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CITY OF SOUTH BEND, INDIANA <br />COMPONENT TWO: RISK ASSESSMENT <br />Principle 6: Management defines objectives clearly to enable the identification of risks and <br />risk tolerances. <br />Through the creation of standard operating procedures and accurate organizational reporting <br />charts, management conveys and identifies objectives, missions, policies, and risk tolerances to <br />employees. The Finance Department will lead a risk analysis of three major areas: <br />1. The effectiveness and efficiency of operations. <br />2. The reliability of reporting for internal and external use. <br />3. Compliance with applicable laws and regulations. <br />For each category, the Finance Department will define objectives in specific measurable terms in <br />order to enable the design of internal control for related risk, increase understanding at all levels, <br />assess performance, identify what is to be achieved, who is to achieve it, how it will be achieved, <br />when it will be achieved and incorporate external requirements. <br />Principle 7: Management identifies, analyzes, and responds to risks related to achieving the <br />defined objectives. <br />The Finance Department will identify, analyze and respond to the risks identified in Principle 6 by <br />determining: <br />1. How likely is the risk to occur? <br />2. How will it impact the objective? <br />3. Is the risk based on complex or unusual transactions? <br />4. Is the risk based on fraud? <br />Once each risk has been identified and analyzed, the Finance Department will work with <br />Department Heads to determine how to respond to each risk with a specific solution and action. <br />Principle 8: Management considers the potential for fraud when identifying, analyzing, and <br />responding to risks. <br />Management is committed to fraud prevention by utilizing a "trust but verify" approach. The <br />potential for fraud, misappropriation, and outright theft are contemplated as controls are designed <br />for various City divisions. Fraud responses will include statutorily required responses to fraud, <br />including, but not limited to Ind. Code § 5 -11 -1 -27(1) relating to the Report of Misappropriation <br />of Funds to State Board of Accounts (SBOA) and Prosecuting Attorney and Ind. Code <br />§ 5 -11 -1 -270) relating to the Report of Material Variances, Losses, Shortages or Thefts to the <br />SBOA. For reporting to the SBOA, the City shall utilize a materiality threshold of $10,000 for <br />cash and $10,000 for assets other than cash. All instances of suspected employee theft must be <br />immediately reported to the SBOA regardless of the dollar amount. There is no materiality <br />threshold for employee theft. Significant variances less than $10,000 will be investigated internally <br />by the staff of the City of South Bend. <br />Internal Controls Policy Pursuant to I.C. 5- 11 -1 -27 4 <br />