Financial Compliance: What are Internal Controls & How Do They Protect Us From Fraud?

The UVAFinance Compliance team plays a vital role in supporting not just students, but parents, taxpayers, sponsors, and the broader university community as well. By ensuring the University follows  critical regulations and policies, the Compliance team helps protect the resources that power UVA. A key part of this work involves strong internal controls that help prevent errors in UVAFinance's framework, while keeping operations transparent and accountable. 

What are Internal Controls?

Internal Controls are ongoing processes affected by an organization's people, designed to provide reasonable assurance of the following objectives:

• Operational effectiveness and efficiency
• Reliability of financial reporting 
• Compliance with laws and regulations  

An organization's control environment directly impacts the risk of fraud.

What is Fraud? 

• Fraud: The intentional misrepresentation of information for unauthorized financial gain or to derive some other benefit.
• Abuse: Improper use of funds, resources, or authority that results in higher costs. 
• Waste: Misuse of resources or practices that result in excessive or nonessential expenditures.
• Mismanagement: Failure to appropriately manage budgets, expenditures, or documentation.

The Association of Certified Fraud Examiners (ACFE) estimates that five percent of annual revenue is lost to fraud each year, with a typical fraud case costing $117,000. 

When Does Fraud Occur?

• Pressure: There is financial or emotional motivation pushing towards fraud.
• Rationalization: There is a personal justification of dishonest actions.
• Opportunity: There is a perceived ability to execute plans without getting caught.

Why We Care

On a larger scale, fraud causes significant reputational damage, and with that comes a loss of community, sponsor, and donor trust. Financial loss that impacts budgets and fundings is also a big reason to be wary of fraud or potential fraud. On a smaller scale, fraud leads to potential audits, which demand time and resources, and can have a negative impact on work culture. 

UVAFinance relies on each of its employees and their work towards a more secure compliance position for UVA and its stakeholders!

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This post is part of a series on internal controls and financial compliance.  Next time, we'll talk about how all of us can play a role in fraud prevention!

Want to hear more about what Financial Compliance does?  Check out this Finance Matters Podcast featuring the team, as well as our colleagues from UVA's Office of Audit & Compliance.