0:'standards for internal control in the federal government by the comptroller general of the united states september 2014 gao14704g united',
1:'states government accountability office contents overview 1 foreword 1 how to use the green book 3 section 1 fundamental concepts',
2:'of internal control 5 definition of internal control 5 definition of an internal control system 5 section 2 establishing an',
3:'effective internal control system 6 presentation of standards 6 components, principles, and attributes 7 internal control and the entity 9',
4:'roles in an internal control system 11 objectives of an entity 12 section 3 evaluation of an effective internal control',
5:'system 14 factors of effective internal control 15 evaluation of internal control 15 section 4 additional considerations 17 service organizations',
6:'17 large versus small entities 18 benefits and costs of internal control 19 documentation requirements 19 use by other entities',
7:'20 control environment 21 principle 1 demonstrate commitment to integrity and ethical values 22 tone at the top 22 standards',
8:'of conduct 23 adherence to standards of conduct 23 principle 2 exercise oversight responsibility 24 oversight structure 24 oversight for',
9:'the internal control system 26 input for remediation of deficiencies 27 principle 3 establish structure, responsibility, and authority 27 organizational',
10:'structure 27 assignment of responsibility and delegation of authority 28 documentation of the internal control system 29 principle 4 demonstrate',
11:'commitment to competence 30 expectations of competence 30 recruitment, development, and retention of individuals 31 succession and contingency plans and',
12:'preparation 31 principle 5 enforce accountability 32 enforcement of accountability 32 consideration of excessive pressures 33 risk assessment 34 principle',
13:'6 define objectives and risk tolerances 35 definitions of objectives 35 definitions of risk tolerances 36 principle 7 identify, analyze,',
14:'and respond to risks 37 identification of risks 37 analysis of risks 38 response to risks 39 principle 8 assess',
15:'fraud risk 40 types of fraud 40 fraud risk factors 41 response to fraud risks 41 principle 9 identify, analyze,',
16:'and respond to change 42 identification of change 42 analysis of and response to change 43 control activities 44 principle',
17:'10 design control activities 45 response to objectives and risks 45 design of appropriate types of control activities 45 design',
18:'of control activities at various levels 49 segregation of duties 50 principle 11 design activities for the information system 51',
19:'design of the entity’s information system 51 design of appropriate types of control activities 53 design of information technology infrastructure',
20:'53 design of security management 54 design of information technology acquisition, development, and maintenance 55 principle 12 implement control activities',
21:'56 documentation of responsibilities through policies 56 periodic review of control activities 56 information and communication 58 principle 13 use',
22:'quality information 59 identification of information requirements 59 relevant data from reliable sources 59 data processed into quality information 59',
23:'principle 14 communicate internally 60 communication throughout the entity 60 appropriate methods of communication 61 principle 15 communicate externally 62',
24:'communication with external parties 62 appropriate methods of communication 63 monitoring 64 principle 16 perform monitoring activities 65 establishment of',
25:'a baseline 65 internal control system monitoring 65 evaluation of results 66 principle 17 evaluate issues and remediate deficiencies 67',
26:'reporting of issues 67 evaluation of issues 68 corrective actions 68 appendix i requirements 70 appendix ii acknowledgments 73 comptroller',
27:'general’s advisory council on standards for internal control in the federal government 20132015 73 gao project team 74 staff acknowledgments',
28:'74 glossary 75 figures figure 1: green book sample page 4 figure 2: achieving objectives through internal control 5 figure',
29:'3: the five components and 17 principles of internal control 9 figure 4: the components, objectives, and organizational structure of',
30:'internal control 10 figure 5: the 17 principles supporting the five components of internal control 11 figure 6: examples of',
31:'common categories of control activities 46 this is a work of the u.s. government and is not subject to copyright',
32:'protection in the united states. the published product may be reproduced and distributed in its entirety without further permission from',
33:'gao. however, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary',
34:'if you wish to reproduce this material separately. overview foreword policymakers and program managers are continually seeking ways to improve',
35:'accountability in achieving an entity’s mission. a key factor in improving accountability in achieving an entity’s mission is to implement',
36:'an effective internal control system. an effective internal control system helps an entity adapt to shifting environments, evolving demands, changing',
37:'risks, and new priorities. as programs change and entities strive to improve operational processes and implement new technology, management continually',
38:'evaluates its internal control system so that it is effective and updated when necessary. section 3512 c and d of',
39:'title 31 of the united states code commonly known as the federal managers’ financial integrity act fmfia requires the comptroller',
40:'general to issue standards for internal control in the federal government. standards for internal control in the federal government known',
41:'as the green book, provide the overall framework for establishing and maintaining an effective internal control system. office of management',
42:'and budget omb circular no. a123 provides specific requirements for assessing and reporting on controls in the federal government. the',
43:'term internal control in this document covers all aspects of an entity’s objectives operations, reporting, and compliance. the green book',
44:'may also be adopted by state, local, and quasigovernmental entities, as well as notforprofit organizations, as a framework for an',
45:'internal control system. management of an entity determines, based on applicable laws and regulations, how to appropriately adapt the standards',
46:'presented in the green book as a framework for the entity. the committee of sponsoring organizations of the treadway commission',
47:'coso updated its internal control guidance in 2013 with the issuance of a revised internal control integrated framework.1 coso introduced',
48:'the concept of principles related to the five components of internal control. the green book adapts these principles for a',
49:'government environment. 1see committee of sponsoring organizations of the treadway commission, internal control integrated framework new york: american institute of',
50:'certified public accountants, 2013. the standards are effective beginning with fiscal year 2016 and the fmfia reports covering that year.',
51:'management, at its discretion, may elect early adoption of the green book. this revision of the standards has gone through',
52:'an extensive deliberative process, including public comments and input from the comptroller general’s advisory council on standards for internal control',
53:'in the federal government. the advisory council consists of about 20 experts in financial and performance management drawn from federal,',
54:'state, and local government; the private sector; and academia. the views of all parties were thoroughly considered in finalizing the',
55:'standards. i appreciate the efforts of government officials, public accounting professionals, and other members of the audit and academic communities',
56:'who provided valuable assistance in developing these standards. i extend special thanks to the members of the advisory council on',
57:'standards for internal control in the federal government for their extensive input and feedback throughout the entire process of developing',
58:'and finalizing the standards. gene l. dodaro comptroller general of the united states september 2014 how to use the green',
59:'book the green book provides managers criteria for designing, implementing, and operating an effective internal control system. the green book',
60:'defines the standards through components and principles and explains why they are integral to an entity’s internal control system. the',
61:'green book clarifies what processes management considers part of internal control. in a mature and highly effective internal control system,',
62:'internal control may be indistinguishable from daytoday activities personnel perform. the green book is structured as follows: 1. an overview,',
63:'which includes the following sections: section 1: an overview of the fundamental concepts of internal control section 2: a discussion',
64:'of internal control components, principles, and attributes; how these relate to an entity’s objectives; and the three categories of objectives',
65:'section 3: a discussion of the evaluation of the entity’s internal control system’s design, implementation, and operation section 4: additional',
66:'considerations that apply to all components in an internal control system 2. a discussion of the requirements for each of',
67:'the five components and 17 principles as well as discussion of the related attributes, including documentation requirements. the green book',
68:'clearly indicates the component and principle requirements through the use of “must” and “should.” further discussion of these requirements is',
69:'included in section 2 of the overview. documentation requirements are summarized in section 4 of the overview. figure 1 depicts',
70:'a sample page from the green book. this illustration identifies the components, principles, and attributes of the green book, which',
71:'are further discussed in section 2 of the overview. figure 1: green book sample page section 1 fundamental concepts of',
72:'internal control definition of internal control ov1.01 internal control is a process effected by an entity’s oversight body, management, and',
73:'other personnel that provides reasonable assurance that the objectives of an entity will be achieved see fig. 2. these objectives',
74:'and related risks can be broadly classified into one or more of the following three categories: operations effectiveness and efficiency',
75:'of operations reporting reliability of reporting for internal and external use compliance compliance with applicable laws and regulations figure 2:',
76:'achieving objectives through internal control ov1.02 these are distinct but overlapping categories. a particular objective can fall under more than',
77:'one category, can address different needs, and may be the direct responsibility of different individuals. ov1.03 internal control comprises the',
78:'plans, methods, policies, and procedures used to fulfill the mission, strategic plan, goals, and objectives of the entity. internal control',
79:'serves as the first line of defense in safeguarding assets. in short, internal control helps managers achieve desired results through',
80:'effective stewardship of public resources. definition of an internal control system ov1.04 an internal control system is a continuous builtin',
81:'component of operations, effected by people, that provides reasonable assurance, not absolute assurance, that an entity’s objectives will be achieved.',
82:'ov1.05 internal control is not one event, but a series of actions that occur throughout an entity’s operations. internal control',
83:'is recognized as an integral part of the operational processes management uses to guide its operations rather than as a',
84:'separate system within an entity. in this sense, internal control is built into the entity as a part of the',
85:'organizational structure to help managers achieve the entity’s objectives on an ongoing basis. ov1.06 people are what make internal control',
86:'work. management is responsible for an effective internal control system. as part of this responsibility, management sets the entity’s objectives,',
87:'implements controls, and evaluates the internal control system. however, personnel throughout an entity play important roles in implementing and operating',
88:'an effective internal control system. ov1.07 an effective internal control system increases the likelihood that an entity will achieve its',
89:'objectives. however, no matter how well designed, implemented, or operated, an internal control system cannot provide absolute assurance that all',
90:'of an organization’s objectives will be met. factors outside the control or influence of management can affect the entity’s ability',
91:'to achieve all of its objectives. for example, a natural disaster can affect an organization’s ability to achieve its objectives.',
92:'therefore, once in place, effective internal control provides reasonable, not absolute, assurance that an organization will achieve its objectives. section',
93:'2 establishing an effective internal control system presentation of standards ov2.01 the green book defines the standards for internal control',
94:'in the federal government. fmfia requires federal executive branch entities to establish internal control in accordance with these standards. the',
95:'standards provide criteria for assessing the design, implementation, and operating effectiveness of internal control in federal government entities to determine',
96:'if an internal control system is effective. nonfederal entities overview may use the green book as a framework to design,',
97:'implement, and operate an internal control system.2 ov2.02 the green book applies to all of an entity’s objectives: operations, reporting,',
98:'and compliance. however, these standards are not intended to limit or interfere with duly granted authority related to legislation, rulemaking,',
99:'or other discretionary policy making in an organization. in implementing the green book, management is responsible for designing the policies',
100:'and procedures to fit an entity’s circumstances and building them in as an integral part of the entity’s operations. components,',
101:'principles, and attributes ov2.03 an entity determines its mission, sets a strategic plan, establishes entity objectives, and formulates plans to',
102:'achieve its objectives. management, with oversight from the entity’s oversight body, may set objectives for an entity as a whole',
103:'or target activities within the entity. management uses internal control to help the organization achieve these objectives. while there are',
104:'different ways to present internal control, the green book approaches internal control through a hierarchical structure of five components and',
105:'17 principles. the hierarchy includes requirements for establishing an effective internal control system, including specific documentation requirements. ov2.04 the five',
106:'components represent the highest level of the hierarchy of standards for internal control in the federal government. the five components',
107:'of internal control must be effectively designed, implemented, and operating, and operating together in an integrated manner, for an internal',
108:'control system to be effective. the five components of internal control are as follows: control environment the foundation for an',
109:'internal control system. it provides the discipline and structure to help an entity achieve its objectives. risk assessment assesses the',
110:'risks facing the entity as it seeks to achieve its objectives. this assessment provides the basis for developing appropriate risk',
111:'responses. 2see para. ov4.10 for further discussion on use by other entities. page 7 gao14704g federal internal control standards control',
112:'activities the actions management establishes through policies and procedures to achieve objectives and respond to risks in the internal control',
113:'system, which includes the entity’s information system. information and communication the quality information management and personnel communicate and use to',
114:'support the internal control system. monitoring activities management establishes and operates to assess the quality of performance over time and',
115:'promptly resolve the findings of audits and other reviews. ov2.05 the 17 principles support the effective design, implementation, and operation',
116:'of the associated components and represent requirements necessary to establish an effective internal control system. ov2.06 in general, all components',
117:'and principles are relevant for establishing an effective internal control system. in rare circumstances, there may be an operating or',
118:'regulatory situation in which management has determined that a principle is not relevant for the entity to achieve its objectives',
119:'and address related risks. if management determines that a principle is not relevant, management supports that determination with documentation that',
120:'includes the rationale of how, in the absence of that principle, the associated component could be designed, implemented, and operated',
121:'effectively. in addition to principle requirements, the green book contains documentation requirements. ov2.07 the green book contains additional information in',
122:'the form of attributes. these attributes are intended to help organize the application material management may consider when designing, implementing,',
123:'and operating the associated principles. attributes provide further explanation of the principle and documentation requirements and may explain more precisely',
124:'what a requirement means and what it is intended to cover, or include examples of procedures that may be appropriate',
125:'for an entity. attributes may also provide background information on matters addressed in the green book. ov2.08 attributes are relevant',
126:'to the proper implementation of the green book. management has a responsibility to understand the attributes and exercise judgment in',
127:'fulfilling the requirements of the standards. the green book, however, does not prescribe how management designs, implements, and operates an',
128:'internal control system. ov2.09 figure 3 lists the five components of internal control and 17 related principles. figure 3: the',
129:'five components and 17 principles of internal control internal control and the entity ov2.10 a direct relationship exists among an',
130:'entity’s objectives, the five components of internal control, and the organizational structure of an entity. objectives are what an entity',
131:'wants to achieve. the five components of internal control are what are required of the entity to achieve the objectives.',
