Establishing Internal Control Standards and Establishing a Materiality Threshold

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CITY OF SOUTH BEND, INDIANA Internal Controls Policy Pursuant to I.C. 5- 11 -1 -27 October 26, 2016 I. Policy The purpose of this policy is to communicate the Common Council's internal control objectives to all employees and elected officials of the City of South Bend and to firmly commit the City to the seventeen (17) key principles of internal controls as established by the Indiana State Board of Accounts. COMPONENT ONE: CONTROL ENVIRONMENT Principle 1: The oversight body and management demonstrate a commitment to integrity and ethical values. The City has the responsibility to establish and maintain an adequate system of internal control and to furnish to the South Bend Common Council, various boards and commissions, governmental agencies, creditors and others reliable financial information on a timely basis. An adequate system of internal control is necessary for the City to discharge these responsibilities. For purposes of this policy, the South Bend Common Council is the oversight body and the City Administration and Finance Department is management. Controls help ensure that assets are not exposed to unauthorized access and use, transactions are properly recorded in the financial records, and the resultant financial information is reliable. External organizations and stakeholders of the City rely on financial information to make decisions toward appropriations, loans and other debt, grants, and other contractual relationships. City resources are dependent upon the system of internal control. Auditors are required annually to report upon the adequacy of the City's systems for control over financial reporting and compliance per I.C. 5- 11- 1- 27(e). The safeguarding of City assets and the reliability which the City and others can place upon its financial records is dependent upon the effectiveness of the internal control process. As the fiscal body, the Common Council expects the City Administration to effect an internal control environment with policies and procedures necessary to provide reasonable assurance that practices cause effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. The system of internal control is meant to keep the City on course toward its mission and to minimize surprises. The system promotes efficiency, minimizes risks of asset loss, helps ensure the reliability of financial information, and compliance with applicable laws, rules, and regulations. Internal control is a process; a means to an end, and not an end unto itself. The control environment is the foundation upon which all components of internal control are based. It sets the tone for City operations. Internal control is about people, operations, communications, and the work environment. It is not about policies and forms though it takes shape through the implementation 1