Developing Your Business Through Internal Controls

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Developing Your Business Through Internal Controls

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Developing Your Business Through Internal Controls

Chrissy WaltersMarch 9, 2017

AGENDABioInternal ControlsNarrativesWalkthroughFlowcharts

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CHRISSY WALTERSMiami University AccountingJohn Carroll University MBA

EY External auditForest City Internal auditAgilysys External reporting & internal auditPwC Risk assurance (IA) & national practice (IA)Skoda Minotti Created and leading the IA department

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INTERNAL CONTROLSPublic companies vs. private companies

Why all companies need internal controls

How to determine if you have the right internal controls in place

Developing controls

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NARRATIVESWhy do we need narratives?Document the process for others to understandDocument the process so everyone is in agreement of how the process should be structuredAssignment of responsibilities and assurance that they agreeIdentify the risks and controls, or lack thereofIdentify process improvements

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GROUP DISCUSSIONLets talk about the state of the narratives for your company

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UPDATING A NARRATIVENARRATIVES GUIDE TORead through the current narrativeMake sure someone is identified for each stepDont just refer to their name; add a title and only use the title going forwardIf someone does a task, ask yourself if it is something that should be reviewedIf someone reviews something, add explanation of what they do before they sign their name Consider risks they are not addressingSegregation of duties issues can be resolved, even for small companiesWrite your notes on hard copy or in comment notes, not within the original, unless you highlight areas that need further explanationSpell-check

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SAMPLE NARRATIVE

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FLOWCHART

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Meet with process ownersMake sure all relevant people are included, or meet with them separatelyTalk through your questionsMake remediation plans together. Share ideas on how to make controls strongerMake a list of items they will be following up on and send it to them after the meetingGet clarification on items that would not be obvious to the average user (acronyms or overly technical terms)Make a plan for the next stepsYou will send them a list of items they need to follow up on and they will provide to youYou will update the narrative based on conversationsSend them an updated narrative for their reviewIf they have edits, you make them, and they will re-review until it is accurate

UPDATING A NARRATIVENARRATIVES GUIDE TO

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Writing a narrativeDetermine a scope what business processes need to be coveredDetermine the high-level processes included:For Accounts Payable: Approval of new vendorsPurchase order process, approval and booking the accrualGoods receipt and three-way match and recording the entry Determine who the key people are in the process to meet withHave the process owners talk you through the process Take notes and then follow the steps in the previous slide regarding types of info to include and the review processSTARTING FROM SCRATCHNARRATIVES

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WALKTHROUGHA walkthrough is similar to a narrative, but goes one step further. Start with an accurate and complete narrativeFollow one transaction all the way throughFor AP, you would get a copy of the PO with approval, copy of the accrual entry, invoice and receiving document and show the three-way match, the entry to reverse the accrual and book the AP, copy of the check and the final entry to reduce AP and reduce cashMake sure that the documents agree with the steps (if there is a review of a document, there should be proof)If the example you select does not follow the process accurately, then explain the variance in process stepsNote the details of the sample selectedAttach all walkthrough support and add tickmarks within the walkthrough to note on which page that piece of support is included

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SWIM LANES

FLOWCHART WITH

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WHY THEY ARE AWESOME!!FLOWCHARTS Flowcharts - ProsIf you give someone a narrative to review, they say it looks good and they have no changes. If you put the same information in a flowchart, they see areas for edits and expansionWhen people can see all the tasks assigned to them, they want to make sure they are correct You can easily see where there are risks, and those risky steps are assigned to someone, so they will want to remediate themControls are noted throughout the process as well; which allows you to get a better understanding of what happens before and after each control, and who performs each step

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CREATE A FLOWCHARTSTEPS TOStart with accurate narratives of the processDetermine the sub-processes to break the process into separate flowchartsOnce all steps are plotted out in the flowchart, review for accuracy with the narrativeGive the narratives to EACH person mentioned in the flowchart for their specific reviewRevise the flowcharts accordingly

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HELPFUL HINTSEach box should include one sentence or phrase. If more information is needed, add a note box.

Always have a beginning and an end. Connect one flowchart to another with connectors instead of an end box.

Make sure the arrows are in the right direction.

Use the rows by person to see if there are segregation of duties issues.

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HELPFUL HINTS5. If the flowchart is too crowded, break it up into multiple flowcharts.

6. Have each person identified in the flowchart confirm that their responsibilities were captured correctly.

7. Common shapes:

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QUESTIONS

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THANK YOU

Chrissy Walters, MBA, CPASkoda Minotti, Senior Manager440-605-7178Cwalters@SkodaMinotti.com

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