132:'organizational structure encompasses the operating units, operational processes, and other structures management overview uses to achieve the objectives. this relationship',
133:'is depicted in the form of a cube developed by coso see fig. 4.3 figure 4: the components, objectives, and',
134:'organizational structure of internal control ov2.11 the three categories into which an entity’s objectives can be classified are represented by',
135:'the columns labeled on top of the cube. the five components of internal control are represented by the rows. the',
136:'organizational structure is represented by the third dimension of the cube. ov2.12 each component of internal control applies to all',
137:'three categories of objectives and the organizational structure. the principles support the components of internal control see fig. 5. 3see',
138:'paras. 3.02 through 3.05 for further discussion of organizational structure. page 10 gao14704g federal internal control standards figure 5: the',
139:'17 principles supporting the five components of internal control ov2.13 internal control is a dynamic, iterative, and integrated process in',
140:'which components impact the design, implementation, and operating effectiveness of each other. no two entities will have an identical internal',
141:'control system because of differences in factors such as mission, regulatory environment, strategic plan, entity size, risk tolerance, and information',
142:'technology, and the judgment needed in responding to these differing factors. roles in an internal control system ov2.14 because internal',
143:'control is a part of management’s overall responsibility, the five components are discussed in the context of the management of',
144:'the entity. however, everyone in the entity has a responsibility for internal control. in general, roles in an entity’s internal',
145:'control system can be categorized as follows: oversight body the oversight body is responsible for overseeing the strategic direction of',
146:'the entity and obligations related to the accountability of the entity. this includes overseeing management’s design, implementation, and operation of',
147:'an internal control system. for some entities, an oversight body might be one or a few members of senior management.',
148:'for other entities, multiple parties may be members of the entity’s oversight body. for the purpose of the green book,',
149:'oversight by an oversight body is implicit in each component and principle. management management is directly responsible for all activities',
150:'of an entity, including the design, implementation, and operating effectiveness of an entity’s internal control system. managers’ responsibilities vary depending',
151:'on their functions in the organizational structure. personnel personnel help management design, implement, and operate an internal control system and',
152:'are responsible for reporting issues noted in the entity’s operations, reporting, or compliance objectives.4 4see paras. 17.02 through 17.04 for',
153:'further discussion on identifying issues. ov2.15 external auditors and the office of the inspector general oig, if applicable, are not',
154:'considered a part of an entity’s internal control system. while management may evaluate and incorporate recommendations by external auditors and',
155:'the oig, responsibility for an entity’s internal control system resides with management. objectives of an entity ov2.16 management, with oversight',
156:'by an oversight body, sets objectives to meet the entity’s mission, strategic plan, and goals and requirements of applicable laws',
157:'and regulations. management sets objectives before designing an entity’s internal control system. management may include setting objectives as part of',
158:'the strategic planning process. ov2.17 management, as part of designing an internal control system, defines the objectives in specific and',
159:'measurable terms to enable management to identify, analyze, and respond to risks related to achieving those objectives. categories of objectives',
160:'ov2.18 management groups objectives into one or more of the three categories of objectives: operations effectiveness and efficiency of operations',
161:'reporting reliability of reporting for internal and external use compliance compliance with applicable laws and regulations operations objectives ov2.19 operations',
162:'objectives relate to program operations that achieve an entity’s mission. an entity’s mission may be defined in a strategic plan.',
163:'such plans set the goals and objectives for an entity along with the effective and efficient operations necessary to fulfill',
164:'those objectives. effective operations produce the intended results from operational processes, while efficient operations do so in a manner that',
165:'minimizes the waste of resources. ov2.20 management can set, from the objectives, related subobjectives for units within the organizational structure.',
166:'by linking objectives throughout the entity to the mission, management improves the effectiveness and efficiency of program operations in achieving',
167:'the mission. reporting objectives ov2.21 reporting objectives relate to the preparation of reports for use by the entity, its stakeholders,',
168:'or other external parties. reporting objectives may be grouped further into the following subcategories: external financial reporting objectives objectives related',
169:'to the release of the entity’s financial performance in accordance with professional standards, applicable laws and regulations, as well as',
170:'expectations of stakeholders. external nonfinancial reporting objectives objectives related to the release of nonfinancial information in accordance with appropriate standards,',
171:'applicable laws and regulations, as well as expectations of stakeholders. internal financial reporting objectives and nonfinancial reporting objectives objectives related',
172:'to gathering and communicating information needed by management to support decision making and evaluation of the entity’s performance. compliance objectives',
173:'ov2.22 in the government sector, objectives related to compliance with applicable laws and regulations are very significant. laws and regulations',
174:'often prescribe a government entity’s objectives, structure, methods to achieve objectives, and reporting of performance relative to achieving objectives. management',
175:'considers objectives in the category of compliance comprehensively for the entity and determines what controls are necessary to design, implement,',
176:'and operate for the entity to achieve these objectives effectively. ov2.23 management conducts activities in accordance with applicable laws and',
177:'regulations. as part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. management is',
178:'expected to set objectives that incorporate these requirements. some entities may set objectives to a higher level of performance than',
179:'established by laws and regulations. in setting those objectives, management is able to exercise discretion relative to the performance of',
180:'the entity. safeguarding of assets ov2.24 a subset of the three categories of objectives is the safeguarding of assets. management',
181:'designs an internal control system to provide reasonable assurance regarding prevention or prompt detection and correction of unauthorized acquisition, use,',
182:'or disposition of an entity’s assets. setting subobjectives ov2.25 management can develop from objectives more specific subobjectives throughout the organizational',
183:'structure. management defines subobjectives in specific and measurable terms that can be communicated to the personnel who are assigned responsibility',
184:'to achieve these subobjectives. both management and personnel require an understanding of an objective, its subobjectives, and defined levels of',
185:'performance for accountability in an internal control system. section 3 evaluation of an effective internal control system ov3.01 the purpose',
186:'of this section is to provide management with factors to consider in evaluating the effectiveness of an internal control system.',
187:'for federal entities, omb circular no. a123 provides specific requirements on how to perform evaluations and report on internal control',
188:'in the federal government. nonfederal entities may refer to applicable laws and regulations as well as input from key external',
189:'stakeholders when determining how to appropriately evaluate and report on internal control. factors of effective internal control ov3.02 an effective',
190:'internal control system provides reasonable assurance that the organization will achieve its objectives. as stated in section 2 of the',
191:'overview, an effective internal control system has each of the five components of internal control effectively designed, implemented, and operating',
192:'and the five components operating together in an integrated manner. ov3.03 to determine if an internal control system is effective,',
193:'management assesses the design, implementation, and operating effectiveness of the five components and 17 principles. if a principle or component',
194:'is not effective, or the components are not operating together in an integrated manner, then an internal control system cannot',
195:'be effective. evaluation of internal control ov3.04 in the federal government, fmfia mandates that the head of each executive branch',
196:'agency annually prepare a statement as to whether the agency’s systems of internal accounting and administrative controls comply with the',
197:'requirements of the act. if the systems do not comply, the head of the agency will prepare a report in',
198:'which any material weaknesses in the agency’s system of internal accounting and administrative control are identified and the plans and',
199:'schedule for correcting any such weakness are described. omb issues guidance for evaluating these requirements in omb circular no. a123.',
200:'nonfederal entities may refer to applicable laws and regulations for guidance in preparing statements regarding internal control. design and implementation',
201:'ov3.05 when evaluating design of internal control, management determines if controls individually and in combination with other controls are capable',
202:'of achieving an objective and addressing related risks. when evaluating implementation, management determines if the control exists and if the',
203:'entity has placed the control into operation. a control cannot be effectively implemented if it was not effectively designed. a',
204:'deficiency in design exists when 1 a control necessary to meet a control objective is missing or 2 an existing',
205:'control is not properly designed so that even if the control operates as designed, the control objective would not be',
206:'met. a deficiency in implementation exists when a properly designed control is not implemented correctly in the internal control system.',
207:'operating effectiveness ov3.06 in evaluating operating effectiveness, management determines if controls were applied at relevant times during the period under',
208:'evaluation, the consistency with which they were applied, and by whom or by what means they were applied. if substantially',
209:'different controls were used at different times during the period under evaluation, management evaluates operating effectiveness separately for each unique',
210:'control system. a control cannot be effectively operating if it was not effectively designed and implemented. a deficiency in operation',
211:'exists when a properly designed control does not operate as designed, or when the person performing the control does not',
212:'possess the necessary authority or competence to perform the control effectively. effect of deficiencies on the internal control system ov3.07',
213:'management evaluates control deficiencies identified by management’s ongoing monitoring of the internal control system as well as any separate evaluations',
214:'performed by both internal and external sources. a deficiency in internal control exists when the design, implementation, or operation of',
215:'a control does not allow management or personnel, in the normal course of performing their assigned functions, to achieve control',
216:'objectives and address related risks. ov3.08 management evaluates the significance of identified deficiencies. significance refers to the relative importance of',
217:'a deficiency to the entity’s achieving a defined objective. to evaluate the significance of the deficiency, management assesses its effect',
218:'on achieving the defined objectives at both the entity and transaction level. management evaluates the significance of a deficiency by',
219:'considering the magnitude of impact, likelihood of occurrence, and nature of the deficiency. magnitude of impact refers to the likely',
220:'effect that the deficiency could have on the entity achieving its objectives and is affected by factors such as the',
221:'size, pace, and duration of the deficiency’s impact. a deficiency may be more significant to one objective than another. likelihood',
222:'of occurrence refers to the possibility of a deficiency impacting an entity’s ability to achieve its objectives. the nature of',
223:'the deficiency involves factors such as the degree of subjectivity involved with the deficiency and whether the deficiency arises from',
224:'fraud or misconduct. the oversight body oversees management’s evaluation of the significance of deficiencies so that deficiencies have been properly',
225:'considered. ov3.09 deficiencies are evaluated both on an individual basis and in the aggregate. management considers the correlation among different',
226:'deficiencies or groups of deficiencies when evaluating their significance. deficiency evaluation varies by entity because of differences in entities’ objectives.',
227:'ov3.10 for each principle, management makes a summary determination as to whether the principle is designed, implemented, and operating effectively.',
228:'management considers the impact of deficiencies identified in achieving documentation requirements as part of this summary determination.5 management may consider',
229:'the related attributes as part of this summary determination. if a principle is not designed, implemented, or operating effectively, then',
230:'the respective component cannot be effective. 5see paras. ov4.08 through ov4.09 for further discussion of documentation requirements. ov3.11 based on',
231:'the results of the summary determination for each principle, management concludes on the design, implementation, and operating effectiveness of each',
232:'of the five components of internal control. management also considers if the five components operate together effectively. if one or',
233:'more of the five components are not effectively designed, implemented, or operating effectively or if they are not operating together',
234:'in an integrated manner, then an internal control system is ineffective. judgment is used in making such determinations, which includes',
235:'exercising reasonable care. section 4 additional considerations service organizations ov4.01 management may engage external parties to perform certain operational processes',
236:'for the entity, such as accounting and payroll processing, security services, or health care claims processing. for the purpose of',
237:'the green book, these external parties are referred to as service organizations. management, however, retains responsibility for the performance of',
238:'processes assigned to service organizations. therefore, management needs to understand the controls each service organization has designed, has implemented, and',
239:'operates for the assigned operational process and how the service organization’s internal control system impacts the entity’s internal control system.',
240:'ov4.02 if controls performed by the service organization are necessary for the entity to achieve its objectives and address risks',
241:'related to the assigned operational process, the entity’s internal controls may include complementary user entity controls identified by the service',
242:'organization or its auditors that are necessary to achieve the service organization’s control objectives. ov4.03 management may consider the following',
243:'when determining the extent of oversight for the operational processes assigned to the service organization: the nature of services outsourced',
244:'the service organization’s standards of conduct the quality and frequency of the service organization’s enforcement of adherence to standards of',
245:'conduct by its personnel the magnitude and level of complexity of the entity’s operations and organizational structure the extent to',
246:'which the entity’s internal controls are sufficient so that the entity achieves its objectives and addresses risks related to the',
247:'assigned operational process large versus small entities ov4.04 the 17 principles apply to both large and small entities. however, smaller',
248:'entities may have different implementation approaches than larger entities. smaller entities typically have unique advantages, which can contribute to an',
249:'effective internal control system. these may include a higher level of involvement by management in operational processes and direct interaction',
250:'with personnel. smaller entities may find informal staff meetings effective for communicating quality information, whereas larger entities may need more',
251:'formal mechanisms—such as written reports, intranet portals, or periodic formal meetings—to communicate with the organization. ov4.05 a smaller entity, however,',
252:'faces greater challenges in segregating duties because of its concentration of responsibilities and overview authorities in the organizational structure.6 management,',
253:'however, can respond to this increased risk through the design of the internal control system, such as by adding additional',
254:'levels of review for key operational processes, reviewing randomly selected transactions and their supporting documentation, taking periodic asset counts, or',
255:'checking supervisor reconciliations. benefits and costs of internal control ov4.06 internal control provides many benefits to an entity. it provides',
256:'management with added confidence regarding the achievement of objectives, provides feedback on how effectively an entity is operating, and helps',
257:'reduce risks affecting the achievement of the entity’s objectives. management considers a variety of cost factors in relation to expected',
258:'benefits when designing and implementing internal controls. the complexity of costbenefit determination is compounded by the interrelationship of controls with',
259:'operational processes. where controls are integrated with operational processes, it is difficult to isolate either their costs or benefits. ov4.07',
