What is Internal
Control and Why
Should I Care?
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Stewardship: Demonstrating Our
Fiduciary Responsibility to
Taxpayers
To be good stewards of the University
resources committed to our care, assets
(people, money, facilities, and
intellectual property) must be:
Properly safeguarded.
Managed.
Accounted for accurately and timely.
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Stewardship: the careful and
responsible management of
something entrusted to one’s care:
 People
 Money
 Facilities
 Intellectual Property
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Internal Control Definition
A process implemented by management that
provides reasonable assurance that:
Operations are Effective and Efficient ;
Financial and operational reports are
Reliable;
Applicable laws, regulations, and internal
policies and procedures are Complied with.
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Good Stewardship: Why Should
We Care?
Poor stewardship can:
Have a negative impact on the
teaching, research, and public service
missions of the University
Impact our reputation
Cost us our jobs
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Fraud
Costs employers an average of $9 a Day
per employee
Equates to 10%, or $100 Billion of the $1
trillion national health care expenditures
Costs US organizations more than $400
billion annually
Equates to 6% of total annual revenue
Source: Association of Certified Fraud Examiners, 1996
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Option Finder Question
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Who’s Responsible
The Faculty say the Central Administration is
responsible. The Central Administration says
the Department is responsible. The
Department Chair says the Business Officer is
responsible.
A Regent once told an audience of
administrators that we were the “guardians of
the character and quality of the University.”
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Whose Job is it?
The bottom line is that EVERYONE needs to
participate in assessing risk and implementing
strong systems of accountability and control to
ensure continued good stewardship. This
obligation is reinforced by recent legislation which
provides for additional protection of whistleblowers
in the public environment.
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Federal False Claims Act
Qui Tam
Allows private citizens to file a lawsuit in the
name of the U.S. Government charging fraud by
government contractors and others who receive
or use government funds, and share in any
money recovered.
“Who as well for the king as for himself sues in this matter.”
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Qui Tam Cases Filed
600
500
400
300
200
100
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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*Source: False Claims Act and Qui Tam Quarterly Review
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Pending Qui Tam Cases
DOJ records show that
1,304 qui tam cases are under investigation.
Other
20%
HHS
40%
DOD
40%
Source: Taxpayers Against Fraud, Dec 1999.
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CALIFORNIA WHISTLEBLOWER
PROTECTION ACT
Effective January 1, 2000
Adds “protected disclosures” and refusal of
illegal orders to retaliation protection
Expands protection for patients
Impact is to greatly expands communications
that must be treated as whistleblower reports
Changes burden of proof standard making it
easier to assert
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DEFINITON OF PROTECTED
DISCLOSURE
Protected disclosure means any good faith
communication that discloses or demonstrates an
intention to disclose information that may evidence
(1) an improper act or (2) any condition that may
significantly threaten the health or safety of
employees or the public if the disclosure or intention
to disclose was made for the purpose of remedying
that condition.
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Option Finder Question
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UC POLICES AND PROCEDURES
Business and Finance Bulletin G-29
Any person may file a confidential report
alleging improper activities.
Reports are submitted to local coordinators
who refer information to the Chancellor’s
designee.
Requires immediate reporting of known or
suspected misuse of University resources
either to the Chancellor’s designee or to a
local coordinator.
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TREND TOWARD RESEARCH
COMPLIANCE PROGRAMS
As qui tam lawsuits increase, and
government oversight resources become
more scarce, the government is relying
more an more on the implementation of
voluntary compliance programs by major
research universities. Mandatory programs
are often part of integrity agreements
reached following qui tam
settlements.
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COMPLIANCE PROGRAM
ELEMENTS
Compliance standards
Compliance officer
Training program
System to enforce standards
Audits and monitoring
Remediation of problems and processes
Confidential reporting
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Key Elements of Good
Stewardship
Knowing what to watch for
regarding possible fraud
Understanding the importance and
application of internal controls
Continued self monitoring
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NIH Vulnerability Profile
Large amounts of funds
Other sources of income
Gift funds
Multiple cost transfers
High profile senior investigators
Long tenured, loyal administrators
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Elements of Accountability and Control
Promoting Good Stewardship
Environment

Risk Assessment
Information &
Communication


Control Activities

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Monitoring
Control Environment
A strong ethical climate at all levels is
vital to the well-being of the University.
Such a climate contributes importantly
to the effectiveness of University
policies and accountability and control
systems, and helps influence behavior
that is not subject to even the most
elaborate system of controls.
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Corporate Culture:
key elements of good
stewardship
trust and team work
open communication
competence, and
operating style
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Risk Management
Defining Risk
Identifying Risk
Assessing Risk
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Risks Sorted by Greatest Concern
(1) inadequate resources for regulatory burden
(2) training compliance
(3) increased regulatory burden
(4) lack of understanding and support from top administrators
(5) communications
(6) limited resources to continuation with loss of key staff
members
(7) salary and time and effort reporting
(8) clinical trials
(9) difficult to control PI’s
(10) investigators obligating institution w/o authority
(11) burnout
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Controls and Risk
Excessive Risk
Loss of Assets
Poor Decisions
Non-Compliance
Increased Regs.
Public Scandals
Excessive Control
Too Bureaucratic
Loss of Productivity
Too Complex
Increased Cycle
Time
Non-Value Added
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The Fine Line
Faculty are creative people selected to
work outside the box. Business officers
walk a fine line promoting faculty work
while protecting the University’s assets.
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Information & Communication
Information Systems
Appropriate
Timely and Current
Accurate and Complete
Accessible
Communication
Systems
Internal
External
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Control Activities
Information Processing
Computer Security
Data Integrity and Editing
Development Controls
Physical Controls
Separation of Duties
Policies and Procedures
Training
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Monitoring
Ongoing Monitoring
Reconciliations
Inventories
Filing of Conflict of Interest Statements
Exception and Summary Reports
Evaluations
Control Self Assessment
Internal and External Audits
Reporting of Deficiencies
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A New Vision
Changing the Control Structure
Historical/Traditional
Assign Duties
Supervise Staff
Policy/Rule Driven
Limited Employee
Participation and Training
Specialists are Control
Analysts/Reporters
The New Vision
Empowerment
Accountability
Continuous Improvement
Employee Participation and
Training
All Levels are Control
Analysts/Reporters
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