Internal control requirements will vary according to office/staff size and budget. Controls must be designed to adequately protect the organization’s assets and compliance requirements. However, whenever the cost (including time cost) of procedures established exceed the overall control benefit, alternative procedures should be considered. Some suggestions in designing your controls follow.
Segregation of Duties
Segregation of duties is the first step toward installing financial controls. Such procedures provide checks and balances to catch material errors in the routine flow of financial activity and reduce the possibility of employee dishonesty. Even with a small staff some segregation can be achieved. Samples of duty segregation for two- and three-person offices may be found at the end of this attachment.
The Board should be covered for employee dishonesty with insurance or have its employees bonded. Employees in positions of trust should be required to take vacations, during which time their duties are performed by other personnel.
Documentation of authorization includes Minutes of Board meetings, approved budgets, contractual agreements, contractor reports, published documents (including newsletters and brochures) and a policies manual.
Cash Receipt Controls
Receipts in the mail should be recorded by an employee without deposit duties or access to check signing. Receipts listings should be compared with deposits reported on the account statement by an employee not involved with either function. USB and QSSBs have added control by using bank lockbox services whereby receipts are sent to a box for the Board and opened and deposited directly by bank employees with copies of daily deposit information sent to the Board office.
Cash receipts should be deposited on a daily basis. There should be adequate physical control (security) over receipts from the time of opening the mail until the funds are deposited. Checks should be restrictively endorsed “for deposit only” by the individuals who open the mail. Bank account statements should be reconciled by an employee who has not been solely involved in depositing receipts and signing checks.
Executives and Directors should review collection figures and any variances with the budget or expected collections. Whenever “slippage” is suspected, possible reasons should be investigated.
All cash disbursements should be in accordance with Board-approved budgets and contracts. Payments and invoices should be reviewed and show signs of approval by designated staff, the Executive Director and/or Board Officer(s). Check preparation, signing and bank-account reconciliation should not be done by the same individual. Requiring the Board Treasurer or Chairperson to sign or countersign checks over a certain limit is also an effective control.
Payroll controls should include timesheets that are reviewed by a supervisor or the Executive Director. All timesheets and expense reports should bear the approval initials or signature of an authorized person. Executive Director timesheets and expense reports should be reviewed and initialed by the Board Treasurer or Officers.
Investments and investment liquidations should also have approval controls. Investment liquidations should be direct-deposited into the Board’s operating account whenever possible.
Useful checklists on Cash and Computer Controls may be found on the following pages.