260:'management may decide how an entity evaluates the costs versus benefits of various approaches to implementing an effective internal control',
261:'system. however, cost alone is not an acceptable reason to avoid implementing internal controls. management is responsible for meeting internal',
262:'control objectives. the costs versus benefits considerations support management’s ability to effectively design, implement, and operate an internal control system',
263:'that balances the allocation of resources in relation to the areas of greatest risk, complexity, or other factors relevant to',
264:'achieving the entity’s objectives. documentation requirements ov4.08 documentation is a necessary part of an effective internal control system. the level',
265:'and nature of documentation vary based on the size of the entity and the complexity of the operational processes the',
266:'entity performs. management uses judgment in determining the extent of documentation that is needed. documentation is required for the effective',
267:'design, implementation, and operating effectiveness of an entity’s internal control system. the green book includes minimum documentation requirements as follows:',
268:'6see paras. 10.12 through 10.14 for further discussion of segregation of duties. page 19 gao14704g federal internal control standards if',
269:'management determines that a principle is not relevant, management supports that determination with documentation that includes the rationale of how,',
270:'in the absence of that principle, the associated component could be designed, implemented, and operated effectively. paragraph ov2.06 management develops',
271:'and maintains documentation of its internal control system. paragraph 3.09 management documents in policies the internal control responsibilities of the',
272:'organization. paragraph 12.02 management evaluates and documents the results of ongoing monitoring and separate evaluations to identify internal control issues.',
273:'paragraph 16.09 management evaluates and documents internal control issues and determines appropriate corrective actions for internal control deficiencies on a',
274:'timely basis. paragraph 17.05 management completes and documents corrective actions to remediate internal control deficiencies on a timely basis. paragraph',
275:'17.06 ov4.09 these requirements represent the minimum level of documentation in an entity’s internal control system. management exercises judgment in',
276:'determining what additional documentation may be necessary for an effective internal control system. if management identifies deficiencies in achieving these',
277:'documentation requirements, the effect of the identified deficiencies is considered as part of management’s summary determination as to whether the',
278:'related principle is designed, implemented, and operating effectively. use by other entities ov4.10 the green book may be applied as',
279:'a framework for an internal control system for state, local, and quasigovernmental entities, as well as notforprofit organizations. if management',
280:'elects to adopt the green book as criteria, management follows all relevant requirements presented in these standards. control environment overview',
281:'the control environment is the foundation for an internal control system. it provides the discipline and structure, which affect the',
282:'overall quality of internal control. it influences how objectives are defined and how control activities are structured. the oversight body',
283:'and management establish and maintain an environment throughout the entity that sets a positive attitude toward internal control. principles 1.',
284:'the oversight body and management should demonstrate a commitment to integrity and ethical values. 2. the oversight body should oversee',
285:'the entity’s internal control system. 3. management should establish an organizational structure, assign responsibility, and delegate authority to achieve the',
286:'entity’s objectives. 4. management should demonstrate a commitment to recruit, develop, and retain competent individuals. 5. management should evaluate performance',
287:'and hold individuals accountable for their internal control responsibilities. principle 1 demonstrate commitment to integrity and ethical values 1.01 the',
288:'oversight body and management should demonstrate a commitment to integrity and ethical values. attributes the following attributes contribute to the',
289:'design, implementation, and operating effectiveness of this principle: tone at the top standards of conduct adherence to standards of conduct',
290:'tone at the top 1.02 the oversight body and management demonstrate the importance of integrity and ethical values through their',
291:'directives, attitudes, and behavior. 1.03 the oversight body and management lead by an example that demonstrates the organization’s values, philosophy,',
292:'and operating style. the oversight body and management set the tone at the top and throughout the organization by their',
293:'example, which is fundamental to an effective internal control system. in larger entities, the various layers of management in the',
294:'organizational structure may also set “tone in the middle.” 1.04 the oversight body’s and management’s directives, attitudes, and behaviors reflect',
295:'the integrity and ethical values expected throughout the entity. the oversight body and management reinforce the commitment to doing what',
296:'is right, not just maintaining a minimum level of performance necessary to comply with applicable laws and regulations, so that',
297:'these priorities are understood by all stakeholders, such as regulators, employees, and the general public. 1.05 tone at the top',
298:'can be either a driver, as shown in the preceding paragraphs, or a barrier to internal control. without a strong',
299:'tone at the top to support an internal control system, the entity’s risk identification may be incomplete, risk responses may',
300:'be inappropriate, control activities may not be appropriately designed or implemented, information and communication may falter, and results of monitoring',
301:'may not be understood or acted upon to remediate deficiencies. standards of conduct 1.06 management establishes standards of conduct to',
302:'communicate expectations concerning integrity and ethical values. the entity uses ethical values to balance the needs and concerns of different',
303:'stakeholders, such as regulators, employees, and the general public. the standards of conduct guide the directives, attitudes, and behaviors of',
304:'the organization in achieving the entity’s objectives. 1.07 management, with oversight from the oversight body, defines the organization’s expectations of',
305:'ethical values in the standards of conduct. management may consider using policies, operating principles, or guidelines to communicate the standards',
306:'of conduct to the organization. adherence to standards of conduct 1.08 management establishes processes to evaluate performance against the entity’s',
307:'expected standards of conduct and address any deviations in a timely manner. 1.09 management uses established standards of conduct as',
308:'the basis for evaluating adherence to integrity and ethical values across the organization. management evaluates the adherence to standards of',
309:'conduct across all levels of the entity. to gain assurance that the entity’s standards of conduct are implemented effectively, management',
310:'evaluates the directives, attitudes, and behaviors of individuals and teams. evaluations may consist of ongoing monitoring or separate evaluations.7 individual',
311:'personnel can also report issues through reporting lines, such as regular staff meetings, upward feedback processes, a whistleblowing program, or',
312:'an ethics hotline.8 the oversight body evaluates management’s adherence to the standards of conduct as well as the overall adherence',
313:'by the entity. 7see paras. 16.04 through 16.08 for further discussion of ongoing monitoring and separate evaluations. 8see para. 14.06',
314:'for further discussion of upward and separate reporting lines. 1.10 management determines the tolerance level for deviations. management may determine',
315:'that the entity will have zero tolerance for deviations from certain expected standards of conduct, while deviations from others may',
316:'be addressed with warnings to personnel. management establishes a process for evaluations of individual and team adherence to standards of',
317:'conduct that escalates and remediates deviations. management addresses deviations from expected standards of conduct timely and consistently. depending on the',
318:'severity of the deviation determined through the evaluation process, management, with oversight from the oversight body, takes appropriate actions and',
319:'may also need to consider applicable laws and regulations. the standards of conduct to which management holds personnel, however, remain',
320:'consistent. principle 2 exercise oversight responsibility 2.01 the oversight body should oversee the entity’s internal control system. attributes the following',
321:'attributes contribute to the design, implementation, and operating effectiveness of this principle: oversight structure oversight for the internal control system',
322:'input for remediation of deficiencies oversight structure 2.02 the entity determines an oversight structure to fulfill responsibilities set forth by',
323:'applicable laws and regulations, relevant government guidance, and feedback from key stakeholders. the entity will select, or if mandated by',
324:'law will have selected for it, an oversight body. when the oversight body is composed of entity management, activities referenced',
325:'in the green book as performed by “management” exclude these members of management when in their roles as the oversight',
326:'body. responsibilities of an oversight body 2.03 when the oversight structure of an entity is led by senior management, senior',
327:'management may distinguish itself from divisional or functional management through the establishment of an oversight body. an oversight body oversees',
328:'the entity’s operations; provides constructive criticism to management; and where appropriate, makes oversight decisions so that the entity achieves its',
329:'objectives in alignment with the entity’s integrity and ethical values. qualifications for an oversight body 2.04 in selecting members for',
330:'an oversight body, the entity or applicable body defines the entity knowledge, relevant expertise, number of members, and possible independence',
331:'needed to fulfill the oversight responsibilities for the entity. 2.05 members of an oversight body understand the entity’s objectives, its',
332:'related risks, and expectations of its stakeholders. in addition to an oversight body, an organization within the federal government may',
333:'have several bodies that are key stakeholders for the entity, such as the white house, congress, the office of management',
334:'and budget, and the department of the treasury. an oversight body works with key stakeholders to understand their expectations and',
335:'help the entity fulfill these expectations if appropriate. 2.06 the entity or applicable body also considers the expertise needed by',
336:'members to oversee, question, and evaluate management. capabilities expected of all members of an oversight body include integrity and ethical',
337:'values, leadership, critical thinking, and problemsolving abilities. 2.07 further, in determining the number of members of an oversight body, the',
338:'entity or applicable body considers the need for members of the oversight body to have specialized skills to enable discussion,',
339:'offer constructive criticism to management, and make appropriate oversight decisions. some specialized skills may include the following: internal control mindset',
340:'e.g., professional skepticism and perspectives on approaches for identifying and responding to risks and assessing the effectiveness of the system',
341:'of internal control programmatic expertise, including knowledge of the entity’s mission, programs, and operational processes e.g., procurement, human capital, and',
342:'functional management expertise financial expertise, including financial reporting e.g., accounting standards and financial reporting requirements and budgetary expertise relevant systems',
343:'and technology e.g., understanding critical systems and technology risks and opportunities legal and regulatory expertise e.g., understanding of applicable laws',
344:'and regulations 2.08 if authorized by applicable laws and regulations, the entity may also consider including independent members as part',
345:'of an oversight body.9 9see gao, government auditing standards: 2011 revision, gao12331g washington, d.c.: december 2011, para. 3.03, for further',
346:'discussion of independence. members of an oversight body scrutinize and question management’s activities, present alternative views, and act when faced',
347:'with obvious or suspected wrongdoing. independent members with relevant expertise provide value through their impartial evaluation of the entity and',
348:'its operations in achieving objectives. oversight for the internal control system 2.09 the oversight body oversees management’s design, implementation, and',
349:'operation of the entity’s internal control system. the oversight body’s responsibilities for the entity’s internal control system include the following:',
350:'control environment establish integrity and ethical values, establish oversight structure, develop expectations of competence, and maintain accountability to all members',
351:'of the oversight body and key stakeholders. risk assessment oversee management’s assessment of risks to the achievement of objectives, including',
352:'the potential impact of significant changes, fraud, and management override of internal control. control activities provide oversight to management in',
353:'the development and performance of control activities. information and communication analyze and discuss information relating to the entity’s achievement of',
354:'objectives. monitoring scrutinize the nature and scope of management’s monitoring activities as well as management’s evaluation and remediation of identified',
355:'deficiencies. 2.10 these responsibilities are supported by the organizational structure that management establishes.10 the oversight body oversees management’s design, implementation,',
356:'and operation of the entity’s organizational structure so that the processes necessary to enable the oversight body to fulfill its',
357:'responsibilities exist and are operating effectively. 10see paras. 3.02 through 3.05 for further discussion of organizational structure. input for remediation',
358:'of deficiencies 2.11 the oversight body provides input to management’s plans for remediation of deficiencies in the internal control system',
359:'as appropriate. 2.12 management reports deficiencies identified in the internal control system to the oversight body. the oversight body oversees',
360:'and provides direction to management on the remediation of these deficiencies. the oversight body also provides direction when a deficiency',
361:'crosses organizational boundaries or units, or when the interests of management may conflict with remediation efforts. when appropriate and authorized,',
362:'the oversight body may direct the creation of teams to address or oversee specific matters critical to achieving the entity’s',
363:'objectives. 2.13 the oversight body is responsible for overseeing the remediation of deficiencies as appropriate and for providing direction to',
364:'management on appropriate time frames for correcting these deficiencies.11 11see para. 17.06 for further discussion of timely remediation of findings.',
365:'principle 3 establish structure, responsibility, and authority 3.01 management should establish an organizational structure, assign responsibility, and delegate authority to',
366:'achieve the entity’s objectives. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle: organizational',
367:'structure assignment of responsibility and delegation of authority documentation of the internal control system organizational structure 3.02 management establishes the',
368:'organizational structure necessary to enable the entity to plan, execute, control, and assess the organization in achieving its objectives. management',
369:'develops the overall responsibilities from the entity’s objectives that enable the entity to achieve its objectives and address related risks.',
370:'3.03 management develops an organizational structure with an understanding of the overall responsibilities, and assigns these responsibilities to discrete units',
371:'to enable the organization to operate in control environment an efficient and effective manner, comply with applicable laws and regulations,',
372:'and reliably report quality information.12 based on the nature of the assigned responsibility, management chooses the type and number of',
373:'discrete units, such as divisions, offices, and related subunits. 3.04 as part of establishing an organizational structure, management considers how',
374:'units interact in order to fulfill their overall responsibilities. management establishes reporting lines within an organizational structure so that units',
375:'can communicate the quality information necessary for each unit to fulfill its overall responsibilities.13 reporting lines are defined at all',
376:'levels of the organization and provide methods of communication that can flow down, across, up, and around the structure.14 management',
377:'also considers the entity’s overall responsibilities to external stakeholders and establishes reporting lines that allow the entity to both communicate',
378:'and receive information from external stakeholders.15 3.05 management periodically evaluates the organizational structure so that it meets the entity’s objectives',
379:'and has adapted to any new objectives for the entity, such as a new law or regulation. assignment of responsibility',
380:'and delegation of authority 3.06 to achieve the entity’s objectives, management assigns responsibility and delegates authority to key roles throughout',
381:'the entity. a key role is a position in the organizational structure that is assigned an overall responsibility of the',
382:'entity. generally, key roles relate to senior management positions within an entity. 3.07 management considers the overall responsibilities assigned to',
383:'each unit, determines what key roles are needed to fulfill the assigned responsibilities, and establishes the key roles. those in',
