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NYSICA Internal Control Conference 2007 From Compliance to Commitment

NYSICA Internal Control Conference 2007 From Compliance to Commitment. How to Make Testing Internal Controls Understandable and Useful to Managers Presented by: Tom Lukacs NYS Division of the Budget October 22, 2007. Internal Control Testing. Testing:. One,. Two,. Three….

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NYSICA Internal Control Conference 2007 From Compliance to Commitment

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  1. NYSICA Internal Control Conference2007From Compliance to Commitment How to Make Testing Internal Controls Understandable and Useful to Managers Presented by: Tom Lukacs NYS Division of the Budget October 22, 2007

  2. Internal Control Testing Testing: One, Two, Three…

  3. What Is Internal Control Testing? It’s Like Placing Your Procedures Under A Microscope

  4. Internal Control Testing Makes sure controls “on paper” are: • Actually being used as designed • Really meet the control objectives

  5. Internal Control Testing PURPOSE: Testing controls allows us to: • Have confidence in our control system based on hard data • Spot weaknesses in our control system

  6. Internal Controls Are: THE SAFEGUARDS AND MANAGEMENT OVERSIGHT DESIGNED TO: • Prevent, detect, and correct program and/or operational breakdowns • Ensure that goals are met

  7. Internal Control Process • Identify Functions • Assess Risk/Vulnerability • Conduct Internal Control Reviews • Take Corrective Action

  8. Internal Control Review Checks Whether Controls Work by: • Evaluating If Controls Are Adequate & • Testing If Procedures Are Followed

  9. Internal Control Testing In some cases, a simple test may prevent unwanted situations from occurring: Smoke detector Failure to work during fire TestPrevents Test drive a car Buying a lemon Physical exam Serious health problems

  10. Types of Control and Examples DOCUMENTATION - Policies and procedures RECORDS - Recording transactions & events AUTHORIZATION - Approving transactions STRUCTURE - Separation of duties SUPERVISION - Monitoring control objectives SECURITY - Safeguarding resources

  11. Manager’s Guide:Testing Compliance with Internal Control Requirements Published by DOB to Guide & Assist Agencies In Implementing Testing Programs

  12. Steps in the Testing Process • Identify Transaction to Test • Determine Standards that Apply • Select Test Method • Determine Level of Testing • Plan Testing Process • Conduct Test • Document & Assess Results • Take Corrective Action

  13. Identify Transaction to Test • Key Controls • High Priority Functions

  14. Determine Standards That Apply Identify Performance Goals

  15. Select Test Methods Three methods for testing controls to determine if they are working : 1. DOCUMENT ANALYSIS – Review records, forms, or other documents 2. OBSERVATION – Watch the control being performed in practice 3. INTERVIEW – Elicit information from those performing that control

  16. Determine Level of Testing • Use Best Judgment Consider Feasibility & Cost-Benefit • Sample Need Not Be Statistically Random/Valid • Depends on Transaction & Type of Documentation

  17. Plan Testing Process Get Advice from ICO/IA on: Testing Method, Size & Timing How to Document Results What to do with Results

  18. Conduct Test • Be Objective • Be Fair • Be Flexible

  19. Analyze Test Results To: Determine specific causes of variances Identify regional or statewide trends Assess actual or potential impacts

  20. Take Corrective Action When weaknesses are found, decide to: Institute new controls Improve existing controls, or Accept the risk

  21. Summary • Overview of Testing as Part of Internal Control Program • Test to Have Confidence that Procedures are Working • It’s Not Brain Surgery

  22. Questions?

  23. THANK YOU!!!

  24. Internal Control Testing Contact: Tom Lukacs Associate Budget Examiner New York State Division of the Budget State Capitol Albany, NY 12224 (518) 402-4158 Tom.Lukacs@budget.state.ny.us

  25. Class Exercise - Case Studies • Work in Teams • 2 Minutes Review & Identify Errors • 3 Minutes Discuss Draft Testing Plan • 5 Minutes Report Out to Group

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