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By: Vicki Urbanik, CGFM, CPA, EA
<br />nternal control can greatly
<br />enhance the success of govern-
<br />ment units of any size, whether a
<br />large metropolitan city or a small
<br />rural library district. Local govern-
<br />ment managers who establish a
<br />control environment emphasizing
<br />ethics, regulatory compliance and
<br />high - quality staff performance send
<br />a message to the public that they are
<br />committed to accountability and
<br />transparency. Local government
<br />managers who implement risk assess-
<br />ment procedures define their risk
<br />tolerances, potential for fraud, and
<br />external and internal influences that
<br />could negatively impact accomplish-
<br />ment of their objectives. Those who
<br />require staff segregation of duties,
<br />proper record keeping, administra-
<br />tive oversight in payroll functions and
<br />other control activities improve the
<br />effectiveness and efficiency of their
<br />offices. By enacting controls, local
<br />government units can enhance their
<br />financial management and overall
<br />performance.
<br />Recognizing the importance of
<br />internal control in government,
<br />Indiana state legislators passed
<br />new control requirements affecting
<br />government units statewide. Under
<br />House Enrolled Act 1264, adopted
<br />in 2015, municipalities, county
<br />governments, schools and other
<br />political subdivisions must adopt,
<br />at minimum, the internal control
<br />standards established by the Indiana
<br />State Board of Accounts (SBOA).
<br />Local government units must also
<br />provide training on the standards to
<br />practically all employees who handle
<br />public money, specifically those
<br />whose duties include "receiving,
<br />processing, depositing, disbursing,
<br />or otherwise having access to[public]
<br />funds."' Furthermore, government
<br />fiscal officers must certify compliance
<br />with the internal control require-
<br />ments when they submit their unit's
<br />annual financial report, beginning in
<br />earl . If t ey do not provide such
<br />verification, or if the state auditing
<br />body finds that the internal control
<br />standards have not been adopted,
<br />local government units could ulti-
<br />mately face rejection of their annual
<br />budgets. In short, local government
<br />managers in Indiana must now get
<br />serious about internal control, not
<br />just because state law requires it, but
<br />also because they have a very real
<br />budgetary incentive to do so.
<br />Implementation Challenges
<br />Internal control can greatly
<br />enhance accountability and trans-
<br />parency, but implementing controls
<br />can pose unique challenges for local
<br />government.
<br />For one, local government
<br />managers may lack formal training
<br />in accounting, auditing or other
<br />academic areas that introduce
<br />internal control. Local officials
<br />unfamiliar with controls may feel
<br />the topic is too broad or abstract in
<br />scope to have relevance for their
<br />departments. After all, a city park
<br />superintendent's mission is to run
<br />a park system, a county treasurer's
<br />priority is the collection of local taxes
<br />and a township manager's top objec-
<br />tives include administering aid for
<br />the indigent. These and other officials
<br />at the most local levels of govern-
<br />ment may feel they lack the time or
<br />resources to implement control risk
<br />assessment or monitoring. Even if
<br />top managers enthusiastically adopt
<br />internal controls, training their
<br />employees could be quite a different
<br />story. Office employees might recall
<br />accounting scandals like Enron and
<br />Tyco, but it's much more unreal-
<br />istic to expect the rank-and-file in
<br />local government to be versed in
<br />the five control components or key
<br />documents such as COSO's Internal
<br />Control — An Integrated Framework or
<br />the U.S. Government Accountability
<br />Office's Standards for Internal Control
<br />in the Federal Government. Training
<br />DO Local government
<br />managers in Indiana must
<br />now get serious about
<br />internal control, not just
<br />because state law requires
<br />it, but also because they
<br />have a very real budgetary
<br />incentive to do so.
<br />staff on internal control standards.
<br />can prove frustrating for managers
<br />struggling with subpar employees
<br />or long -time employees resistant to
<br />change.
<br />Demystifying Internal Control
<br />Local government managers can
<br />overcome the challenges of training a
<br />staff unfamiliar with internal control
<br />by introducing the topic in small,
<br />but meaningful phases. That is the
<br />approach being taken this year in
<br />the county auditor's office in Porter
<br />County, Indiana s ninth largest county
<br />(population, 167,000), located in the
<br />northwestern corner of the state. In
<br />Indiana, county auditor offices are
<br />often thought of as one of the busiest
<br />in county government with responsi-
<br />bilities that include county financial
<br />reporting and property tax adminis-
<br />tration. If any county office is in need
<br />of a sound internal control system, it
<br />is arguably a county auditor's office.
<br />The Porter County Auditor's Office
<br />early on embraced Indiana's new
<br />internal control requirements, in
<br />part because prior state audits found
<br />material control weaknesses in finan-
<br />cial reporting, payroll and grants
<br />administration. The need for effective
<br />FALL 2016 JOURNAL OF GOVERNMENT FINANCIAL MANAGEMENT 21
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