384:'key roles can further assign responsibility for internal control to roles below them in the organizational structure, but retain ownership',
385:'for fulfilling the overall responsibilities assigned to the unit. 12see paras. 13.05 through 13.06 for further discussion of quality information.',
386:'13see paras. 13.02 through 13.06 for further discussion of the use of quality information. 14see paras. 14.02 through 14.06 for',
387:'further discussion of internal reporting lines. 15see paras. 15.02 through 15.06 for further discussion of external reporting lines. page 28',
388:'gao14704g federal internal control standards control environment 3.08 management determines what level of authority each key role needs to fulfill',
389:'a responsibility. management delegates authority only to the extent required to achieve the entity’s objectives. as part of delegating authority,',
390:'management evaluates the delegation for proper segregation of duties within the unit and in the organizational structure. segregation of duties',
391:'helps prevent fraud, waste, and abuse in the entity by considering the need to separate authority, custody, and accounting in',
392:'the organizational structure.16 as with assigning responsibility, those in key roles can delegate their authority for internal control to roles',
393:'below them in the organizational structure. documentation of the internal control system 3.09 management develops and maintains documentation of its',
394:'internal control system. 3.10 effective documentation assists in management’s design of internal control by establishing and communicating the who, what,',
395:'when, where, and why of internal control execution to personnel. documentation also provides a means to retain organizational knowledge and',
396:'mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that',
397:'knowledge as needed to external parties, such as external auditors. 3.11 management documents internal control to meet operational needs. documentation',
398:'of controls, including changes to controls, is evidence that controls are identified, capable of being communicated to those responsible for',
399:'their performance, and capable of being monitored and evaluated by the entity. 3.12 the extent of documentation needed to support',
400:'the design, implementation, and operating effectiveness of the five components of internal control is a matter of judgment for management.',
401:'management considers the cost benefit of documentation requirements for the entity as well as the size, nature, and complexity of',
402:'the entity and its objectives. some level of documentation, however, is necessary so that the components of internal control can',
403:'be designed, implemented, and operating effectively. 16see paras. 10.12 through 10.14 for further discussion of segregation of duties. page 29',
404:'gao14704g federal internal control standards principle 4 demonstrate commitment to competence 4.01 management should demonstrate a commitment to recruit, develop,',
405:'and retain competent individuals. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle: expectations',
406:'of competence recruitment, development, and retention of individuals succession and contingency plans and preparation expectations of competence 4.02 management establishes',
407:'expectations of competence for key roles, and other roles at management’s discretion, to help the entity achieve its objectives. competence',
408:'is the qualification to carry out assigned responsibilities. it requires relevant knowledge, skills, and abilities, which are gained largely from',
409:'professional experience, training, and certifications. it is demonstrated by the behavior of individuals as they carry out their responsibilities. 4.03',
410:'management considers standards of conduct, assigned responsibility, and delegated authority when establishing expectations. management establishes expectations of competence for key',
411:'roles. management may also establish expectations of competence for all personnel through policies within the entity’s internal control system.17 17see',
412:'paras. 12.02 through 12.04 for further discussion of policies. 4.04 personnel need to possess and maintain a level of competence',
413:'that allows them to accomplish their assigned responsibilities, as well as understand the importance of effective internal control. holding individuals',
414:'accountable to established policies by evaluating personnel’s competence is integral to attracting, developing, and retaining individuals. management evaluates competence of',
415:'personnel across the entity in relation to established policies. management acts as necessary to address any deviations from the established',
416:'policies. the oversight body evaluates the competence of management as well as the competence overall of entity personnel. recruitment, development,',
417:'and retention of individuals 4.05 management recruits, develops, and retains competent personnel to achieve the entity’s objectives. management considers the',
418:'following: recruit conduct procedures to determine whether a particular candidate fits the organizational needs and has the competence for the',
419:'proposed role. train enable individuals to develop competencies appropriate for key roles, reinforce standards of conduct, and tailor training based',
420:'on the needs of the role. mentor provide guidance on the individual’s performance based on standards of conduct and expectations',
421:'of competence, align the individual’s skills and expertise with the entity’s objectives, and help personnel adapt to an evolving environment.',
422:'retain provide incentives to motivate and reinforce expected levels of performance and desired conduct, including training and credentialing as appropriate.',
423:'succession and contingency plans and preparation 4.06 management defines succession and contingency plans for key roles to help the entity',
424:'continue achieving its objectives. succession plans address the entity’s need to replace competent personnel over the long term, whereas contingency',
425:'plans address the entity’s need to respond to sudden personnel changes that could compromise the internal control system. 4.07 management',
426:'defines succession plans for key roles, chooses succession candidates, and trains succession candidates to assume the key roles. if management',
427:'relies on a service organization to fulfill the assigned responsibilities of key roles in the entity, management assesses whether the',
428:'service organization can continue in these key roles, identifies other candidate organizations for the roles, and implements processes to enable',
429:'knowledge sharing with the succession candidate organization. 4.08 management defines contingency plans for assigning responsibilities if a key role in',
430:'the entity is vacated without advance notice. the importance of the key role in the internal control system and the',
431:'impact to the entity of its vacancy dictates the formality and depth of the contingency plan. principle 5 enforce accountability',
432:'5.01 management should evaluate performance and hold individuals accountable for their internal control responsibilities. attributes the following attributes contribute to',
433:'the design, implementation, and operating effectiveness of this principle: enforcement of accountability consideration of excessive pressures enforcement of accountability 5.02',
434:'management enforces accountability of individuals performing their internal control responsibilities. accountability is driven by the tone at the top and',
435:'supported by the commitment to integrity and ethical values, organizational structure, and expectations of competence, which influence the control culture',
436:'of the entity. accountability for performance of internal control responsibility supports daytoday decision making, attitudes, and behaviors. management holds personnel',
437:'accountable through mechanisms such as performance appraisals and disciplinary actions. 5.03 management holds entity personnel accountable for performing their assigned',
438:'internal control responsibilities. the oversight body, in turn, holds management accountable as well as the organization as a whole for',
439:'its internal control responsibilities. 5.04 if management establishes incentives, management recognizes that such actions can yield unintended consequences and evaluates',
440:'incentives so that they align with the entity’s standards of conduct. 5.05 management holds service organizations accountable for their assigned',
441:'internal control responsibilities. management may contract with service organizations to perform roles in the organizational structure. management communicates to the',
442:'service organization the objectives of the entity and their related risks, the entity’s standards of conduct, the role of the',
443:'service organization in the organizational structure, the assigned responsibilities and authorities of the role, and the expectations of competence for',
444:'its role that will enable the service organization to perform its internal control responsibilities. 5.06 management, with oversight from the',
445:'oversight body, takes corrective action as necessary to enforce accountability for internal control environment control in the entity. these actions',
446:'can range from informal feedback provided by the direct supervisor to disciplinary action taken by the oversight body, depending on',
447:'the significance of the deficiency to the internal control system.18 consideration of excessive pressures 5.07 management adjusts excessive pressures on',
448:'personnel in the entity. pressure can appear in an entity because of goals established by management to meet objectives or',
449:'cyclical demands of various processes performed by the entity, such as yearend financial statement preparation. excessive pressure can result in',
450:'personnel “cutting corners” to meet the established goals. 5.08 management is responsible for evaluating pressure on personnel to help personnel',
451:'fulfill their assigned responsibilities in accordance with the entity’s standards of conduct. management can adjust excessive pressures using many different',
452:'tools, such as rebalancing workloads or increasing resource levels. 18see ov3.08 for further discussion of significance of deficiencies. page 33',
453:'gao14704g federal internal control standards risk assessment overview having established an effective control environment, management assesses the risks facing the',
454:'entity as it seeks to achieve its objectives. this assessment provides the basis for developing appropriate risk responses. management assesses',
455:'the risks the entity faces from both external and internal sources. principles 6. management should define objectives clearly to enable',
456:'the identification of risks and define risk tolerances. 7. management should identify, analyze, and respond to risks related to achieving',
457:'the defined objectives. 8. management should consider the potential for fraud when identifying, analyzing, and responding to risks. 9. management',
458:'should identify, analyze, and respond to significant changes that could impact the internal control system. principle 6 define objectives and',
459:'risk tolerances 6.01 management should define objectives clearly to enable the identification of risks and define risk tolerances. attributes the',
460:'following attributes contribute to the design, implementation, and operating effectiveness of this principle: definitions of objectives definitions of risk tolerances',
461:'definitions of objectives 6.02 management defines objectives in specific and measurable terms to enable the design of internal control for',
462:'related risks. specific terms are fully and clearly set forth so they can be easily understood. measurable terms allow for',
463:'the assessment of performance toward achieving objectives. objectives are initially set as part of the objectivesetting process and then refined',
464:'as they are incorporated into the internal control system when management uses them to establish the control environment. 6.03 management',
465:'defines objectives in specific terms so they are understood at all levels of the entity. this involves clearly defining what',
466:'is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement.',
467:'all objectives can be broadly classified into one or more of three categories: operations, reporting, or compliance. reporting objectives are',
468:'further categorized as being either internal or external and financial or nonfinancial. management defines objectives in alignment with the organization’s',
469:'mission, strategic plan, and performance goals. 6.04 management defines objectives in measurable terms so that performance toward achieving those objectives',
470:'can be assessed. measurable objectives are generally free of bias and do not require subjective judgments to dominate their measurement.',
471:'measurable objectives are also stated in a quantitative or qualitative form that permits reasonably consistent measurement. 6.05 management considers external',
472:'requirements and internal expectations when defining objectives to enable the design of internal control. legislators, regulators, and standardsetting bodies set',
473:'external requirements by establishing the laws, regulations, and standards with which the entity is required to comply. management identifies, risk',
474:'assessment understands, and incorporates these requirements into the entity’s objectives. management sets internal expectations and requirements through the established standards',
475:'of conduct,19 oversight structure,20 organizational structure,21 and expectations of competence22 as part of the control environment. 6.06 management evaluates and,',
476:'if necessary, revises defined objectives so that they are consistent with these requirements and expectations. this consistency enables management to',
477:'identify and analyze risks associated with achieving the defined objectives. 6.07 management determines whether performance measures for the defined objectives',
478:'are appropriate for evaluating the entity’s performance in achieving those objectives. for quantitative objectives, performance measures may be a targeted',
479:'percentage or numerical value. for qualitative objectives, management may need to design performance measures that indicate a level or degree',
480:'of performance, such as milestones. definitions of risk tolerances 6.08 management defines risk tolerances for the defined objectives. risk tolerance',
481:'is the acceptable level of variation in performance relative to the achievement of objectives. risk tolerances are initially set as',
482:'part of the objectivesetting process. management defines the risk tolerances for defined objectives by ensuring that the set levels of',
483:'variation for performance measures are appropriate for the design of an internal control system. 6.09 management defines risk tolerances in',
484:'specific and measurable terms so they are clearly stated and can be measured. risk tolerance is often measured in the',
485:'same terms as the performance measures for the defined objectives. depending on the category of objectives, risk tolerances may be',
486:'expressed as follows: 19see paras. 1.06 through 1.07 for further discussion of standards of conduct. 20see paras. 2.02 through 2.08',
487:'for further discussion of oversight structure. 21see paras. 3.02 through 3.05 for further discussion of organizational structure. 22see paras. 4.02',
488:'through 4.04 for further discussion of expectations of competence. page 36 gao14704g federal internal control standards operations objectives level of',
489:'variation in performance in relation to risk. nonfinancial reporting objectives level of precision and accuracy suitable for user needs, involving',
490:'both qualitative and quantitative considerations to meet the needs of the nonfinancial report user. financial reporting objectives judgments about materiality',
491:'are made in light of surrounding circumstances, involve both qualitative and quantitative considerations, and are affected by the needs of',
492:'financial report users and size or nature of a misstatement. compliance objectives concept of risk tolerance does not apply. an',
493:'entity is either compliant or not compliant. 6.10 management also evaluates whether risk tolerances enable the appropriate design of internal',
494:'control by considering whether they are consistent with requirements and expectations for the defined objectives. as in defining objectives, management',
495:'considers the risk tolerances in the context of the entity’s applicable laws, regulations, and standards as well as the entity’s',
496:'standards of conduct, oversight structure, organizational structure, and expectations of competence. if risk tolerances for defined objectives are not consistent',
497:'with these requirements and expectations, management revises the risk tolerances to achieve consistency. principle 7 identify, analyze, and respond to',
498:'risks 7.01 management should identify, analyze, and respond to risks related to achieving the defined objectives. attributes the following attributes',
499:'contribute to the design, implementation, and operating effectiveness of this principle: identification of risks analysis of risks response to risks',
500:'identification of risks 7.02 management identifies risks throughout the entity to provide a basis for analyzing risks. risk assessment is',
501:'the identification and analysis of risks related to achieving the defined objectives to form a basis for designing risk responses.',
502:'7.03 to identify risks, management considers the types of risks that impact the entity. this includes both inherent and residual',
503:'risk. inherent risk is the risk to an entity in the absence of management’s response to the risk. residual risk',
504:'is the risk that remains after management’s response to inherent risk. management’s lack of response to either risk could cause',
505:'deficiencies in the internal control system. 7.04 management considers all significant interactions within the entity and with external parties, changes',
506:'within the entity’s internal and external environment,23 and other internal and external factors to identify risks throughout the entity. internal',
507:'risk factors may include the complex nature of an entity’s programs, its organizational structure, or the use of new technology',
508:'in operational processes. external risk factors may include new or amended laws, regulations, or professional standards; economic instability; or potential',
509:'natural disasters. management considers these factors at both the entity and transaction levels to comprehensively identify risks that affect defined',
