STATEMENT OF AUDITING STANDARDS 112 (SAS112) STATEMENT OF AUDITING STANDARDS 112 (SAS112) Communicating Internal Control Matters Identified in an Audit Communicating Internal Control Matters Identified in an Audit UC Riverside June 2007 UC Riverside June 2007
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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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STATEMENT OF AUDITING STANDARDS 112 (SAS112)STATEMENT OF AUDITING STANDARDS 112 (SAS112)Communicating Internal Control Matters Identified in an AuditCommunicating Internal Control Matters Identified in an AuditUC Riverside June 2007UC Riverside June 2007
" 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
1- Why SAS1121- Why SAS1122- What is SAS1122- What is SAS1123- Impact of 3- Impact of SAS112 SAS112 4- Internal Control4- Internal Control5- Minimizing risk in 5- Minimizing risk in dept. operationsdept. operations6- What to do?6- What to do?
AGENDAAGENDA
WorldCom WorldCom Enron Enron
- American Institute of Certified - American Institute of Certified Public AccountantsPublic Accountants
For non-profit organizations For non-profit organizations (UCR)(UCR)
- SAS 112- SAS 112
Why SAS112?Why SAS112?
- United States Federal Law and SEC- United States Federal Law and SEC For Public CompaniesFor Public Companies
conducting an conducting an assessment of the assessment of the effectiveness of effectiveness of internal controls internal controls by management, by management,
to be audited and to be audited and approved by the approved by the company’s company’s independentindependent accountantsaccountants
SAS112 is our SOXSAS112 is our SOX
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
What is SAS112?What is SAS112?Establishes standards for communicating internal Establishes standards for communicating internal control issues relating to:control issues relating to:
-integrity of financial reportingintegrity of financial reporting-compliance with applicable laws and regulationcompliance with applicable laws and regulation
Establishes standards that classifies Establishes standards that classifies communicated control issues as:communicated control issues as:
- control deficiencies- control deficiencies - significant deficiencies - significant deficiencies - material weaknesses- material weaknesses
SAS112 standards have been adopted SAS112 standards have been adopted by the federal agencies and the by the federal agencies and the Government Audit Standards has been Government Audit Standards has been updated to incorporate SAS112updated to incorporate SAS112
Impact of SAS 112 on UCRImpact 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
SAS 112 requires UCR to disclose deficiencies to 3rd parties:
RegentsSponsors (Federal, State &
Private)3rd party creditors
Accrediting agenciesRating agencies
Insurers
Impacts of deficiencies and weaknesses disclosures:Impacts of deficiencies and weaknesses disclosures:
-negative impact on reputation for UC, UCR, VCA, and -negative impact on reputation for UC, UCR, VCA, and DepartmentDepartment-increased internal and external audits-increased internal and external audits-audit disallowances, fines and penalties-audit disallowances, fines and penalties-potential negative impact on resource allocation-potential negative impact on resource allocation
Control Issues withControl 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 Generally, internal controls at UCR are in order and adequate, at UCR are in order and adequate,
but there are departments,but there are departments,functions and areas where functions and areas where
we noted….we noted….
The campus goals, related to SAS112, are to:The campus goals, related to SAS112, are to: - Enhance understanding of Internal Controls- Enhance understanding of Internal Controls - Minimize Control Issues- Minimize Control Issues
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
INTERNAL CONTROL
Who is responsible for implementing internal controls?