SPRING 2014
FMI
*
IGF JOURNAL
29
INTERNAL CONTROLS – THE LOST VALUE PROPOSITION
and conclude that more often than not
(i.e. 23 out of 25 times) the control
worked effectively and that the two
instances of inconsistent operation were
not material to the total expenditures
of the organization (0.00015%). This
type of conclusion, however, would be
incorrect as it would directly contradict
the purpose of assessing the consistency
of operation of a control. In other
words, the only conclusion which can
be reasonably made is the control failed
to operate consistently and therefore
cannot be relied upon to mitigate the
identified risk (i.e. unapproved travel
being undertaken.)
If a control, by its design, must
operate the same way irrespective
of the materiality of the underlying
transaction, what factors should be
considered when assessing the failure of
a control to operate as expected? The
ineffectiveness of a control is the direct
result of either a failure in the control
design or control operation. Continuing
with the example scenario above,
assume the control exceptions were
the result of the cost centre manager
only reviewing travel expenses greater
than $1,750. In this case, the failure
in operation is directly the result of
inappropriate control design, specifically
the description of the control was
inaccurately documented and should
have noted the level at which the control
was being performed. The alternative
result could have been that the control
failed to operate because the manager
did not have the time to review all travel
expenses, which should result in further
consideration of whether the workload
for the individual is appropriate. In both
cases, the investigation of the root cause
of the failure instead of justification of
the materiality of the failures produces
a more valuable result. Therefore,
although the materiality of a specific
transaction might indicate why a control
failed to operate, it should not be the
reason why a control failure should be
accepted.
The principles of control effectiveness
which have been explored in this article
will form the basis for future discussions
in specific areas such as entity level
controls, IT controls and transaction
based controls.
About the Author
Stephen McIntyre is senior manager in the Risk Advisory practice of
Ernst & Young LLP in Ottawa. He is a CPA, CA with more than10 years
of experience providing audit and advisory services related to internal
controls and certification instruments including Sarbanes Oxley 404,
National Instrument 52-109 and the Policy on Internal Control.
He currently provides internal control advisory services to federal
departments, agencies and crown corporations and has spoken at
professional development sessions on the topic, including FMI’s national
PD Week.
On February 12th, the
Ontario Chapter
was thrilled to co-
host a live webinar on “Identity Theft: Fallout, Investigation
and Prevention,” one in a series of FMI National’s
“Expand
your Horizons”
webinar schedule. Panelists, Jennifer Fiddian-
Green, a forensic accountant with Grant Thornton LLP and
identity theft victim; and Detective Ian Nichol, a financial
crimes investigator with the Toronto Police Service,
Read full details of Ontario Chapter’s events and activities online
@
, click on the “Chapters” tab.
Ontario
Chapter News
discussed personal stories of ID theft and investigation,
institutional weaknesses that criminals exploit, and general
preventative practices.
The Ontario Chapter’s first-time webinar/luncheon event
was well attended… with expectations that it will not be the
last. It now turn its attention to its next event on “Internal
Controls” on Thursday, May 22nd. Join the Ontario Chapter
for a day of professional development all about control (or the
lack of it.) Learn about risk management, control frameworks,
inherent risk, mitigation strategies, COSO (Committee of
Sponsoring Organizations of the Treadway Commission)....
Learn why risk management is important and acquire tools to
implement and maintain a strong control environment. For
event details, visit
Interested in
attending by webcast?? – from ANYWHERE in the country?
Contact Lori Glen, Chapter President at lori.glen2@ontario.
ca for further details.
