Internal Controls in County Federations
Internal controls play a crucial role in ensuring the integrity of financial and accounting information within organizations. Examples include dual signatures on cheques and regular financial reporting. Discover the purpose of internal controls and key problem areas faced in maintaining effective segregation of duties within the finance sector.
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Presentation Transcript
Internal Controls for County Federations Jean Prichard, Partner, CPA, CA, CFP, Licensed Public Accountant BDO Guelph
What are internal controls? Page 2 2 | BDO Seminar for OFA 2 | Presentation title 2 | BDO Seminar for OFA
Internal Controls in County Federations What are Internal Controls? Accounting term A system of mechanisms, rules and procedures implemented by an organization to ensure the integrity of financial and accounting information 3 | BDO Seminar for OFA
Internal Controls in County Federations What are Internal Controls? Examples are: Dual signatures on cheques Regular financial reporting in a prescribed format Review of information by someone other than the person who prepared it 4 | BDO Seminar for OFA
Why do we need internal controls? Page 5 5 | BDO Seminar for OFA 5 | Presentation title 5 | BDO Seminar for OFA
Internal Controls in County Federations The Purpose of Internal Controls Safeguard assets Ensure financial reporting is reliable Transparency is key 6 | BDO Seminar for OFA
Internal Controls in County Federations The Purpose of Internal Controls Promote operational efficiency Enable membership to feel confident in the organization enhance reputation Protect those who are handling the money and finances 7 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Difficulty achieving segregation of duties in the finance area 8 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Difficulty achieving segregation of duties in the finance area For example, the same person enters expenses in the accounting system, then issues cheques, then does the bank reconciliation 9 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Lack of a documented manual or description of procedures to be followed 10 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Board members unfamiliar or uncomfortable supervising staff (if any) 11 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Board members unfamiliar or uncomfortable supervising management (if any) Board members may not feel comfortable interpreting financial information and knowing what questions to ask 12 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Board members unfamiliar or uncomfortable supervising management (if any) Board members may not feel comfortable interpreting financial information and knowing what questions to ask Board members unfamiliar with fiduciary responsibilities 13 | BDO Seminar for OFA
Internal Controls in County Federations Key Problem Areas Board members unfamiliar with fiduciary responsibilities Board members can be held personally liable for CRA remittances and reporting (e.g. T4A s) 14 | BDO Seminar for OFA
Day to Day Operating Controls Page 15 15 | BDO Seminar for OFA 15 | Presentation title 15 | BDO Seminar for OFA
Internal Controls in County Organizations Specific Areas to Review Cheque signing procedures and authority Handling of cash Authorization of payroll Handling of petty cash 16 | BDO Seminar for OFA
Internal Controls in County Organizations Specific Areas to Review Use of corporate credit cards Review and approval of expense reports Use of Online payments Financial reporting and budgeting 17 | BDO Seminar for OFA
SOLUTIONS Things do not happen. Things are made to happen. John F. Kennedy 18 | BDO Seminar for OFA 18 | BDO Seminar for OFA
Cheque Signing Authority Problems: Single signer creates risk of unauthorized payments Recommendations Second signing authority especially over a dollar threshold Even better second signing required on all cheques Need to ensure Bank is apprised of proper signing authorities on a timely basis 19 | BDO Seminar for OFA
Cheque Signing Authority Problems: Cheque signers not reviewing supporting documentation Recommendations Ensure documentation of invoice package by cheque signers 20 | BDO Seminar for OFA
Cheque Signing Authority Problems: Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis Recommendations Establish a protocol by which someone else (treasurer, other board member) reviews bank statements and reconciliations on a timely basis 21 | BDO Seminar for OFA
Cheque Signing Authority Problems: Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis Recommendations Establish a protocol by which someone else (treasurer, other board member) reviews bank statements and reconciliations on a timely basis If automatic payments happening, this procedures provides a control 22 | BDO Seminar for OFA
Cheque Signing Authority Problems: Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis Recommendations Board agenda Treasurer s report standard item: Review Financial Statements Review Bank statement Review Bank reconciliation Review budget to actual comparison 23 | BDO Seminar for OFA
Cheque Signing Authority Problems: Cheque Signing Stamp Recommendations These are not recommended: Too hard to safeguard! 24 | BDO Seminar for OFA
Other Bank Account Issues Problems: Debit Card with full banking privileges Recommendations These are not recommended: Too hard to safeguard! 25 | BDO Seminar for OFA