510:'objectives.24 risk identification methods may include qualitative and quantitative ranking activities, forecasting and strategic planning, and consideration of deficiencies identified',
511:'through audits and other assessments. 23see paras. 9.02 through 9.03 for further discussion of changes in the internal control system.',
512:'24see paras. 10.07 through 10.11 for further discussion of level of controls. analysis of risks 7.05 management analyzes the identified',
513:'risks to estimate their significance, which provides a basis for responding to the risks. significance refers to the effect on',
514:'achieving a defined objective. 7.06 management estimates the significance of the identified risks to assess their effect on achieving the',
515:'defined objectives at both the entity and transaction levels. management estimates the significance of a risk by considering the magnitude',
516:'of impact, likelihood of occurrence, and nature of the risk. magnitude of impact refers to the likely magnitude of deficiency',
517:'that could result from the risk and is affected by factors such as the size, pace, and duration of the',
518:'risk’s impact. likelihood of occurrence refers to the level of possibility that a risk will occur. the nature of the',
519:'risk involves factors such as the degree of subjectivity involved with the risk and whether the risk arises from fraud',
520:'or from complex or unusual transactions. the oversight body may oversee management’s estimates of significance so that risk tolerances have',
521:'been properly defined. 7.07 risks may be analyzed on an individual basis or grouped into categories with related risks and',
522:'analyzed collectively. regardless of whether risks are analyzed individually or collectively, management considers the correlation among different risks or groups',
523:'of risks when estimating their significance. the specific risk analysis methodology used can vary by entity because of differences in',
524:'entities’ missions and the difficulty in qualitatively and quantitatively defining risk tolerances. response to risks 7.08 management designs responses to',
525:'the analyzed risks so that risks are within the defined risk tolerance for the defined objective. management designs overall risk',
526:'responses for the analyzed risks based on the significance of the risk and defined risk tolerance. these risk responses may',
527:'include the following: acceptance no action is taken to respond to the risk based on the insignificance of the risk.',
528:'avoidance action is taken to stop the operational process or the part of the operational process causing the risk. reduction',
529:'action is taken to reduce the likelihood or magnitude of the risk. sharing action is taken to transfer or share',
530:'risks across the entity or with external parties, such as insuring against losses. 7.09 based on the selected risk response,',
531:'management designs the specific actions to respond to the analyzed risks. the nature and extent of risk response actions depend',
532:'on the defined risk tolerance. operating within the defined risk tolerance provides greater assurance that the entity will achieve its',
533:'objectives. performance measures are used to assess whether risk response actions enable the entity to operate within the defined risk',
534:'tolerances. when risk response actions do not enable the entity to operate within the defined risk tolerances, management may need',
535:'to revise risk responses or reconsider defined risk tolerances. management may need to conduct periodic risk assessments to evaluate the',
536:'effectiveness of the risk response actions. principle 8 assess fraud risk 8.01 management should consider the potential for fraud when',
537:'identifying, analyzing, and responding to risks. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this',
538:'principle: types of fraud fraud risk factors response to fraud risks types of fraud 8.02 management considers the types of',
539:'fraud that can occur within the entity to provide a basis for identifying fraud risks.25 types of fraud are as',
540:'follows: 25fraud involves obtaining something of value through willful misrepresentation. whether an act is in fact fraud is a determination',
541:'to be made through the judicial or other adjudicative system and is beyond management’s professional responsibility for assessing risk. fraudulent',
542:'financial reporting intentional misstatements or omissions of amounts or disclosures in financial statements to deceive financial statement users. this could',
543:'include intentional alteration of accounting records, misrepresentation of transactions, or intentional misapplication of accounting principles. misappropriation of assets theft of',
544:'an entity’s assets. this could include theft of property, embezzlement of receipts, or fraudulent payments. corruption bribery and other illegal',
545:'acts. 8.03 in addition to fraud, management considers other forms of misconduct that can occur, such as waste and abuse.',
546:'waste is the act of using or expending resources carelessly, extravagantly, or to no purpose. abuse involves behavior that is',
547:'deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary operational practice given the',
548:'facts and circumstances. this includes the misuse of authority or position for personal gain or for the benefit of another.',
549:'waste and abuse do not necessarily involve fraud or illegal acts. however, they may be an indication of potential fraud',
550:'or illegal acts and may still impact the achievement of defined objectives. fraud risk factors 8.04 management considers fraud risk',
551:'factors. fraud risk factors do not necessarily indicate that fraud exists but are often present when fraud occurs. fraud risk',
552:'factors include the following: incentive/pressure management or other personnel have an incentive or are under pressure, which provides a motive',
553:'to commit fraud.26 opportunity circumstances exist, such as the absence of controls, ineffective controls, or the ability of management to',
554:'override controls, that provide an opportunity to commit fraud. attitude/rationalization individuals involved are able to rationalize committing fraud. some individuals',
555:'possess an attitude, character, or ethical values that allow them to knowingly and intentionally commit a dishonest act. 26see paras.',
556:'5.07 through 5.08 for further discussion of pressure. 27see paras. 7.05 through 7.07 for further discussion of analyzing risks. 28see',
557:'para. 10.13 for further discussion of management override. 8.05 management uses the fraud risk factors to identify fraud risks. while',
558:'fraud risk may be greatest when all three risk factors are present, one or more of these factors may indicate',
559:'a fraud risk. other information provided by internal and external parties can also be used to identify fraud risks. this',
560:'may include allegations of fraud or suspected fraud reported by the office of the inspector general or internal auditors, personnel,',
561:'or external parties that interact with the entity. response to fraud risks 8.06 management analyzes and responds to identified fraud',
562:'risks so that they are effectively mitigated. fraud risks are analyzed through the same risk analysis process performed for all',
563:'identified risks.27 management analyzes the identified fraud risks by estimating their significance, both individually and in the aggregate, to assess',
564:'their effect on achieving the defined objectives. as part of analyzing fraud risk, management also assesses the risk of management',
565:'override of controls.28 the oversight body oversees management’s assessments of fraud risk and the risk of management override of controls',
566:'so that they are appropriate. 8.07 management responds to fraud risks through the same risk response process performed for all',
567:'analyzed risks.29 management designs an overall risk response and specific actions for responding to fraud risks. it may be possible',
568:'to reduce or eliminate certain fraud risks by making changes to the entity’s activities and processes. these changes may include',
569:'stopping or reorganizing certain operations and reallocating roles among personnel to enhance segregation of duties. in addition to responding to',
570:'fraud risks, management may need to develop further responses to address the risk of management override of controls. further, when',
571:'fraud has been detected, the risk assessment process may need to be revised. 29see paras. 7.08 through 7.09 for further',
572:'discussion of responding to risks. principle 9 identify, analyze, and respond to change 9.01 management should identify, analyze, and respond',
573:'to significant changes that could impact the internal control system. attributes the following attributes contribute to the design, implementation, and',
574:'operating effectiveness of this principle: identification of change analysis of and response to change identification of change 9.02 as part',
575:'of risk assessment or a similar process, management identifies changes that could significantly impact the entity’s internal control system. identifying,',
576:'analyzing, and responding to change is similar to, if not part of, the entity’s regular risk assessment process. however, change',
577:'is discussed separately because it is critical to an effective internal control system and can often be overlooked or inadequately',
578:'addressed in the normal course of operations. 9.03 conditions affecting the entity and its environment continually change. management can anticipate',
579:'and plan for significant changes by using a forwardlooking process for identifying change. management risk assessment identifies, on a timely',
580:'basis, significant changes to internal and external conditions that have already occurred or are expected to occur. changes in internal',
581:'conditions include changes to the entity’s programs or activities, oversight structure, organizational structure, personnel, and technology. changes in external conditions',
582:'include changes in the governmental, economic, technological, legal, regulatory, and physical environments. identified significant changes are communicated across the entity',
583:'through established reporting lines to appropriate personnel.30 analysis of and response to change 9.04 as part of risk assessment or',
584:'a similar process, management analyzes and responds to identified changes and related risks in order to maintain an effective internal',
585:'control system. changes in conditions affecting the entity and its environment often require changes to the entity’s internal control system,',
586:'as existing controls may not be effective for meeting objectives or addressing risks under changed conditions. management analyzes the effect',
587:'of identified changes on the internal control system and responds by revising the internal control system on a timely basis,',
588:'when necessary, to maintain its effectiveness. 9.05 further, changing conditions often prompt new risks or changes to existing risks that',
589:'need to be assessed. as part of analyzing and responding to change, management performs a risk assessment to identify, analyze,',
590:'and respond to any new risks prompted by the changes. additionally, existing risks may require further assessment to determine whether',
591:'the defined risk tolerances and risk responses need to be revised. 30see paras. 14.02 through 14.06 for further discussion of',
592:'internal reporting lines. page 43 gao14704g federal internal control standards control activities overview control activities are the actions management establishes',
593:'through policies and procedures to achieve objectives and respond to risks in the internal control system, which includes the entity’s',
594:'information system. principles 10. management should design control activities to achieve objectives and respond to risks. 11. management should design',
595:'the entity’s information system and related control activities to achieve objectives and respond to risks. 12. management should implement control',
596:'activities through policies. principle 10 design control activities 10.01 management should design control activities to achieve objectives and respond to',
597:'risks. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle: response to objectives and',
598:'risks design of appropriate types of control activities design of control activities at various levels segregation of duties response to',
599:'objectives and risks 10.02 management designs control activities in response to the entity’s objectives and risks to achieve an effective',
600:'internal control system. control activities are the policies, procedures, techniques, and mechanisms that enforce management’s directives to achieve the entity’s',
601:'objectives and address related risks. as part of the control environment component, management defines responsibilities, assigns them to key roles,',
602:'and delegates authority to achieve the entity’s objectives. as part of the risk assessment component, management identifies the risks related',
603:'to the entity and its objectives, including its service organizations; the entity’s risk tolerance; and risk responses. management designs control',
604:'activities to fulfill defined responsibilities and address identified risk responses. design of appropriate types of control activities 10.03 management designs',
605:'appropriate types of control activities for the entity’s internal control system. control activities help management fulfill responsibilities and address identified',
606:'risk responses in the internal control system. the common control activity categories listed in figure 6 are meant only to',
607:'illustrate the range and variety of control activities that may be useful to management. the list is not all inclusive',
608:'and may not include particular control activities that an entity may need. figure 6: examples of common categories of control',
609:'activities toplevel reviews of actual performance management tracks major entity achievements and compares these to the plans, goals, and objectives',
610:'set by the entity. reviews by management at the functional or activity level management compares actual performance to planned or',
611:'expected results throughout the organization and analyzes significant differences. management of human capital effective management of an entity’s workforce, its',
612:'human capital, is essential to achieving results and an important part of internal control. only when the right personnel for',
613:'the job are on board and are provided the right training, tools, structure, incentives, and responsibilities is operational success possible.',
614:'management continually assesses the knowledge, skills, and ability needs of the entity so that the entity is able to obtain',
615:'a workforce that has the required knowledge, skills, and abilities to achieve organizational goals. training is aimed at developing and',
616:'retaining employee knowledge, skills, and abilities to meet changing organizational needs. management provides qualified and continuous supervision so that internal',
617:'control objectives are achieved. management designs a performance evaluation and feedback system, supplemented by an effective rewards system, to help',
618:'employees understand the connection between their performance and the entity’s success. as part of its human capital planning, management also',
619:'considers how best to retain valuable employees, plan for their eventual departure, and maintain a continuity of needed skills and',
620:'abilities. controls over information processing a variety of control activities are used in information processing. examples include edit checks of',
621:'data entered; accounting for transactions in numerical sequences; comparing file totals with control accounts; and controlling access to data, files,',
622:'and programs.31 31see paras. 11.02 through 11.17 for further discussion of controls over information processing. physical control over vulnerable assets',
623:'management establishes physical control to secure and safeguard vulnerable assets. examples include security for and limited access to assets such',
624:'as cash, securities, inventories, and equipment that might be vulnerable to risk of loss or unauthorized use. management periodically counts',
625:'and compares such assets to control records. establishment and review of performance measures and indicators management establishes activities to monitor',
626:'performance measures and indicators. these may include comparisons and assessments relating different sets of data to one another so that',
627:'analyses of the relationships can be made and appropriate actions taken. management designs controls aimed at validating the propriety and',
628:'integrity of both entity and individual performance measures and indicators. segregation of duties management divides or segregates key duties and',
629:'responsibilities among different people to reduce the risk of error, misuse, or fraud. this includes separating the responsibilities for authorizing',
630:'transactions, processing and recording them, reviewing the transactions, and handling any related assets so that no one individual controls all',
631:'key aspects of a transaction or event. proper execution of transactions transactions are authorized and executed only by persons acting',
632:'within the scope of their authority. this is the principal means of assuring that only valid transactions to exchange, transfer,',
633:'use, or commit resources are initiated or entered into. management clearly communicates authorizations to personnel. accurate and timely recording of',
634:'transactions transactions are promptly recorded to maintain their relevance and value to management in controlling operations and making decisions. this',
635:'applies to the entire process or life cycle of a transaction or event from its initiation and authorization through its',
636:'final classification in summary records. in addition, management designs control activities so that all transactions are completely and accurately recorded.',
637:'access restrictions to and accountability for resources and records management limits access to resources and records to authorized individuals, and',
638:'assigns and maintains accountability for their custody and use. management may periodically compare resources with the recorded accountability to help',
639:'reduce the risk of errors, fraud, misuse, or unauthorized alteration. appropriate documentation of transactions and internal control management clearly documents',
640:'internal control and all transactions and other significant events in a manner that allows the documentation to be readily available',
