Summaries of Internal Audit Activities

By Darrell Reynolds,2014-04-05 21:57
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Summaries of Internal Audit Activities



    (804) 524-5295

    (804) 524-6837 FAX




DATE: October 16, 2006

TO: President Eddie N. Moore, Jr.

     President’s Cabinet Members

FROM: Joanne Curtis Taylor, Chief Audit Executive

SUBJECT: Risk Analysis Survey Operational


    In 1999, the Internal Audit Department gathered data from the various University Departments to perform a Risk Assessment (RA) based upon the Risk Assessment Model created by the Department of the State Internal Auditor and developed a long-range audit plan. This long-range audit plan covered the three-year period from July 1, 2000 through June 30, 2003, and has since expired. The Internal Audit Department requests your assistance in developing a new five-year, long range audit plan for fiscal years 2008 through 2012 by providing the specific information discussed below and referenced in the attached Risk Analysis Survey.


    The purpose of the auditor’s RA is to provide assurance that internal controls in place are adequate to mitigate risks and achieve the organization’s goals. The Internal Audit (IA) Department uses the RA

    to develop effective allocation of audit resources to examine auditable units in the audit universe and select areas for review that have the greatest risk exposure. While management has responsibility to develop and maintain a system to identify and mitigate risk, IA’s goal is to assist the University by

    identifying and evaluating significant exposures to risk and contributing to the improvement of risk management and control systems. Our efforts will be focused on establishing risk-based plans to determine the priorities of the internal audit activity and assess management’s risk mitigation activities,

    all to develop the annual audit plan, with your input and final approval by the Board of Visitors. Per the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of

    Internal Auditing (Standards), the internal audit activity’s plan of engagements should be based upon a Risk Assessment (Standard 2010.A1).

    The IIA Standards define risk as “the possibility of an event occurring that will have an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood.” In addition, the IIA Standards define risk management as “A process to identify, assess, manage, and control potential

    events or situations to provide reasonable assurance regarding the achievement of the organization’s objectives.” Ultimately, key audit objectives are to provide management with information to mitigate

Risk Analysis Surveys Operational

    the negative consequences associated with accomplishing the University’s objectives, as well as an

    assessment of the effectiveness of managements risk management activities.

Deliverables: Due (12/11/2006) and return electronically. The Cabinet’s electronic transmittal

    signifies approval.

1. Business Processes

    Using Microsoft Word, please provide a current list of the Business Processes (functions) and

    corresponding responsibilities performed within the Assessable Units (Departments) under

    your control and direction. A business process is defined as a collection of related, structured

    activities--a chain of events--that produce a specific service or product for a particular customer

    or customers. An assessable unit is an ongoing, identified purpose that results in the creation of

    a service or product (used either internally or externally) or that fulfills a law, regulation or

    other mandate. Accepted best practices indicate that management should maintain a listing of

    the assessable units along with the purpose and objectives of each assessable unit. Please note,

    an Assessable Unit can have many Business Processes (functions); this is not a one-to-one

    relationship, but possibly a one-to-many relationships.

2. Risk Analysis Surveys

    Please complete the enclosed questionnaire for each of the Business Processes with the

    Assessable Units under your responsibility. Your honest and objective assessment will

    contribute to the University strategic plan to mitigate University-wide risks.

Some items you may wish to consider as you complete the Risk Analysis are:

    ; Control self assessments

    ; Staff turnover and experience level

    ; Staff training assessment and development

    ; New technology implementations

    ; Degree of complexity in operational and/or technical processes

    ; Exposure to external reviews and reputational risk

    ; Degree of compliance and regulatory requirements

    ; Results of internal and external audits and audit frequency

    ; Vulnerability of errors, omissions, losses or fraud

    Please read each of the questions carefully. Mark the applicable Business Risk level for each of the questions. You must choose a degree of risk using the numbers 1 through 3, where 1 indicates the lowest risk and 3 indicates the highest risk. If the risk level of a question is scored as a 1 or a 3, provide a brief justification for the score in the Assessable Unit Comments section following that question. However, please feel free to comment on any rating selected.

