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Developing Your Business Through Internal Controls

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Developing Your Business Through Internal Controls

Chrissy WaltersMarch 9, 2017

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AGENDA• Bio

• Internal Controls

• Narratives

• Walkthrough

• Flowcharts

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CHRISSY WALTERS• Miami University – Accounting

• John Carroll University – MBA

• EY – External audit

• Forest City – Internal audit

• Agilysys – External reporting & internal audit

• PwC – Risk assurance (IA) & national practice (IA)

• Skoda Minotti – Created and leading the IA department

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INTERNAL CONTROLS• Public 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 understand

• Document the process so everyone is in agreement of how the process should be structured

• Assignment of responsibilities and assurance that they agree

• Identify the risks and controls, or lack thereof

• Identify process improvements

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GROUP DISCUSSIONLet’s talk about the state of the

narratives for your company

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UPDATING A NARRATIVENARRATIVES – GUIDE TO

Read through the current narrative• Make sure someone is identified for each step• Don’t just refer to their name; add a title and only use the title going

forward• If someone does a task, ask yourself if it is something that should be

reviewed• If someone reviews something, add explanation of what they do before

they sign their name • Consider risks they are not addressing• Segregation of duties issues can be resolved, even for small companies• Write your notes on hard copy or in comment notes, not within the

original, unless you highlight areas that need further explanation• Spell-check

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SAMPLE NARRATIVE

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FLOWCHART

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Meet with process owners• Make sure all relevant people are included, or meet with them separately• Talk through your questions• Make remediation plans together. Share ideas on how to make controls

stronger• Make a list of items they will be following up on and send it to them after

the meeting• Get clarification on items that would not be obvious to the average user

(acronyms or overly technical terms)• Make a plan for the next steps

You will send them a list of items they need to follow up on and they will provide to you You will update the narrative based on conversations Send them an updated narrative for their review If 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 narrative• Determine a scope – what business processes need to be

covered• Determine the high-level processes included:

For Accounts Payable: – Approval of new vendors– Purchase order process, approval and booking the accrual– Goods receipt and three-way match and recording the entry

• Determine who the key people are in the process to meet with• Have 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 process

STARTING FROM SCRATCHNARRATIVES –

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WALKTHROUGHA walkthrough is similar to a narrative, but goes one step further. • Start with an accurate and complete narrative• Follow one transaction all the way through

For 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 cash

• Make 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 steps

• Note the details of the sample selected• Attach 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 LANESFLOWCHART WITH

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WHY THEY ARE AWESOME!!FLOWCHARTS –

Flowcharts - Pros• If 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 expansion

• When 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 them

• Controls 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 TO• Start with accurate narratives of the process

• Determine the sub-processes to break the process into separate flowcharts

• Once all steps are plotted out in the flowchart, review for accuracy with the narrative

• Give the narratives to EACH person mentioned in the flowchart for their specific review

• Revise the flowcharts accordingly

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HELPFUL HINTS1. Each box should include one sentence or phrase. If more

information is needed, add a note box.

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

3. Make sure the arrows are in the right direction.

4. 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