641:'for examination. the documentation may appear in management directives, administrative policies, or operating manuals, in either paper or electronic form.',
642:'documentation and records are properly managed and maintained. an entity’s internal control is flexible to allow management to tailor control',
643:'activities to meet the entity’s special needs. the specific control activities used by a given entity may be different from',
644:'those used by others based on a number of factors. these factors could include specific threats the entity faces and',
645:'risks it incurs; differences in objectives; managerial judgment; size and complexity of the entity; operational environment; sensitivity and value of',
646:'data; and requirements for system reliability, availability, and performance. 10.04 control activities can be either preventive or detective. the main',
647:'difference between preventive and detective control activities is the timing of a control activity within an entity’s operations. a preventive',
648:'control activity prevents an entity from failing to achieve an objective or address a risk. a detective control activity discovers',
649:'when an entity is not achieving an objective or addressing a risk before the entity’s operation has concluded and corrects',
650:'the actions so that the entity achieves the objective or addresses the risk. 10.05 management evaluates the purpose of the',
651:'control activity as well as the effect a deficiency would have on the entity in achieving its objectives. if the',
652:'control activity is for a significant purpose or the impact of a deficiency would be significant to achieving the entity’s',
653:'objectives, management may design both preventive and detective control activities. 10.06 control activities can be implemented in either an automated',
654:'or a manual manner. automated control activities are either wholly or partially automated through the entity’s information technology. manual control',
655:'activities are performed by individuals with minor use of the entity’s information technology. automated control activities tend to be more',
656:'reliable because they are less susceptible to human error and are typically more efficient.32 if the entity relies on information',
657:'technology in its operations, management designs control activities so that the information technology continues to operate properly. 32see paras. 11.06',
658:'through 11.08 for further discussion of information system control activities. design of control activities at various levels 10.07 management designs',
659:'control activities at the appropriate levels in the organizational structure. 10.08 management designs control activities for appropriate coverage of objectives',
660:'and risks in the operations. operational processes transform inputs into outputs to achieve the organization’s objectives. management designs entitylevel control',
661:'activities, transaction control activities, or both depending on the level of precision needed so that the entity meets its objectives',
662:'and addresses related risks. 10.09 entitylevel controls are controls that have a pervasive effect on an entity’s internal control system',
663:'and may pertain to multiple components. entitylevel controls may include controls related to the entity’s risk assessment process, control environment,',
664:'service organizations, management override, and monitoring. 10.10 transaction control activities are actions built directly into operational processes to support the',
665:'entity in achieving its objectives and addressing related risks. “transactions” tends to be associated with financial processes e.g., payables transactions,',
666:'while “activities” is more generally applied to operational or compliance processes. for the purposes of this standard, “transactions” covers both',
667:'definitions. management may design a variety of transaction control activities for operational processes, which may include verifications, reconciliations, authorizations and',
668:'approvals, physical control activities, and supervisory control activities. 10.11 when choosing between entitylevel and transaction control activities, management evaluates the',
669:'level of precision needed for the operational processes to meet the entity’s objectives and address related risks. in determining the',
670:'necessary level of precision for a control activity, management evaluates the following: purpose of the control activity a control activity',
671:'that functions to prevent or detect generally is more precise than a control activity that merely identifies and explains differences.',
672:'level of aggregation a control activity that is performed at a more granular level generally is more precise than one',
673:'performed at a higher level. for example, an analysis of obligations by budget object class normally is more precise than',
674:'an analysis of total obligations for the entity. consistency of performance a control activity that is performed routinely and consistently',
675:'generally is more precise than one performed sporadically. correlation to relevant operational processes a control activity that is directly related',
676:'to an operational process generally is more likely to prevent or detect than a control activity that is only indirectly',
677:'related. segregation of duties 10.12 management considers segregation of duties in designing control activity responsibilities so that incompatible duties are',
678:'segregated and, where such segregation is not practical, designs alternative control activities to address the risk. control activities 10.13 segregation',
679:'of duties helps prevent fraud, waste, and abuse in the internal control system.33 management considers the need to separate control',
680:'activities related to authority, custody, and accounting of operations to achieve adequate segregation of duties. in particular, segregation of duties',
681:'can address the risk of management override. management override circumvents existing control activities and increases fraud risk. management addresses this',
682:'risk through segregation of duties, but cannot absolutely prevent it because of the risk of collusion, where two or more',
683:'employees act together to commit fraud. 10.14 if segregation of duties is not practical within an operational process because of',
684:'limited personnel or other factors, management designs alternative control activities to address the risk of fraud, waste, or abuse in',
685:'the operational process. principle 11 design activities for the information system 11.01 management should design the entity’s information system and',
686:'related control activities to achieve objectives and respond to risks. attributes the following attributes contribute to the design, implementation, and',
687:'operating effectiveness of this principle: design of the entity’s information system design of appropriate types of control activities design of',
688:'information technology infrastructure design of security management design of information technology acquisition, development, and maintenance design of the entity’s information',
689:'system 11.02 management designs the entity’s information system to respond to the entity’s objectives and risks. 11.03 management designs the',
690:'entity’s information system to obtain and process information to meet each operational process’s information requirements and to respond to the',
691:'entity’s objectives and risks. an information system is the people, processes, data, and technology that 33see paras. 8.02 through 8.03',
692:'for further discussion of fraud, waste, and abuse. page 51 gao14704g federal internal control standards control activities management organizes to',
693:'obtain, communicate, or dispose of information. an information system represents the life cycle of information used for the entity’s operational',
694:'processes that enables the entity to obtain, store, and process quality information.34 an information system includes both manual and technologyenabled',
695:'information processes. technologyenabled information processes are commonly referred to as information technology. as part of the control environment component, management',
696:'defines responsibilities, assigns them to key roles, and delegates authority to achieve the entity’s objectives. as part of the risk',
697:'assessment component, management identifies the risks related to the entity and its objectives, including its service organizations; the entity’s risk',
698:'tolerance; and risk responses. management designs control activities to fulfill defined responsibilities and address the identified risk responses for the',
699:'entity’s information system. 11.04 management designs the entity’s information system and the use of information technology by considering the defined',
700:'information requirements for each of the entity’s operational processes.35 information technology enables information related to operational processes to become available',
701:'to the entity on a timelier basis. additionally, information technology may enhance internal control over security and confidentiality of information',
702:'by appropriately restricting access. although information technology implies specific types of control activities, information technology is not a “standalone” control',
703:'consideration. it is an integral part of most control activities. 11.05 management also evaluates information processing objectives to meet the',
704:'defined information requirements. information processing objectives may include the following: completeness transactions that occur are recorded and not understated. accuracy',
705:'transactions are recorded at the correct amount in the right account and on a timely basis at each stage of',
706:'processing. 34see paras. 13.02 through 13.06 for further discussion of the use of quality information. 35see paras. 13.02 through 13.04',
707:'for further discussion of defined information requirements. page 52 gao14704g federal internal control standards validity recorded transactions represent economic events',
708:'that actually occurred and were executed according to prescribed procedures. design of appropriate types of control activities 11.06 management designs',
709:'appropriate types of control activities in the entity’s information system for coverage of information processing objectives for operational processes. for',
710:'information systems, there are two main types of control activities: general and application control activities. 11.07 information system general controls',
711:'at the entitywide, system, and application levels are the policies and procedures that apply to all or a large segment',
712:'of an entity’s information systems. general controls facilitate the proper operation of information systems by creating the environment for proper',
713:'operation of application controls. general controls include security management, logical and physical access, configuration management, segregation of duties, and contingency',
714:'planning. 11.08 application controls, sometimes referred to as business process controls, are those controls that are incorporated directly into computer',
715:'applications to achieve validity, completeness, accuracy, and confidentiality of transactions and data during application processing. application controls include controls over',
716:'input, processing, output, master file, interface, and data management system controls. design of information technology infrastructure 11.09 management designs control',
717:'activities over the information technology infrastructure to support the completeness, accuracy, and validity of information processing by information technology. information',
718:'technology requires an infrastructure in which to operate, including communication networks for linking information technologies, computing resources for applications to',
719:'operate, and electricity to power the information technology. an entity’s information technology infrastructure can be complex. it may be shared',
720:'by different units within the entity or outsourced either to service organizations or to locationindependent technology services. management evaluates the',
721:'objectives of the entity and related risks in designing control activities for the information technology infrastructure. 11.10 management continues to',
722:'evaluate changes in the use of information technology and designs new control activities when these changes are incorporated into the',
723:'entity’s information technology infrastructure. management also designs control activities needed to maintain the information technology infrastructure. maintaining technology often includes',
724:'backup and recovery procedures, as well as continuity of operations plans, depending on the risks and consequences of a full',
725:'or partial power systems outage. design of security management 11.11 management designs control activities for security management of the entity’s',
726:'information system for appropriate access by internal and external sources to protect the entity’s information system. objectives for security management',
727:'include confidentiality, integrity, and availability. confidentiality means that data, reports, and other outputs are safeguarded against unauthorized access. integrity means',
728:'that information is safeguarded against improper modification or destruction, which includes ensuring information’s nonrepudiation and authenticity. availability means that data,',
729:'reports, and other relevant information are readily available to users when needed. 11.12 security management includes the information processes and',
730:'control activities related to access rights in an entity’s information technology, including who has the ability to execute transactions. security',
731:'management includes access rights across various levels of data, operating system system software, network, application, and physical layers. management designs',
732:'control activities over access to protect an entity from inappropriate access and unauthorized use of the system. these control activities',
733:'support appropriate segregation of duties. by preventing unauthorized use of and changes to the system, data and program integrity are',
734:'protected from malicious intent e.g., someone breaking into the technology to commit fraud, vandalism, or terrorism or error. 11.13 management',
735:'evaluates security threats to information technology, which can be from both internal and external sources. external threats are particularly important',
736:'for entities that depend on telecommunications networks and the internet. external threats have become prevalent in today’s highly interconnected business',
737:'environments, and continual effort is required to address these risks. internal threats may come from former or disgruntled employees. they',
738:'pose unique risks because they may be both motivated to work against the entity and better equipped to succeed in',
739:'carrying out a malicious act as they have greater access to and knowledge of the entity’s security management systems and',
740:'processes. 11.14 management designs control activities to limit user access to information technology through authorization control activities such as providing',
741:'a unique user identification or token to authorized users. these control activities may restrict authorized users to the applications or',
742:'functions commensurate with their assigned responsibilities, supporting an appropriate segregation of duties. management designs other control activities to promptly update',
743:'access rights when employees change job functions or leave the entity. management also designs control activities for access rights when',
744:'different information technology elements are connected to each other. design of information technology acquisition, development, and maintenance 11.15 management designs',
745:'control activities over the acquisition, development, and maintenance of information technology. management may use a systems development life cycle sdlc',
746:'framework in designing control activities. an sdlc provides a structure for a new information technology design by outlining specific phases',
747:'and documenting requirements, approvals, and checkpoints within control activities over the acquisition, development, and maintenance of technology. through an sdlc,',
748:'management designs control activities over changes to technology. this may involve requiring authorization of change requests; reviewing the changes, approvals,',
749:'and testing results; and designing protocols to determine whether changes are made properly. depending on the size and complexity of',
750:'the entity, development of information technology and changes to the information technology may be included in one sdlc or two',
751:'separate methodologies. management evaluates the objectives and risks of the new technology in designing control activities over its sdlc. 11.16',
752:'management may acquire information technology through packaged software from vendors. management incorporates methodologies for the acquisition of vendor packages into',
753:'its information technology development and designs control activities over their selection, ongoing development, and maintenance. control activities for the development,',
754:'maintenance, and change of application software prevent unauthorized programs or modifications to existing programs. 11.17 another alternative is outsourcing the',
755:'development of information technology to service organizations. as for an sdlc developed internally, management designs control activities to meet objectives',
756:'and address related risks. management also evaluates the unique risks that using a service organization presents for the completeness, accuracy,',
757:'and validity of information submitted to and received from the service organization. principle 12 implement control activities 12.01 management should',
758:'implement control activities through policies. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle:',
759:'documentation of responsibilities through policies periodic review of control activities documentation of responsibilities through policies 12.02 management documents in policies',
760:'the internal control responsibilities of the organization. 12.03 management documents in policies for each unit its responsibility for an operational',
761:'process’s objectives and related risks, and control activity design, implementation, and operating effectiveness.36 each unit, with guidance from management, determines',
762:'the policies necessary to operate the process based on the objectives and related risks for the operational process. each unit',
763:'also documents policies in the appropriate level of detail to allow management to effectively monitor the control activity. 36see paras.',