    Attached you will find a list of definitions (Appendix A) that might help you as you complete the Risk Analysis Survey. Please call any member of the Internal Audit team at ext. 5295 or 5075 if you have any questions. Your cooperation is greatly appreciated.


Appendix A Definitions

    Assessable Unit: An assessable unit is an ongoing, identified purpose that results in the creation of a service or product (used either internally or externally) or that fulfills a law, regulation or other mandate.

Business Process: A collection of related, structured activities--a chain of events--that produce a

    specific service or product for a particular customer or customers; significant activities that are carried out to achieve the University’s mission and objectives, i.e. 20/20 Vision Plan. A business process can

    be thought of as a “cookbook” for running the University and reaching University goals defined in an

    organization’s business strategy. Business processes occur at all levels of an organization’s activities and include events that the customer sees and events that are invisible to the customer.

    Controls: Any action taken by management, the board, and other parties to manage risk to increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved. Basic controls usually ensure the reliability and integrity of information; ensure compliance with policies, laws, regulations, etc.; safeguard assets; promote economical and efficient use of resources; and accomplish goals and objectives.

Control Activities: These are the policies and procedures that help ensure management that

    management directives are implemented. Control activities consist of non-financial and financial activities, occur at all levels of the organization, such as performance reviews, functional or activity reviews, transaction reviews, academic record keeping, reconciliations, processing controls, physical controls and segregation of duties. Some typical controls seen every day are:

    1. Transaction Authorizations - to ensure that all transactions are approved by responsible

    personnel in accordance with their specific or general authority before the transaction is


    2. Documentation - all back-up documentation required is properly maintained.

    3. Review For Completeness - to ensure that no valid transactions have been omitted from

    the accounting records.

    4. Accuracy - to ensure that all valid transactions and/or reports are accurate, consistent

    with the originating transaction data, and information is recorded in a timely manner.

    5. Validity (fairly represents events) - to ensure that all recorded transactions fairly

    represent the economic events that actually occurred, are lawful in nature, and have

    been executed in accordance with management's general authorization.

    6. Physical Safeguards - to ensure that access to physical assets and information systems is

    controlled and properly restricted to authorized personnel.

    7. Error Handling - to ensure that errors detected at any stage of processing receive prompt

    corrective action and are reported to the appropriate level of management.

    8. Segregation Of Duties - to ensure that duties are assigned to individuals in a manner

    that ensures that no one individual can control both the authorization and recording

    functions or the procedures relative to processing or approving a transaction. A well designed process with appropriate internal controls should meet most if not all of these control objectives.

Control Deficiency: When the design or operation of a control does not allow management or

    employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

Risk Analysis Surveys Operational

    Control Environment: This sets the tone of the organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Control environment factors include the integrity, ethical values and competence of the organization's people; management's philosophy and operating style; the way management assigns authority and responsibility; how it organizes and develops its human resources; and the attention and direction provided by the Board of Visitors.

Control Self-Assessment (CSA): An internal control evaluation tool that involves management and

    staff in the “self-assessment” of internal controls within their work group. It is a documented process in which management or work teams directly involved in the function or process to be assessed, are given the ability to evaluate the effectiveness of the process in place and decide if the chance of reaching some or all business objectives is reasonably assured. A CSA usually consists of questions that are used as a general guide to help managers ensure that basic internal controls are in place. A “yes” answer indicates that a desired control is in place; a “no” answer indicates that a control weakness may be present, and corrective action may be necessary.

    Monitoring: This is the process that assesses the quality of the system's performance over time. Ongoing monitoring is the daily review of reports, supervision and self-assessment. Separate evaluations external to the unit are carried out on a periodic basis.

    Risk Assessment: Risk assessment is the identification and analysis of the risks relevant to the achievement of the organization's objectives. Assessment may include looking at departmental routines, activities, and personnel, identifying any potential problems. This forms the basis for determining how the risks should be managed.

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