A Guide to Internal Controls

In these times of increased accountability, there is greater emphasis on internal controls than at any other time in the history of Houston Community College System. This section will define internal controls and briefly cover the major points that should be of interest and concern to all faculty and staff.

A Guide To Internal Controls

Introduction:

In these times of increased accountability, there is greater emphasis on internal controls than at any other time in the history of Houston Community College System. This section will define internal controls and briefly cover the major points that should be of interest and concern to all faculty and staff.

Roles and Responsibility:

Every faculty and staff member has some responsibility for internal control, because all employees have some role in effecting control by their actions. Any weak link can cause an internal control system to fail. In addition, everyone has a responsibility to communicate, through appropriate channels, problems, deviations from established standards and procedures.

Standards, and violations of policy, regulation, or law.
Management is ultimately responsible and must assume ownership of the internal control systems within their areas of responsibility.

  • The president shapes the values, principles, and major operating policies that form the foundation for the Houston Community College System's internal control systems.
  • Senior administrators provide direction in the major functional areas for evaluating objectives, risks, and the associated internal controls.
  • Deans and department heads are responsible for designing and implementing internal control systems at detailed levels. They must also execute institution-wide control policies and procedures. Accompanying these responsibilities are both authority and accountability.

The Board of Trustees provides oversight on matters of internal control. Auditors, both internal and external, contribute to the effectiveness of internal control systems. They are not responsible for establishing or maintaining these systems, but they provide useful information in evaluating and improving such systems.

Components of Internal Control

Internal control systems consist of five interrelated components. They are derived from the way we do business and are in integral part of the various processes in use throughout HCCS. These components are as follows:

  • Control Environment This sets the tone of the organization and is the foundation for all other components. The factors in the control environment include ethical values, competence, and philosophy, operating style, assignment of authority and responsibility, and the attention and direction of the Board of Trustees and upper management.
  • Risk Assessment This refers to the process of identifying and managing relevant risks in the achievement of objectives, including mechanisms to deal with the special risks associated with change.
  • Control Activities These are the policies and procedures in place that attempt to ensure the organization's objectives are achieved. The specific control activities include approvals, authorizations, verifications, reconciliations, and reviews of operating performance, security of assets and segregation of duties.
  • Information and Communication Necessary information must be identified, captured and communicated in a useful form and on time. This information includes data, both internal and external, related to operations, finances and compliance that makes it possible to operate and control HCCS. Communication must occur in the broadest sense, flowing up, down and across the organization and communication must be effective both inside the organization and external to it.
  • Monitoring This involves assessing the quality of all systems&'s; performance over time. All internal control systems must be monitored, with ongoing and periodic evaluations being conducted.

 

Effectiveness

Internal controls helps HCCS achieve its performance targets and prevent loss of valuable resources. They also help ensure reliable financial reporting and compliance with policies, regulations, and laws; and help the college system avoid pitfalls, damage to its reputation, and surprises with negative consequences.

Limitations

Internal controls do not provide absolute assurances-they help an entity achieve its objectives but do not ensure success, survival, or absolute reliability of financial reporting and compliance, only reasonable assurance. Internal controls are subject to a number of potential failures. Decision-making can be faulty; mistakes occur; management may override existing internal controls; employee collusion can cause controls to fail. The final, overriding limitation of internal controls is one of cost. With scarce resources, the benefits from internal control systems must be considered relative to the cost of implementing and maintaining those systems.

Summary

Internal controls are essential processes within any successful organization. They are everyone&'s;s responsibility. Internal control systems comprise a number of related components that are all dependent on each other. They are only effective when they are understood, accepted, and used to the benefit of the organization. Internal control systems provide meaningful, valuable tools to help HCCS become the model community college for the 21st century.