It just occurred to me that perhaps one of the challenges we have here in Plainfield is that we are such a diverse community with such a diverse understanding on what fiscal responsibility is that we could perhaps use the following ABC on fiscal control that came straight from the Office of the State Comptroller. You can find the following glossary at THIS GUIDE.
GLOSSARY
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ABUSE
To use wrongly or improperly.
ACCOUNTABILITY
Recognition that one is answerable for the outcome regardless of the cause.
APPROVAL
Confirmation of employee decisions, events, or transactions based on a review.
AUDIT RISK
A combination of the risk that material errors will occur in the accounting process and the risk that errors will not be discovered by audit tests. Audit risk includes uncertainties due to sampling (sampling risk) and other factors (non-sampling risk).
AUTHORIZATION
The power management grants employees to carry out certain duties based on approval received from supervisors.
COLLUSION
A secret agreement between two or more persons or entities to deceive, mislead, or defraud others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage.
CONTROL ACTIVITIES
Policies, procedures, techniques, and mechanisms that help ensure that management’s directives to mitigate risks identified during the risk assessment process are carried out. Control activities occur at all levels of the agency. They include a wide range of diverse activities, such as approvals, authorizations, verifications, reconciliations, performance reviews, security activities, and the production of records and documentation. Control deficiencies exist when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements in a timely manner.
CONTROL ENVIRONMENT
The control environment sets the tone of the organization, influencing the consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. The control environment is greatly influenced by the extent to which individuals recognize that they will be held accountable.
CONTROL RISK
The risk that a material error in a balance or transaction class will not be prevented or detected on a timely basis by the internal control system.
DEFALCATION
An amount of funds misappropriated by a person trusted with its charge; also, the act of misappropriation.
DETECTION RISK
The risk that audit procedures will lead to a conclusion that material errors do not exist when in fact such errors do exist.
DETECTIVE CONTROLS
Detective controls provide evidence that a loss has occurred, but do not prevent a loss. Examples include review and analyses, variance analysis, reconciliations, physical inventories, and audits.
EFFECTIVENESS
Ability of the entity to accomplish its goals.
EFFICIENCY
Maximizing the best use of resources.
FINANCIAL STATEMENTS
The formal record of the financial activities of a business, person, or other entity. For a business enterprise, the financial statements typically include the Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows.
FRAUD
A misrepresentation or concealment with reference to some fact material to a transaction that is made with knowledge of its falsity or with reckless disregard of its truth or falsity and with the intent to deceive another and that is reasonably relied on by the other who is injured.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
Refers to the standard framework of guidelines for financial accounting which are generally known as accounting standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.
GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS (GAGAS)
Commonly referred to as the "Yellow Book," these standards are produced by the U.S. Government Accountability Office (GAO). The standards apply to both financial and performance audits of government agencies. Five general standards are included:
Independence/Due Care/Continuing Professional Education/Supervision/Quality Control.
INFORMATION MANAGEMENT SYSTEM
Consists of the methods and records established to record, process, summarize, and report the
operations and performance of the entity.
INHERENT LIMITATIONS
Limits of all internal control systems include human judgment, resource constraints, the need to balance the costs of the control in relation to the expected benefits, the reality that breakdowns will and can occur, the possibility of management overrides, and collusion.
INHERENT RISK
The risk of a material misstatement in unaudited information assuming the absence of internal control procedures.
MALFEASANCE
Performance by a public official of an act that is legally unjustified, harmful, or contrary to law.
MANAGEMENT INTERVENTION
Management’s actions to override prescribed policies or procedures for legitimate purposes such as a non-recurring event or non-standard transaction or event.
MANAGEMENT OVERRIDE
Management’s overriding of prescribed policies or procedures for illegitimate purposes with the intent of personal gain.
MATERIALITY
Measure of the estimated effect that the presence or absence of an item of information may have on the accuracy or validity of a statement. It cannot be expressed in a simple calculation and is determined by a person’s reliance on the information and whether an omission or misstatement of the information would influence the readers’ opinion.
MATERIAL WEAKNESS
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
MISFEASANCE
Improper and unlawful execution of a normally lawful act; deliberate and dishonest abuse of power; wrongful performance of a normally lawful act.
MONITORING
Internal control monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved.
ORGANIZATIONAL STRUCTURE
The organizational structure provides the overall framework for planning, directing, and controlling operations. This structure defines the form and nature of the organization, as well as management functions and reporting relationships. Authority and areas of responsibility should be appropriately assigned. The organizational chart should delineate clear lines of authority.
POLICY
Management’s directive of what is required to effect control.
PREVENTIVE CONTROLS
Preventive controls attempt to deter or prevent undesirable events from occurring. Examples include segregation of duties, proper authorization protocols, requiring adequate supporting documentation, and maintaining physical control over assets.
PROCEDURE
An action that implements a policy.
REASONABLE ASSURANCE
The concept that internal control, regardless of how well designed, cannot guarantee an organization’s objectives will be met since inherent limitations will always exist.
RELIABILITY
A high degree of certainty and predictability for a desired outcome. Reliability for financial reporting refers to the accuracy of financial statement balances and adequate and complete disclosure.
REPORTABLE CONDITION
Matters coming to the auditor’s attention that are communicated to the audit committee because they are significant deficiencies in internal control which could adversely affect the ability to record, process, summarize, and report financial data.
RISK
The probability that a transaction or event will adversely affect the organization.
RISK ASSESSMENT
The process wherein management identifies the risks (internal and external) that could impede the efficient and effective achievement of the organization’s objectives. Once the risks are identified, management formulates an approach for risk management and decides upon the internal control activities required to mitigate those risks.
SAMPLING RISK
The possibility that conclusions reached from a sample may not represent correct conclusions for the entire population.
SEGREGATION OF DUTIES (also referred to as separation of duties)
Division of key duties and responsibilities among different people to reduce opportunities for any individual to be in the position to commit and conceal errors (intentional or unintentional) or perpetrate fraud in the normal course of their duties.
SIGNIFICANT DEFICIENCY
A control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report external financial data reliably in accord with Generally Accepted Accounting Principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements (that is more than inconsequential) will not be prevented or detected.
STATEMENTS ON AUDITING STANDARDS
Commonly abbreviated as SAS, these statements provide guidance to auditors on Generally Accepted Auditing Standards in regards to auditing an entity and issuing an audit report.
SUPERVISION
Ongoing oversight, management, and guidance of an activity by designated employees to help ensure that the results of the activity achieve established objectives.
VERIFICATION
Determination of the completeness, accuracy, authenticity, and/or validity of transactions, events, or information. It is a control activity that allows management to confirm activities are being performed in accordance with stated directives.
WASTE
Useless consumption or expenditure. An expenditure that is extravagant or imprudent.
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