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16A.057 INTERNAL CONTROLS AND INTERNAL AUDITING.§ Subdivision 1.Establishment of system.The commissioner is responsible for the system of internal controls across the executive branch. The commissioner must coordinate the design, implementation, and maintenance of an effective system of internal controls and internal auditing for all executive agencies. The system must: (1) safeguard public funds and assets and minimize incidences of fraud, waste, and abuse; (2) ensure that programs are administered in compliance with federal and state laws and rules; and (3) require documentation of internal control procedures over financial management activities, provide for analysis of risks, and provide for periodic evaluation of control procedures to satisfy the commissioner that these procedures are adequately designed, properly implemented, and functioning effectively. § Subd. 2.Standards.The commissioner must adopt internal control standards and policies that agencies must follow to meet the requirements of subdivision 1. These standards and policies may include separation of duties, safeguarding receipts, time entry, approval of travel, and other topics the commissioner determines are necessary to comply with subdivision 1. § Subd. 3.Training and assistance.The commissioner shall coordinate training for accounting personnel and financial managers in state agencies on internal controls as necessary to ensure financial integrity in the state's financial transactions. The commissioner shall provide internal control support to agencies that the commissioner determines need this assistance. § Subd. 4.Sharing internal audit resources.The commissioner must administer a program for sharing internal auditors among executive agencies that do not have their own internal auditors and for assembling interagency teams of internal auditors as necessary. § Subd. 5.Monitoring Office of the Legislative Auditor audits.The commissioner must review audit reports from the Office of the Legislative Auditor and take appropriate steps to address internal control problems found in executive agencies. § Subd. 6.Budget for internal controls.The commissioner of management and budget may require that each executive agency spend a specified percentage of its operating budget on internal control systems. The commissioner of management and budget may require that an agency transfer a portion of its operating budget to the commissioner to pay for internal control functions performed by the commissioner. § Subd. 7.Annual report.The commissioner must report to the legislative audit commission and the governor by January 31 of each odd-numbered year on the system of internal controls and internal auditing in executive agencies. § Subd. 8.Agency head responsibilities.The head of each executive agency is responsible for designing, implementing, and maintaining an effective internal control system within the agency that complies with the requirements of subdivision 1, clauses (1) to (3). The head of each executive agency must annually certify that the agency head has reviewed the agency's internal control systems, and that these systems are in compliance with standards and policies established by the commissioner. The agency head must submit the signed certification form to the commissioner of management and budget, in a form specified by the commissioner. § Subd. 9.State colleges and universities.This section does not apply to the Minnesota State Colleges and Universities system. Official Publication of the State of Minnesota What Are Internal Controls?Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Besides complying with laws and regulations and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting. Key Takeaways
Internal ControlsUnderstanding Internal ControlsInternal controls have become a key business function for every U.S. company since the accounting scandals in the early 2000s. In their wake, the Sarbanes-Oxley Act of 2002 was enacted to protect investors from fraudulent accounting activities and improve the accuracy and reliability of corporate disclosures. This has had a profound effect on corporate governance, by making managers responsible for financial reporting and creating an audit trail. Managers found guilty of not properly establishing and managing internal controls face serious criminal penalties. The auditor’s opinion that accompanies financial statements is based on an audit of the procedures and records used to produce them. As part of an audit, external auditors will test a company’s accounting processes and internal controls and provide an opinion as to their effectiveness. Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. They ensure compliance with laws and regulations and accurate and timely financial reporting and data collection, as well as helping to maintain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit. Internal audits play a critical role in a company’s operations and corporate governance, now that the Sarbanes-Oxley Act of 2002 has made managers legally responsible for the accuracy of its financial statements. No two systems of internal controls are identical, but many core philosophies regarding financial integrity and accounting practices have become standard management practices. While internal controls can be expensive, properly implemented internal controls can help streamline operations and increase operational efficiency, in addition to preventing fraud. Regardless of the policies and procedures established by an organization, only reasonable assurance may be provided that internal controls are effective and financial information is correct. The effectiveness of internal controls is limited by human judgment. A business will often give high-level personnel the ability to override internal controls for operational efficiency reasons, and internal controls can be circumvented through collusion. The U.S. Congress passed the Sarbanes-Oxley Act of 2002 to protect investors from the possibility of fraudulent accounting activities by corporations, which mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. Preventative vs. Detective ControlsInternal controls are typically comprised of control activities such as authorization, documentation, reconciliation, security, and the separation of duties. And they are broadly divided into preventative and detective activities. Preventive control activities aim to deter errors or fraud from happening in the first place and include thorough documentation and authorization practices. Separation of duties, a key part of this process, ensures that no single individual is in a position to authorize, record, and be in the custody of a financial transaction and the resulting asset. Authorization of invoices and verification of expenses are internal controls. In addition, preventative internal controls include limiting physical access to equipment, inventory, cash, and other assets. Detective controls are backup procedures that are designed to catch items or events that have been missed by the first line of defense. Here, the most important activity is reconciliation, used to compare data sets, and corrective action is taken upon material differences. Other detective controls include external audits from accounting firms and internal audits of assets such as inventory. Auditing techniques and control methods from England migrated to the United States during the Industrial Revolution. In the 20th century, auditors' reporting practices and testing methods were standardized. Why Are Internal Controls Important?Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Besides complying with laws and regulations and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting. The Sarbanes-Oxley Act of 2002, enacted in the wake of the accounting scandals in the early 2000s, seeks to protect investors from fraudulent accounting activities and improve the accuracy and reliability of corporate disclosures. What Are the Two Types of Internal Controls?Internal controls are broadly divided into preventative and detective activities. Preventive control activities aim to deter errors or fraud from happening in the first place and include thorough documentation and authorization practices. Detective controls are backup procedures that are designed to catch items or events that have been missed by the first line of defense. What Are Some Preventive Internal Controls?Separation of duties, a key part of the preventive internal control process, ensures that no single individual is in a position to authorize, record, and be in the custody of a financial transaction and the resulting asset. Authorization of invoices, verification of expenses, limiting physical access to equipment, inventory, cash, and other assets are examples of preventative internal controls. What Are Detective Internal Controls?Detective internal controls attempt to find problems within a company's processes once they have occurred. They may be employed in accordance with many different goals, such as quality control, fraud prevention, and legal compliance. Here, the most important activity is reconciliation, used to compare data sets, and corrective action is taken if there are material differences. Other detective controls include external audits from accounting firms and internal audits of assets such as inventory. Which of the following security frameworks is used by the federal government and all its departments including the Department of Defense quizlet?The National Institute of Standards and Technology (NIST) is one of the largest security frameworks. It is used by the federal government and all its departments, including the Department of Defense.
Which of the following types of auditing verifies that systems?Which of the following types of auditing verifies that systems are utilized appropriately and in accordance with written organizational policies? Usage auditing verifies that systems are utilized appropriately and in accordance with written organizational policies.
Which SOC type reports focus on predetermined controls that are audited?An SOC Type II report focuses on predetermined controls that are audited and a detailed report that attests to a company's compliance.
Who is responsible for internal controls quizlet?Who is responsible for internal control? Everyone within an organization. The BOD is responsible for oversight of internal control and for defining expectations about integrity and ethical values, transparency and accountability for the performance of internal control responsibilities. 1.
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Which of the following is a government audit by the SEC that relates to internal controls
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