Page 20 - The Edge - Spring 2021

Planning and Preparing – That's What Internal Controls Are All About

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relating to operations, reporting, and compliance.” Perry recommended having a strong a code of ethics
– requiring appropriate conduct from everyone.
They enable a district to control its environment, “Management must communicate support for
assess risks, provide information and communication, internal controls,” she said. “That sets the tone of an
and monitor activities. “Think of internal control as a organization, influencing the control consciousness of
chain,” Perry said. “If one link breaks, the system is its people. It is the foundation for all other components
compromised.” of internal control, providing discipline and structure.”
It’s important, especially in today’s environment,
One purpose of internal control is to prevent fraud. to have backup and contingency plans, she said.
She cited the three elements that can lead to fraud – Challenges this past year involved working at home.
pressure, opportunity and rationalization. Pressure “In some cases, the job before and after COVID may
can involve bills, addictions or work related issues. be completely different,” Perry said. “Now, more than
Opportunity involves the fraudster believing he or she ever, helping people understand their responsibility
won’t get caught. Rationalization enables the person and the expectations they need to meet is critical.”
to justify the crime they commit. Perry emphasized the need for documentation of
how well responsibilities are being covered, but
“Hope for the best – prepare for the recognized that can be difficult with so many people

worst.” working from home. “You still need ways to check on
someone’s work,” she said. “Auditors and supervisors
need documentation to meet expectations.”
All three elements need to be present for fraud to occur.
“Take one away and that almost always removes the Internal controls reduce risk by separating
risk of fraud,” Perry said. responsibilities. “No one person is in full control of a
process,” Perry said. That would include such things as
Opportunity is the element a school district has the receiving, coding, depositing receipts, making payroll
most control over. She recommended being cognizant changes, paying vendors, handling cash, authorization
of pressures, promoting a strong sense of ethical and recordkeeping.
behavior, and creating a positive work environment.
“Checks and balances reduce the risk that money will
Touting the value of audits, Perry said they provide be taken without authorization,” she said.
an organization with an opportunity for reflection and
improvement – recognizing what works well and what To reduce risk during the pandemic, creative solutions
doesn’t. Perry asked her AASBO audience how they are needed, she said, adding that you shouldn’t
view an audit – as a requirement or an opportunity. abandon a specific control without a replacement.
Some people may not think an audit is helpful, and
besides, they feel they’re too busy. Perry’s sage advice: “Hope for the best – prepare for
the worst.”
“They don’t see an audit as recommending
opportunities,” Perry said. “They don’t see the risks
that internal controls can help avoid. Without controls
in place, a process that seems to be working fine Lindsey Perry can be reached at: lperry@azauditor.gov or
could be concealing errors or fraud. We all live in the (602) 553-0333. The Auditor General’s Accountability Services
real world, but what message do you want to send Division can be reached at: (602) 977-2796 or asd@azauditor.gov
to our stakeholders? We strive to do our best to be
good stewards of public money. It all circles back to
controlling the environment we create.”

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20 THE EDGE SPRING 2021