Handling of Cash Problem: Risk of misappropriation of cash Recommendations Minimize cash transactions (credit cards, debit, online) Have multiple individuals involved in counting and approving cash transactions Multiple sign offs of cash counting 26 | BDO Seminar for OFA
Payroll Authorization Problems: Only one person involved in payroll transactions Creating false employees or inappropriate payments Errors in payroll processing Recommendations Signed approval of payroll reports by senior management or Board member Review of payroll amounts and bank statement withdrawals Use of standard forms or online approvals 27 | BDO Seminar for OFA
Payroll Authorization Problems: Only one person involved in payroll transactions Creating false employees or inappropriate payments Errors in payroll processing Recommendations If staff are on salary, then a payment schedule could be set for January 1 of each year Timesheets recommended 28 | BDO Seminar for OFA
Payroll Authorization Problems: Only one person involved in payroll transactions Creating false employees or inappropriate payments Errors in payroll processing Recommendations If changes are made to pay should be noted in Board minutes and budget effect noted as well Could be done in camera 29 | BDO Seminar for OFA
Petty Cash Problems: Lack of a clear process expense tracking not done properly, possible misappropriation of cash Recommendations Use an approved reporting format Regular review (by Board or other employee) before funds are replenished 30 | BDO Seminar for OFA
Use of Credit Cards by Federations Problems: Lack of supporting documentation Personal Expenses Recommendations Review who is authorized for cards Individual receipts reviewed by senior management or board members (not just the statement) Board of Director review (for small entities) 31 | BDO Seminar for OFA
Use of Credit Cards owned by Federations Problems: Credit card processing at fundraising events (for incoming revenues) Recommendations Process payments at time of event 32 | BDO Seminar for OFA
Review and Approval of Expense Reports Problems: Errors in expense reports mileage or meal allowances Personal expenses claimed in reports Recommendations Supporting information must be provided Approval by senior management or Board Use of standard forms or online approvals 33 | BDO Seminar for OFA
Use of Online Payments Problems: Unauthorized or fraudulent purchases Payments can be overlooked Recommendations Control access to online payments and develop organization policies Consider online banking approval process dual approvals should be required Review of bank reconciliations, bank statements and monthly online reports by someone else 34 | BDO Seminar for OFA
Financial Reporting to Board of Directors Problems: Board unable to make informed decisions using up to date information Recommendations Full financial statements should be reviewed in detail by Board at least quarterly 35 | BDO Seminar for OFA
Financial Reporting to Board of Directors Problems: Board unable to make informed decisions using up to date information Recommendations Full financial statements should be reviewed in detail by Board at least quarterly If not feasible (Board) consider Finance Committee or Executive 36 | BDO Seminar for OFA
Financial Reporting to Board of Directors Problems: Board unable to make informed decisions using up to date information Recommendations Full financial statements should be reviewed in detail by Board at least quarterly At a minimum Balance Sheet and Income statement and Bank reconciliation Even better add budget to actual comparison 37 | BDO Seminar for OFA
Regular Financial Reporting to Board of Directors Problems: Board unable to make informed decisions using up to date information Recommendations For very small Federations, this may be difficult. Consider options such as: Hiring a part time bookkeeper to help can be done inexpensively Training a volunteer to be able to execute at a basic reporting level 38 | BDO Seminar for OFA
Budget Process Problems: Lack of a clear budget preparation and approval process can lead to difficulty controlling expenses Recommendations Depending on size of organization, process may be different Finance or Executive Committee to prepare, Board to approve Use for ongoing monitoring Budgets are a guide 39 | BDO Seminar for OFA
Reserve Funds Problems: How much is reasonable? Recommendations 6 12 months of operating expenses is a guide If more should have a plan/purpose 40 | BDO Seminar for OFA
Transparency Problems: What information should be accessible to members? Recommendations Members have a right to know how you are spending their money Also have a right to know the financial position of the Federation bank account balances, reserves, income and expenses 41 | BDO Seminar for OFA
Annual Financial Reporting Problems: Need to report to members at least annually Recommendations Consider having a Public Accountant prepare formal financial statements different levels of scrutiny available 42 | BDO Seminar for OFA
Annual Financial Reporting Problems: Need to report to members at least annually Recommendations Audit Review Notice to Reader 43 | BDO Seminar for OFA
Annual Financial Reporting Problems: Need to report to members at least annually Recommendations Under proposed Ontario rules for corporations (which apply to Not for Profits as well) larger Federations may well require a Review engagement report or even an Audit 44 | BDO Seminar for OFA
