is reinforced by recent legislation which provides for additional protection of whistleblowers in the public environment.

Federal False Claims ActQui Tam: 

Federal False Claims Act Qui Tam Allows private citizens to file a lawsuit in the name of the U.S. Government charging fraud by government contractors and others who receive or use government funds, and share in any money recovered. “Who as well for the king as for himself sues in this matter.”

Qui Tam Cases Filed: 

Qui Tam Cases Filed *Source: False Claims Act and Qui Tam Quarterly Review

Option Finder Question: 

Option Finder Question

Pending Qui Tam CasesDOJ records show that 1,304 qui tam cases are under investigation. : 

Pending Qui Tam Cases DOJ records show that 1,304 qui tam cases are under investigation. Source: Taxpayers Against Fraud, Dec 1999.

CALIFORNIA WHISTLEBLOWER PROTECTION ACT: 

CALIFORNIA WHISTLEBLOWER PROTECTION ACT Effective January 1, 2000 Adds “protected disclosures” and refusal of illegal orders to retaliation protection Expands protection for patients Impact is to greatly expands communications that must be treated as whistleblower reports Changes burden of proof standard making it easier to assert

DEFINITON OF PROTECTED DISCLOSURE: 

DEFINITON OF PROTECTED DISCLOSURE Protected disclosure means any good faith communication that discloses or demonstrates an intention to disclose information that may evidence (1) an improper act or (2) any condition that may significantly threaten the health or safety of employees or the public if the disclosure or intention to disclose was made for the purpose of remedying that condition.

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Option Finder Question

UC POLICES AND PROCEDURESBusiness and Finance Bulletin G-29 : 

UC POLICES AND PROCEDURES Business and Finance Bulletin G-29 Any person may file a confidential report alleging improper activities. Reports are submitted to local coordinators who refer information to the Chancellor’s designee. Requires immediate reporting of known or suspected misuse of University resources either to the Chancellor’s designee or to a local coordinator.

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TREND TOWARD RESEARCH COMPLIANCE PROGRAMS As qui tam lawsuits increase, and government oversight resources become more scarce, the government is relying more an more on the implementation of voluntary compliance programs by major research universities. Mandatory programs are often part of integrity agreements reached following qui tam settlements.

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COMPLIANCE PROGRAM ELEMENTS Compliance standards Compliance officer Training program System to enforce standards Audits and monitoring Remediation of problems and processes Confidential reporting

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Key Elements of Good Stewardship Knowing what to watch for regarding possible fraud Understanding the importance and application of internal controls Continued self monitoring

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NIH Vulnerability Profile Large amounts of funds Other sources of income Gift funds Multiple cost transfers High profile senior investigators Long tenured, loyal administrators

Elements of Accountability and Control Promoting Good Stewardship: 

Elements of Accountability and Control Promoting Good Stewardship Environment Risk Assessment Information & Communication Control Activities Monitoring

Control Environment: 

Control Environment A strong ethical climate at all levels is vital to the well-being of the University. Such a climate contributes importantly to the effectiveness of University policies and accountability and control systems, and helps influence behavior that is not subject to even the most elaborate system of controls.

Corporate Culture:key elements of good stewardship : 

Corporate Culture: key elements of good stewardship trust and team work open communication competence, and operating style

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Option Finder Question

Risk Management: 

Risk Management Defining Risk Identifying Risk Assessing Risk

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Risks Sorted by Greatest Concern (1) inadequate resources for regulatory burden (2) training compliance (3) increased regulatory burden (4) lack of understanding and support from top administrators (5) communications (6) limited resources to continuation with loss of key staff members (7) salary and time and effort reporting (8) clinical trials (9) difficult to control PI’s (10) investigators obligating institution w/o authority (11) burnout

Controls and Risk: 

Controls and Risk Excessive Risk Loss of Assets Poor Decisions Non-Compliance Increased Regs. Public Scandals Excessive Control Too Bureaucratic Loss of Productivity Too Complex Increased Cycle Time Non-Value Added

The Fine Line: 

The Fine Line Faculty are creative people selected to work outside the box. Business officers walk a fine line promoting faculty work while protecting the University’s assets.

Information & Communication : 

Information & Communication Information Systems Appropriate Timely and Current Accurate and Complete Accessible Communication Systems Internal External

Option Finder Question: 

Option Finder Question

Control Activities: 

Information Processing Computer Security Data Integrity and Editing Development Controls Physical Controls Separation of Duties Policies and Procedures Training Control Activities

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Option Finder Question

Monitoring: 

Monitoring Ongoing Monitoring Reconciliations Inventories Filing of Conflict of Interest Statements Exception and Summary Reports Evaluations Control Self Assessment Internal and External Audits Reporting of Deficiencies

A New VisionChanging the Control Structure: 

A New Vision Changing the Control Structure Historical/Traditional Assign Duties Supervise Staff Policy/Rule Driven Limited Employee Participation and Training Specialists are Control Analysts/Reporters The New Vision Empowerment Accountability Continuous Improvement Employee Participation and Training All Levels are Control Analysts/Reporters