Keeping Internal Controls Fresh in Your Organization
March 1, 2012
Category: Finance Advisor
Or: We Really Don't Make This Stuff Up!
This Advisor column was originally published in September 2011.
In June 2008, I did a column titled Why Internal Controls are Everyone's Job, which was prompted by a change in auditing standards that resulted in increased audit scrutiny (and audit findings for many). A few years have passed and, having recently completed our audit successfully, my thoughts again turned to this topic.
Kirkland tries to keep the issue of internal controls before management and staff in a variety of ways, including periodic “internal control moments” at senior management meetings, ad hoc training on specific topics, inviting departments with issues to the exit conference, etc. The city recently completed a large annexation and we decided that this would be a great time to do some organization-wide training (to educate new staff, but maybe more importantly, to refresh and remind the rest of the organization on this important topic). While this might sound very labor intensive, it came together pretty easily, so I wanted to share some of what we are doing.
First, we defined the purpose of the training as follows: To provide a broad overview of internal control requirements, where documentation of those requirements can be found, examples of what the auditor looks for, and common problems we see. It is intended to be a refresher for department management (or an introduction for those new to the city or their management role).
Next we identified the initial audience for the training as the management groups in each city department. We decided to bring the training to each department at their regularly scheduled managers’ meetings, rather than make it a separate training that would add something new to their already packed calendars.
Then we identified the key topics, with the section for each topic providing a quick description, where the law, policies, procedures, and forms can be found, what they really mean, and highlighting some common problems and specific areas of concern. The intent is to provide a quick overview of each topic (about 5 minutes each), with the opportunity to ask questions or request more in-depth training on specific topics as needed. The topics we identified included:
- Grants including defining the roles of the departments, Finance, and the City Manager’s Office and the processes in place to make sure requirements are met. In Kirkland, we have a Grants Services team with representatives from each department who identify grants pursued, give updates on status, and communicate information provided back to anyone dealing with grants within their department. Some of the common issues highlighted were that all purchasing rules apply and there may be special rules identified in the grant, explaining supplanting and why it is an important consideration, and debarment.
- Purchasing/Approval Authorities highlighting that there are different rules for different types of purchasing and dollar amounts and that approval authorities differ depending on what is being approved. We provided two quick reference charts (the links reflect Kirkland’s policies and would need to be updated to reflect your agency’s rules): How to Buy Chart and Approval Authority Matrix.
- Expenses/Reimbursements addressing the process for completing Claim for Expense Forms, including required documentation, signatures, etc.; credit card purchases and additional documentation related to this form of payment; travel pre-approval form requirements; and employee/volunteer recognition do’s and don’ts.
- Checks/Cash Handling/Receivables including segregation of duties, timely deposits, and reconciliations. Detailed training on this topic is required of all staff that handle cash or checks and each individual is required to sign-off that they have received that training.
- Payroll with a review of approvals, time-lines, and unusual circumstances. While Kirkland has a “Timekeepers” group with representatives from each department that receive in-depth training, it is important that everyone understand the rules and time-lines for the process to work smoothly.
- Budget Adjustments Process including required reviews and approvals. This topic includes when and how budget adjustments are brought forward depending on whether they change the budget appropriation or add staff and who needs to sign-off on the request.
- Public Disclosure, which is a topic on which the city recently had city-wide training, but this segment reinforced key issues and identified reference documents.
After reviewing each topic, we also provided the top focus areas we had for each department, since each subject area applies to different functions to varying degrees. In this segment, we can provide feedback on where we have seen issues and identify any specific areas of concern.
We also provided a one page quick reference guide to where the reference documents can be found and the key contact people within Finance on each topic. Those key contacts were also the presenters for the training so that staff could put “a face with a name” because we want everyone to be comfortable calling if they have questions or need assistance.
One of the key success factors it to keep the training (relatively) brief, maybe half an hour to one hour, recognizing that more in-depth follow-up training may be needed. That is why we decided to start with management and then offer additional training based on their feedback.
Another element is to have top-down support for the training and the importance of the message. In my introduction, I reminded everyone of “management’s” role in monitoring and enforcing internal controls city-wide (providing them with a variety of quotes of the language SAO uses in their findings and the “representations” letter that the chief executive and finance director sign). I also reminded them that, while management starts with the City Manager in our city who warranties the controls are in place and adhered to, it extends to all management personnel throughout the organization (and through them, to all employees). Most importantly, the purpose of these controls is to safeguard public funds and establish and maintain credibility with the public and financial markets.
So, how is it going? In reality, we are just getting rolling and are targeting to provide the training to one department each month. We completed the first department and the information was very well received, accomplishing one of the main objectives of encouraging dialogue and opening the door for additional training opportunities. In fact, the idea for this training came from the Executive Management team, with the department directors recognizing that it is important to repeat this information regularly to keep it fresh in everyone’s mind. I’m sure that we will refine the training as we proceed further and if anyone is interested in discussing the approach, please feel free to contact me at firstname.lastname@example.org.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.