764:'3.02 through 3.05 for further discussion of units. 37see para. 17.06 for further discussion of corrective actions. 12.04 those in',
765:'key roles for the unit may further define policies through daytoday procedures, depending on the rate of change in the',
766:'operating environment and complexity of the operational process. procedures may include the timing of when a control activity occurs and',
767:'any followup corrective actions to be performed by competent personnel if deficiencies are identified.37 management communicates to personnel the policies',
768:'and procedures so that personnel can implement the control activities for their assigned responsibilities. periodic review of control activities 12.05',
769:'management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or',
770:'addressing related risks. if there is a significant change in an entity’s process, management reviews this process in a timely',
771:'manner after the change to determine that the control activities are designed and implemented appropriately. changes may occur in personnel,',
772:'operational processes, or information technology. regulators; legislators; and in the federal environment, the office of management and budget and the',
773:'department of the treasury may also change either an entity’s objectives or how an entity is to achieve an objective.',
774:'management considers these changes in its periodic review. overview management uses quality information to support the internal control system. effective',
775:'information and communication are vital for an entity to achieve its objectives. entity management needs access to relevant and reliable',
776:'communication related to internal as well as external events. principles 13. management should use quality information to achieve the entity’s',
777:'objectives. 14. management should internally communicate the necessary quality information to achieve the entity’s objectives. 15. management should externally communicate',
778:'the necessary quality information to achieve the entity’s objectives. principle 13 use quality information 13.01 management should use quality information',
779:'to achieve the entity’s objectives. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle:',
780:'identification of information requirements relevant data from reliable sources data processed into quality information identification of information requirements 13.02 management',
781:'designs a process that uses the entity’s objectives and related risks to identify the information requirements needed to achieve the',
782:'objectives and address the risks. information requirements consider the expectations of both internal and external users. management defines the identified',
783:'information requirements at the relevant level and requisite specificity for appropriate personnel. 13.03 management identifies information requirements in an iterative',
784:'and ongoing process that occurs throughout an effective internal control system. as change in the entity and its objectives and',
785:'risks occurs, management changes information requirements as needed to meet these modified objectives and address these modified risks. relevant data',
786:'from reliable sources 13.04 management obtains relevant data from reliable internal and external sources in a timely manner based on',
787:'the identified information requirements. relevant data have a logical connection with, or bearing upon, the identified information requirements. reliable internal',
788:'and external sources provide data that are reasonably free from error and bias and faithfully represent what they purport to',
789:'represent. management evaluates both internal and external sources of data for reliability. sources of data can be operational, financial, or',
790:'compliance related. management obtains data on a timely basis so that they can be used for effective monitoring. data processed',
791:'into quality information 13.05 management processes the obtained data into quality information that supports the internal control system. this involves',
792:'processing data into information and then evaluating the processed information so that it is quality information. quality information meets the',
793:'identified information information and communication requirements when relevant data from reliable sources are used. quality information is appropriate, current, complete,',
794:'accurate, accessible, and provided on a timely basis. management considers these characteristics as well as the information processing objectives in',
795:'evaluating processed information and makes revisions when necessary so that the information is quality information.38 management uses the quality information',
796:'to make informed decisions and evaluate the entity’s performance in achieving key objectives and addressing risks. 13.06 management processes relevant',
797:'data from reliable sources into quality information within the entity’s information system. an information system is the people, processes, data,',
798:'and technology that management organizes to obtain, communicate, or dispose of information.39 principle 14 communicate internally 14.01 management should internally',
799:'communicate the necessary quality information to achieve the entity’s objectives. attributes the following attributes contribute to the design, implementation, and',
800:'operating effectiveness of this principle: communication throughout the entity appropriate methods of communication communication throughout the entity 14.02 management communicates',
801:'quality information throughout the entity using established reporting lines. quality information is communicated down, across, up, and around reporting lines',
802:'to all levels of the entity. 14.03 management communicates quality information down and across reporting lines to enable personnel to',
803:'perform key roles in achieving objectives, addressing risks, and supporting the internal control system. in these communications, management assigns the',
804:'internal control responsibilities for key roles. 38see paras. 11.02 through 11.05 for further discussion of information processing objectives. 39see paras.',
805:'11.02 through 11.05 for further discussion of information systems. page 60 gao14704g federal internal control standards 14.04 management receives quality',
806:'information about the entity’s operational processes that flows up the reporting lines from personnel to help management achieve the entity’s',
807:'objectives. 14.05 the oversight body receives quality information that flows up the reporting lines from management and personnel. information relating',
808:'to internal control communicated to the oversight body includes significant matters about adherence to, changes in, or issues arising from',
809:'the internal control system. this upward communication is necessary for the effective oversight of internal control. 14.06 personnel use separate',
810:'reporting lines to go around upward reporting lines when these lines are compromised. laws and regulations may require entities to',
811:'establish separate lines of communication, such as whistleblower and ethics hotlines, for communicating confidential information. management informs employees of these',
812:'separate reporting lines, how they operate, how they are to be used, and how the information will remain confidential. appropriate',
813:'methods of communication 14.07 management selects appropriate methods to communicate internally. management considers a variety of factors in selecting an',
814:'appropriate method of communication. some factors to consider follow: audience the intended recipients of the communication nature of information the',
815:'purpose and type of information being communicated availability information readily available to the audience when needed cost the resources used',
816:'to communicate the information legal or regulatory requirements requirements in laws and regulations that may impact communication 14.08 based on',
817:'consideration of the factors, management selects appropriate methods of communication, such as a written document—in hard copy or electronic format—or',
818:'a facetoface meeting. management periodically evaluates the entity’s methods of communication so that the organization has the appropriate tools to',
819:'communicate quality information throughout the entity on a timely basis. principle 15 communicate externally 15.01 management should externally communicate the',
820:'necessary quality information to achieve the entity’s objectives. attributes the following attributes contribute to the design, implementation, and operating effectiveness',
821:'of this principle: communication with external parties appropriate methods of communication communication with external parties 15.02 management communicates with, and',
822:'obtains quality information from, external parties using established reporting lines. open twoway external reporting lines allow for this communication. external',
823:'parties include suppliers, contractors, service organizations, regulators, external auditors, government entities, and the general public. 15.03 management communicates quality information',
824:'externally through reporting lines so that external parties can help the entity achieve its objectives and address related risks. management',
825:'includes in these communications information relating to the entity’s events and activities that impact the internal control system. 15.04 management',
826:'receives information through reporting lines from external parties. information communicated to management includes significant matters relating to risks, changes, or',
827:'issues that impact the entity’s internal control system. this communication is necessary for the effective operation of internal control. management',
828:'evaluates external information received against the characteristics of quality information and information processing objectives and takes any necessary actions so',
829:'that the information is quality information.40 40see paras. 11.02 through 11.05 for further discussion of information processing objectives. 15.05 the',
830:'oversight body receives information through reporting lines from external parties. information communicated to the oversight body includes significant matters relating',
831:'to risks, changes, or issues that impact the entity’s internal control system. this communication is necessary for the effective oversight',
832:'of internal control. 15.06 external parties use separate reporting lines when external reporting lines are compromised. laws and regulations may',
833:'require entities to establish separate lines of communication, such as whistleblower and ethics hotlines, for communicating confidential information. management informs',
834:'external parties of these separate reporting lines, how they operate, how they are to be used, and how the information',
835:'will remain confidential. appropriate methods of communication 15.07 management selects appropriate methods to communicate externally. management considers a variety of',
836:'factors in selecting an appropriate method of communication. some factors to consider follow: audience the intended recipients of the communication',
837:'nature of information the purpose and type of information being communicated availability information readily available to the audience when needed',
838:'cost the resources used to communicate the information legal or regulatory requirements requirements in laws and regulations that may impact',
839:'communication 15.08 based on consideration of the factors, management selects appropriate methods of communication, such as a written document—in hard',
840:'copy or electronic format—or a facetoface meeting. management periodically evaluates the entity’s methods of communication so that the organization has',
841:'the appropriate tools to communicate quality information throughout and outside of the entity on a timely basis. 15.09 government entities',
842:'not only report to the head of the government, legislators, and regulators but to the general public as well. in',
843:'the federal government, entities not only report to the president and congress but also to the general public. entities consider',
844:'appropriate methods when communicating with such a broad audience. monitoring overview finally, since internal control is a dynamic process that',
845:'has to be adapted continually to the risks and changes an entity faces, monitoring of the internal control system is',
846:'essential in helping internal control remain aligned with changing objectives, environment, laws, resources, and risks. internal control monitoring assesses the',
847:'quality of performance over time and promptly resolves the findings of audits and other reviews. corrective actions are a necessary',
848:'complement to control activities in order to achieve objectives. principles 16. management should establish and operate monitoring activities to monitor',
849:'the internal control system and evaluate the results. 17. management should remediate identified internal control deficiencies on a timely basis.',
850:'principle 16 perform monitoring activities 16.01 management should establish and operate monitoring activities to monitor the internal control system and',
851:'evaluate the results. attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle: establishment of',
852:'a baseline internal control system monitoring evaluation of results establishment of a baseline 16.02 management establishes a baseline to monitor',
853:'the internal control system. the baseline is the current state of the internal control system compared against management’s design of',
854:'the internal control system. the baseline represents the difference between the criteria of the design of the internal control system',
855:'and condition of the internal control system at a specific point in time. in other words, the baseline consists of',
856:'issues and deficiencies identified in an entity’s internal control system. 16.03 once established, management can use the baseline as criteria',
857:'in evaluating the internal control system and make changes to reduce the difference between the criteria and condition. management reduces',
858:'this difference in one of two ways. management either changes the design of the internal control system to better address',
859:'the objectives and risks of the entity or improves the operating effectiveness of the internal control system. as part of',
860:'monitoring, management determines when to revise the baseline to reflect changes in the internal control system. internal control system monitoring',
861:'16.04 management monitors the internal control system through ongoing monitoring and separate evaluations. ongoing monitoring is built into the entity’s',
862:'operations, performed continually, and responsive to change. separate evaluations are used periodically and may provide feedback on the effectiveness of',
863:'ongoing monitoring. 16.05 management performs ongoing monitoring of the design and operating effectiveness of the internal control system as part',
864:'of the normal course of operations. ongoing monitoring includes regular management and supervisory activities, comparisons, reconciliations, and other routine actions.',
865:'ongoing monitoring may include automated tools, which can increase objectivity and efficiency by electronically compiling evaluations of controls and transactions.',
866:'16.06 management uses separate evaluations to monitor the design and operating effectiveness of the internal control system at a specific',
867:'time or of a specific function or process. the scope and frequency of separate evaluations depend primarily on the assessment',
868:'of risks, effectiveness of ongoing monitoring, and rate of change within the entity and its environment. separate evaluations may take',
869:'the form of selfassessments, which include cross operating unit or cross functional evaluations. 16.07 separate evaluations also include audits and',
870:'other evaluations that may involve the review of control design and direct testing of internal control. these audits and other',
871:'evaluations may be mandated by law and are performed by internal auditors, external auditors, the inspectors general, and other external',
872:'reviewers. separate evaluations provide greater objectivity when performed by reviewers who do not have responsibility for the activities being evaluated.',
873:'16.08 management retains responsibility for monitoring the effectiveness of internal control over the assigned processes performed by service organizations. management',
874:'uses ongoing monitoring, separate evaluations, or a combination of the two to obtain reasonable assurance of the operating effectiveness of',
875:'the service organization’s internal controls over the assigned process.41 monitoring activities related to service organizations may include the use of',
876:'work performed by external parties, such as service auditors, and reviewed by management. 41see paras. ov4.01 through ov4.03 for further',
877:'discussion of service organizations. evaluation of results 16.09 management evaluates and documents the results of ongoing monitoring and separate evaluations',
878:'to identify internal control issues. management uses this evaluation to determine the effectiveness of the internal control system. differences between',
879:'the results of monitoring activities and the previously established baseline may indicate internal control issues, including undocumented changes in the',
880:'internal control system or potential internal control deficiencies. 16.10 management identifies changes in the internal control system that either have',
881:'occurred or are needed because of changes in the entity and its environment. external parties can also help management identify',
882:'issues in the internal control system. for example, complaints from the general public and regulator comments may indicate areas in',
883:'the internal control system that need improvement. management considers whether current controls address the identified issues and modifies controls if',
884:'necessary. principle 17 evaluate issues and remediate deficiencies 17.01 management should remediate identified internal control deficiencies on a timely basis.',
885:'attributes the following attributes contribute to the design, implementation, and operating effectiveness of this principle: reporting of issues evaluation of',
886:'issues corrective actions reporting of issues 17.02 personnel report internal control issues through established reporting lines to the appropriate internal',
887:'and external parties on a timely basis to enable the entity to promptly evaluate those issues.42 42see paras. 14.02 through',
