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Internal controls are the practices performed by departments to provide management with reasonable assurance that assets are safeguarded and transactions are authorized, valid, complete and accurate.
- Encourages adherence to prescribed policies and procedures.
- Promotes efficiency.
- Provides management with reasonable assurance that leave and payroll transactions are authorized, valid, complete and accurate.
- Safeguards leave and payroll documents from theft, loss and destruction.
- Prevents errors and irregularities from occurring. If errors or irregularities do occur, they will be detected in a timely manner.
- Ensures issues arising from employee complaints are kept to a minimum and quickly resolved.
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Protects employees:
- By clearly outlining tasks and responsibilities;
- By providing checks and balances; and,
- From being accused of misappropriations.
It is the responsibility of management to develop and implement a system of internal controls. There are 4 elements in a good internal control system:
- Separation of Duties
- Authorization
- Documentation
- Reconciliation
No person should have control over a transaction from beginning to end. Ideally, no person should be able to record, authorize and reconcile a transaction.
- To protect employees;
- To prevent and detect intentional and unintentional errors; and,
- To encourage better job performance.
- Separation of duties may vary depending on each unit's size and structure.
- Duties may be separated by department or by individuals within a department.
- A simple sharing of duties between individuals may eliminate this weakness.
- Management should increase the review and oversight function when unable to sufficiently separate duties.
- Separation of duties can be circumvented by collusion.
Transactions should be authorized and executed by persons acting within the range of their authority.
- To prevent invalid transactions.
- Policies and procedures should clearly identify which individuals have authority to approve different types of transactions.
- Authority comes with accountability and responsibility.
- Individuals should understand what they are approving. Individuals should have first-hand knowledge of transactions being approved, or they should review supporting information to verify the propriety and validity of transactions.
- Authorization for leave, overtime, and change of work schedule should be obtained in advance and in writing.
- Authorization should be timely.
- Authorization should be from at least one level above.
- Employees should not authorize their own transactions.
- Leave and payroll documents should proceed directly for processing after approval by a supervisor and not returned to the employee where they can be falsified. Many frauds (i.e. unauthorized or excessive overtime hours charged) occur after approval.
- Supervisors should not sign blank timesheets or leave request forms.
- Corrections or adjustments should be initialed by the supervisor and employee.
- Delegation of authority in writing is required for grants and recommended for other budgets.
Transactions should be clearly and thoroughly documented and available for review.
- Documents provide a record of each event or activity.
- Appropriate documentation ensures the accuracy and completeness of transactions.
- Appropriate documentation helps to ensure assets are properly controlled.
- Documents provide evidence of what really happened.
Entries on the Time Sheet Report must be consistent with properly authorized leave and payroll documents. These documents may include:
- Timesheets
- Leave Requests (Request For or Report of Absence)
- Overtime Authorizations
- Personnel Action Forms (PAF) (Student Personnel Action Form SPAF)
- Time (Hourly)/Leave (Salaried) Report
- Request of Payment of Year-End Unused Sick Leave
- Extended Leave Approvals from Department and/or Human Resources
- The Time Sheet Report and documents used to support entries on the Time Sheet Report are University property, not the personal property of employees.
- Supporting documents are retained for 6 years.
- Use attachments or footnotes to document the reasons for corrections/adjustments to the Time Sheet Report that are not evident.
Reconciliation is the process of comparing the entries on the Time Sheet Report to supporting documentation and resolving any discrepancies or differences.
- To ensure the accuracy and validity of the entries and accrual balances.
- To ensure the employee is entitled to the benefits recorded (annual leave, sick leave, etc.).
- To ensure unauthorized changes did not occur.
- To resolve discrepancies in a timely fashion.
An independent person should perform a reconciliation of the Time Sheet Report at least annually and when an employee:
- Transfers;
- Requests extended leave without pay, or
- Separates from the University
- Agree all exceptions (i.e., sick leave, annual leave) recorded on the Time Sheet Report to source documents.
- Agree anything on the Time Sheet Report that affects gross pay (overtime, LWOP, standby pay) to the actual pay (check register and certification report).
- Review infrequent transactions such as sick leave buy back and separation pay calculations.
- Investigate and resolve differences.
- Initial and date the Time Sheet Report to document that a review and reconciliation was performed
- Size of department (number of employees).
- Whether department is centralized or decentralized.
- Complexity of employee schedules.
- Level of management's monitoring and oversight.
- Adequate separation of duties.
- Transactions are authorized and executed by persons acting within the range of their authority.
- Transactions are clearly and thoroughly documented and available for review.
- A reconciliation of the Time Sheet Report is performed at least annually, and when an employee transfers to another unit, requests extended leave without pay, or separates from the University.
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