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UTMB Management Responsibilities Handbook

Internal Controls

Accountability

In the same way that department heads are primarily responsible for identifying the financial and compliance risks for their operations, they also have line responsibility for designing, implementing, and monitoring their control system. The department head may delegate internal control responsibilities to the department administrator, but cannot delegate accountability. A department head who delegates internal control responsibilities to the department administrator needs to establish formal and informal procedures to remain informed of the internal control activities and the status of internal control monitoring results. The Finance Department, Audit Services, Dean’s Offices, assistant vice presidents and executive directors are resources to the department heads in establishing these procedures.

Department Head Internal Control Responsibilities

Internal Controls is a process effected by a university’s governing board, administration, faculty and staff 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

Control Environment Department heads are responsible for creating an environment that supports ethical values and business practices. Department heads should foster a control environment which encourages:

• The highest levels of integrity and personal and professional standards,
• A leadership philosophy and operating style which promote internal control throughout the organization, and,
• An assignment of authority and responsibility which ensures the highest possible level of accountability

Risk Assessment To properly manage their operations, department heads need to identify financial and compliance risks for their department. A risk assessment is one of management’s responsibilities and enables management to act proactively in reducing unwanted surprises. Failure to consciously manage these risks can result in a lack of confidence that financial and compliance goals will be achieved.

Authorization Department heads should ensure that transactions are executed and access to assets are permitted to those who have received express permission from the department head. Delegation of this authority should be limited. Department heads and managers should appropriately question what they sign. Questioning various transactions and requesting additional information enhances a control conscious environment. Written procedures outlining the delegation guidelines should be developed.

Separation of Duties Key financial and managerial functions are divided so that no one person has control over all parts of any transaction. Duties that should be separated, i.e., not performed by the same individual include:

• Initiating transaction,
• Authorizing/Approving transaction,
• Recording a transaction
• Reconciling transactions
• Asset management or Controlling transactions

See Appendix A – Matrix for Analyzing Separation of Duties Issues to help you determine how duties may be separated in your department.

In some small departments, it is often difficult to separate duties. To allow for this problem, some of the following actions could be employed:

• Use the Dean’s office as a level of separation.
• Require employees to take vacation.
• Use information systems to analyze transactions.
• Make certain cash transactions are recorded ASAP.
• Make sure that checks are restrictively endorsed upon receipt.

Control over Physical & Intellectual Assets/Records Department heads should establish control procedures to prevent loss of physical and intellectual assets/records by ensuring that assets/records are physically secured. Managers are personally responsible for the assets in their organization. Assets have a way of “walking off” if physical controls don’t exist.

Monitoring Monitoring ensures that the internal control system is operating as expected. Department heads should ensure that ongoing monitoring activities are established and occur regularly. Monitoring activities that can be established by a department include:

• Review financial reports for propriety and trends
• Evaluate trends
• Review reconciliations, ensuring that unreconciled itmes are investigated
• Verify the propriety of supporting documentation
• Have Audit Services review high risks
• Perform periodic asset counts
• Follow-up on complaints, rumors, allegations

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