888:'14.06 for further discussion of internal reporting lines and paras. 15.02 through 15.06 for further discussion of external reporting lines.',
889:'17.03 personnel may identify internal control issues while performing their assigned internal control responsibilities. personnel communicate these issues internally to',
890:'the person in the key role responsible for the internal control or associated process and, when appropriate, to at least',
891:'one level of management above that individual. depending on the nature of the issues, personnel may consider reporting certain issues',
892:'to the oversight body. such issues may include issues that cut across the organizational structure or extend outside the entity',
893:'to service organizations, contractors, or suppliers and monitoring issues that may not be remediated because of the interests of management,',
894:'such as sensitive information regarding fraud or other illegal acts.43 17.04 depending on the entity’s regulatory or compliance requirements, the',
895:'entity may also be required to report issues externally to appropriate external parties, such as the legislators, regulators, and standardsetting',
896:'bodies that establish laws, rules, regulations, and standards to which the entity is subject. evaluation of issues 17.05 management evaluates',
897:'and documents internal control issues and determines appropriate corrective actions for internal control deficiencies on a timely basis. management evaluates',
898:'issues identified through monitoring activities or reported by personnel to determine whether any of the issues rise to the level',
899:'of an internal control deficiency. internal control deficiencies require further evaluation and remediation by management. an internal control deficiency can',
900:'be in the design, implementation, or operating effectiveness of the internal control and its related process.44 management determines from the',
901:'type of internal control deficiency the appropriate corrective actions to remediate the internal control deficiency on a timely basis. management',
902:'assigns responsibility and delegates authority to remediate the internal control deficiency. corrective actions 17.06 management completes and documents corrective actions',
903:'to remediate internal control deficiencies on a timely basis. these corrective actions include resolution of audit findings. depending on the',
904:'nature of the deficiency, either the oversight body or management oversees the prompt remediation of deficiencies by communicating the corrective',
905:'actions to the appropriate level of the organizational structure and delegating authority for completing corrective actions to appropriate personnel. the',
906:'audit resolution process begins when audit or other review results are reported to management, and is completed only after action',
907:'has been taken that 1 corrects identified deficiencies, 43see paras. 8.02 through 8.03 for further discussion of fraud. 44see paras.',
908:'ov3.07 through ov3.11 for further discussion of evaluation of internal control deficiencies. page 68 gao14704g federal internal control standards 2',
909:'produces improvements, or 3 demonstrates that the findings and recommendations do not warrant management action. management, with oversight from the',
910:'oversight body, monitors the status of remediation efforts so that they are completed on a timely basis. the following is',
911:'a list of the requirements included in the green book. the five components of internal control must be effectively designed,',
912:'implemented, and operating, and operating together in an integrated manner, for an internal control system to be effective. paragraph ov2.04',
913:'the 17 principles support the effective design, implementation, and operation of the associated components and represent requirements necessary to establish',
914:'an effective internal control system. the 17 principle requirements of the green book are as follows: 1. the oversight body',
915:'and management should demonstrate a commitment to integrity and ethical values. 2. the oversight body should oversee the entity’s internal',
916:'control system. 3. management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. 4.',
917:'management should demonstrate a commitment to recruit, develop, and retain competent individuals. 5. management should evaluate performance and hold individuals',
918:'accountable for their internal control responsibilities. 6. management should define objectives clearly to enable the identification of risks and define',
919:'risk tolerances. 7. management should identify, analyze, and respond to risks related to achieving the defined objectives. 8. management should',
920:'consider the potential for fraud when identifying, analyzing, and responding to risks. 9. management should identify, analyze, and respond to',
921:'significant changes that could impact the internal control system. 10. management should design control activities to achieve objectives and respond',
922:'to risks. 11. management should design the entity’s information system and related control activities to achieve objectives and respond to',
923:'risks. 12. management should implement control activities through policies. 13. management should use quality information to achieve the entity’s objectives.',
924:'14. management should internally communicate the necessary quality information to achieve the entity’s objectives. 15. management should externally communicate the',
925:'necessary quality information to achieve the entity’s objectives. 16. management should establish and operate monitoring activities to monitor the internal',
926:'control system and evaluate the results. 17. management should remediate identified internal control deficiencies on a timely basis. documentation is',
927:'a necessary part of an effective internal control system. the level and nature of documentation vary based on the size',
928:'of the entity and the complexity of the operational processes the entity performs. management uses judgment in determining the extent',
929:'of documentation that is needed. documentation is required to demonstrate the design, implementation, and operating effectiveness of an entity’s internal',
930:'control system. the green book includes minimum documentation requirements as follows: if management determines that a principle is not relevant,',
931:'management supports that determination with documentation that includes the rationale of how, in the absence of that principle, the associated',
932:'component could be designed, implemented, and operated effectively. paragraph ov2.06 management develops and maintains documentation of its internal control system.',
933:'paragraph 3.09 management documents in policies the internal control responsibilities of the organization. paragraph 12.02 management evaluates and documents the',
934:'results of ongoing monitoring and separate evaluations to identify internal control issues. paragraph 16.09 management evaluates and documents internal control',
935:'issues and determines appropriate corrective actions for internal control deficiencies on a timely basis. paragraph 17.05 management completes and documents',
936:'corrective actions to remediate internal control deficiencies on a timely basis. paragraph 17.06 comptroller general’s advisory council on standards for',
937:'internal control in the federal government 20132015 the honorable jon rymer, chair u.s. department of defense, office of the inspector',
938:'general dr. brett baker national science foundation, office of the inspector general lisa casias u.s. department of commerce carole clay',
939:'u.s. department of state melinda decorte crowe horwath llp stephen m. eells new jersey office of legislative services, office of',
940:'the state auditor dr. carol m. eyermann national science foundation bill hughes morganfranklin consulting llc scot janssen kpmg llp john',
941:'kaschak pennsylvania office of the budget, bureau of audits david l. landsittel committee of sponsoring organizations of the treadway commission',
942:'the honorable samuel t. mok condor international advisors, llc kenneth j. mory city of austin, texas dan murrin ernst &',
943:'young dr. annette k. pridgen jackson state university dr. sandra b. richtermeyer xavier university neil ryder u.s. department of justice',
944:'peggy sherry u.s. department of the treasury, internal revenue service f. michael taylor hanover county government, virginia david a. von',
945:'moll commonwealth of virginia office of the state comptroller david m. zavada kearney & company gao project team steven j.',
946:'sebastian, managing director james r. dalkin, director robert f. dacey, chief accountant jacquelyn n. hamilton, deputy assistant general counsel kristen',
947:'a. kociolek, assistant director grant l. simmons, senior auditor christie a. pugnetti, senior auditor staff acknowledgments in addition to the',
948:'project team named above, also contributing were francine m. delvecchio, lee evans, marci l. goasdone, peter b. grinnell, brian s.',
949:'harechmak, debra l. hoffman, heather i. keister, jason m. kelly, judy lee, william s. lowrey, alan s. macmullin, mary arnold',
950:'mohiyuddin, mary o. osorno, doris g. yanger, and kimberly y. young. glossary the following terms are provided to assist in',
951:'clarifying the standards for internal control in the federal government. the most relevant paragraph numbers are provided for reference. application',
952:'controls controls that are incorporated directly into computer applications for the purposes of validity, completeness, accuracy, and confidentiality of transactions',
953:'and data during application processing; application controls include controls over input, processing, output, master file, interface, and data management system',
954:'controls paragraph 11.08 attributes additional information that provides further explanation of the principles and documentation requirements for effective internal control',
955:'paragraph ov2.07 baseline the difference between the criteria of the design of the internal control system and condition of the',
956:'internal control system at a specific point in time paragraph 16.02 competence the qualification to carry out assigned responsibilities paragraph',
957:'4.02 complementary user entity controls controls that management of the service organization assumes, in the design of its service, will',
958:'be implemented by user entities, and if necessary to achieve the control objectives stated in management’s description of the service',
959:'organization’s system, are identified as such in that description paragraph ov4.02 component one of the five required elements of internal',
960:'control. the internal control components are control environment, risk assessment, control activities, information and communication, and monitoring paragraph ov2.04 contingency',
961:'plans the processes defined to address an entity’s need to respond to sudden personnel changes that could compromise the internal',
962:'control system paragraph 4.06 control activities the policies, procedures, techniques, and mechanisms that enforce management’s directives to achieve the entity’s',
963:'objectives and address related risks paragraph 10.02 control objective the aim or purpose of specified controls; control objectives address the',
964:'risks related to achieving an entity’s objectives paragraph ov3.05 deficiency when the design, implementation, or operation of a control does',
965:'not allow management or personnel, in the normal course of performing their assigned functions, to achieve control objectives and address',
966:'related risks paragraph ov3.07 detective control an activity that is designed to discover when an entity is not achieving an',
967:'objective or addressing a risk before the entity’s operation has concluded and corrects the actions so that the entity achieves',
968:'the objective or addresses the risk paragraph 10.04 entitylevel control controls that have a pervasive effect on an entity’s internal',
969:'control system; entitylevel controls may include controls related to the entity’s risk assessment process, control environment, service organizations, management override,',
970:'and monitoring paragraph 10.09 fraud involves obtaining something of value through willful misrepresentation paragraph 8.02 general controls the policies and',
971:'procedures that apply to all or a large segment of an entity’s information systems; general controls include security management, logical',
972:'and physical access, configuration management, segregation of duties, and contingency planning paragraph 11.07 green book the commonly used name for',
973:'standards for internal control in the federal government overview: foreword information system the people, processes, data, and technology management organizes',
974:'to obtain, communicate, or dispose of information paragraph 11.03 information technology technologyenabled information processes paragraph 11.03 inherent risk the risk',
975:'to an entity prior to considering management’s response to the risk paragraph 7.03 internal control a process effected by an',
976:'entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieved',
977:'paragraph ov1.01 internal control system a continuous builtin component of operations, effected by people, that provides reasonable assurance—not absolute assurance—that',
978:'an entity’s objectives will be achieved paragraph ov1.04 key role a position in an organizational structure that is assigned an',
979:'overall responsibility of an entity paragraph 3.06 likelihood of occurrence the level of possibility that a risk will occur paragraph',
980:'7.06 magnitude of impact severity of deficiency that could result from a risk and is affected by factors such as',
981:'the size, pace, and duration of the risk’s impact paragraph 7.06 management personnel who are directly responsible for all activities',
982:'of an entity, including the design, implementation, and operating effectiveness of an entity’s internal control system paragraph ov2.14 must denotes',
983:'a requirement that management must comply with in all cases; these requirements are the components of internal control paragraph ov2.04',
984:'organizational structure the operating units, operational processes, and other structures management uses to achieve objectives paragraph ov2.10 oversight body those',
985:'responsible for overseeing management’s design, implementation, and operation of an internal control system paragraph ov2.14 performance measure a means of',
986:'evaluating the entity’s performance in achieving objectives paragraph 6.07 policies statements of responsibility for an operational process’s objectives and related',
987:'risks, and control activity design, implementation, and operating effectiveness paragraph 12.03 preventive control an activity that is designed to prevent',
988:'an entity from failing to achieve an objective or addressing a risk paragraph 10.04 principle fundamental concept that is integral',
989:'to the design, implementation, and operating effectiveness of the associated component paragraph ov2.05 qualitative objectives objectives where management may need',
990:'to design performance measures that indicate a level or degree of performance, such as milestones paragraph 6.07 quality information information',
991:'from relevant and reliable data that is appropriate, current, complete, accurate, accessible, and provided on a timely basis, and meets',
992:'identified information requirements paragraph 13.05 quantitative objectives objectives where performance measures may be a targeted percentage or numerical value paragraph',
993:'6.07 reasonable assurance a high degree of confidence, but not absolute confidence paragraph ov1.04 reporting lines communication lines, both internal',
994:'and external, at all levels of the organization that provide methods of communication that can flow down, across, up, and',
995:'around the organizational structure paragraph 3.04 residual risk the risk that remains after management’s response to inherent risk paragraph 7.03',
996:'risk the possibility that an event will occur and adversely affect the achievement of objectives paragraph 7.02 risk tolerance the',
997:'acceptable level of variation in performance relative to the achievement of objectives paragraph 6.08 security management the information processes and',
998:'control activities related to access rights in an entity’s information technology paragraph 11.12 segregation of duties the separation of the',
999:'authority, custody, and accounting of an operation paragraph 10.13 service organization an external party that performs operational processes for an',
1000:'entity paragraph ov4.01 should denotes a principle requirement management must comply with except in rare circumstances where the requirement is',
1001:'not relevant for the entity paragraph ov2.09 succession plans the processes that address an entity’s need to replace competent personnel',
1002:'over the long term paragraph 4.06 transaction an event that may occur in operational, compliance, or financial processes paragraph 10.10',
1003:'transaction control activities actions built directly into operational processes to support the entity in achieving its objectives and addressing related',
1004:'risks paragraph 10.10 194915 recycle!pleaseprintrecycledpaper please print on recycled paper. the government accountability office, the audit, evaluation, and investigative arm',
1005:'of congress, exists to support congress in meeting its constitutional responsibilities and to help improve the performance and accountability of',
1006:'the federal government for the american people. gao examines the use of public funds; evaluates federal programs and policies; and',
1007:'provides analyses, recommendations, and other assistance to help congress make informed oversight, policy, and funding decisions. gao’s commitment to good',
1008:'government is reflected in its core values of accountability, integrity, and reliability. the fastest and easiest way to obtain copies',
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1011:'select “email updates.” the printed version of the 2014 standards for internal control in the federal government can be ordered',
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1014:'the web at www.gao.gov. contact: website: http://www.gao.gov/fraudnet/fraudnet.htm email: fraudnet@gao.gov automated answering system: 800 4245454 or 202 5127470 katherine siggerud, managing',
1015:'director, siggerudk@gao.gov, 202 512 4400, u.s. government accountability office, 441 g street nw, room 7125, washington, dc 20548 chuck young,',
1016:'managing director, youngc1@gao.gov, 202 5124800 u.s. government accountability office, 441 g street nw, room 7149 washington, dc 20548 gao’s mission',
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