Internal Controls and Responsibilities

Question 1

What are the four KEY ROLES for Internal Controls? (who is responsible?

Answer 1

1) Board of Directors
2) Management
3) Support (business-enabling functions)
4) Internal auditors

Question 2

What are the responsibilities over internal controls for board of directors?

Answer 2

• Oversight of key internal control activities & enterprise wide-risk management
• Create expectations about integrity and ethical values
• Accountable for performance of IC responsibilities
• Need to have a working knowledge
• Committed to governance responsibilities
• Must be objective, capable, and inquisitive
• Maintain open and unrestricted communication channels

Question 3

What are the responsibilities of senior management over internal controls?

Answer 3

Ownership of internal control

Set the organization ethical “tone at the top”

Accountable to the board of directors

“First line of defense” in IC

Oversight and control over controls & risks

Compensation often based on achieve targets- mixed blessing

Guiding and develop control activities at entity level

Delegate the design, implementation, conduct and assessment of IC

Communicate expectations

Evaluate control deficiencies and their impact

Question 4

What are the responsibilities of Support (business-enabling) functions?

T/F: Compensation should be tied to organizational objectives for this group?

Answer 4

“Second line of defense” - Legal, compliance, finance, Human Resources, IT (not internal audit)

• Identify known or emerging risks
• Help management respond, communicate, and educate others about risks
• Evaluate the effectiveness of control and risk assessment
• Evaluate control-related compliance
• Compensation should not be tied to organizational objectives

Question 5

What are the responsibility of internal auditors for IC?

Answer 5

“Third line of defense”.

• Evaluate adequacy and effectiveness of controls
• Monitor IC
• Compensation should be unrelated to the b business areas that they review

Question 6

T/F: Internal control is the responsibility of everyone in the organization?

Answer 6

TRUE!

• Internal controls objectives are, to differing extents, requirements of all employees

Question 7

What are the responsibilities of external auditors or customers over IC?

Answer 7

No responsible for, nor apart of, the internal control system.