State Ethics Commission-Examination of Annual Internal Control Questionnaire

This is a limited audit by the Massachusetts State Auditor checking whether certain answers the State Ethics Commission gave about its internal controls were accurate for fiscal year 2015.

“The objective of our audit was to determine whether certain responses that SEC provided to OSC in its fiscal year 2015 ICQ were accurate.”

The Auditor reviewed the commission because state agencies must report on internal controls, and the Auditor wanted to verify whether selected answers were backed up by evidence.

“The overall objective of our audit was to determine whether SEC accurately reported certain information about its overall internal control system to OSC on its 2015 ICQ.”

Internal controls help make sure an agency follows the rules, protects public property, and reports reliable information. Bad or unsupported answers make oversight harder.

“Further, inaccurate information on the ICQ prevents OSC from effectively assessing the adequacy of SEC’s internal control system for the purpose of financial reporting.”

For an ordinary taxpayer, this matters because state agencies are expected to safeguard public assets and keep accurate records. The audit says weak inventory practices can increase the risk of loss, theft, or misuse.

“In addition, without performing and documenting an annual physical inventory and establishing procedures encompassing all phases of the inventory process, SEC is not ensuring that its capital assets are properly safeguarded against loss, theft, and misuse and that its inventory records are complete and accurate.”

The commission’s questionnaire said it was meeting certain requirements, but auditors found that several answers did not match the evidence.

“Specifically, although SEC indicated that it was complying with OSC guidelines in all the areas we reviewed, its internal control plan (ICP) was not based on guidelines issued by OSC; its organization-wide risk assessment did not include the risk of fraud; it could not document that it performed an annual physical inventory of its capital assets; and it did not have procedures encompassing all phases of the inventory process.”

The Auditor recommended that the commission fix the problems, follow Comptroller requirements, and ask the Comptroller for help if needed.

“SEC should take the measures necessary to address the issues we identified during our audit and should ensure that it adheres to all of OSC’s requirements for developing an ICP and accurately reporting information about its ICP, risk assessment, and capital-asset inventory on its ICQ.”

The audit was limited in scope, but it still found real weaknesses in how the commission documented and reported key controls. The commission said it would revise its plan and improve documentation.

“Based on its response, we believe that SEC is taking appropriate measures to address the concerns we identified.”

An Internal Control Questionnaire is the yearly form state departments use to tell the Comptroller how well their systems protect money, property, records, and operations.

“The ICQ is a document designed by OSC that is sent to departments each year requesting information and department representations on their internal controls over 12 areas: management oversight, accounting system controls, budget controls, revenue, procurement and contract management, invoices and payments, payroll and personnel, investments held by the Commonwealth, material and supply inventory, capital-asset inventory, federal funds, and information-technology security and personal data.”