|
|
Segregation of Duties
Check Signing
Internal Accounting Controls
Checklist
According to Price Waterhouse's booklet, Effective Internal
Accounting Control for Nonprofit Organizations: A Guide for
Directors and Management, the objective of internal controls
for cash disbursements are to ensure that cash is disbursed only
upon proper authorization of management, for valid business
purposes, and that all disbursements are properly recorded.
While it is impossible to guarantee that these objectives will be
met at all times for all transactions, the following practices
provide reasonable assurance that they will usually be
accomplished.
Segregation of Duties
Segregation of duties means that no financial transaction is
handled by only one person from beginning to end. For cash
disbursements, this might mean that different people authorize
payments, sign checks, record payments in the books, and reconcile
the bank statements. If your organization is a small nonprofit,
managed by volunteers and possibly one staff person, this
principle can be hard to put into practice. You might consider
having one person, such as the paid staff member, sign checks and
assign a different person, such as the board treasurer, to review
disbursements, bank statements, and canceled checks on a monthly
basis.
Authorization and Processing of
Disbursements
You will want to develop policies regarding who in your
organization can authorize payments. Some organizations designate
this function solely to the executive director to ensure that a
single person is paying attention to monies going out of the
organization. In other cases, a department head might authorize
purchases for that department, as long as they are within the
department's budget. In most organizations, once the board
approves the budget, it does not need to authorize individual
purchases within that budget. However, unbudgeted purchases would
require additional approval. Also, in very small organizations,
the board treasurer or board president may be asked to authorize
all purchases. Even larger organizations have policies requiring
the board to authorize significant expenditures, such as purchases
for computers or other assets. It is important to agree and
formally define what constitutes a significant expenditure and how
these purchases will be handled.
All disbursements should be accompanied by adequate documentation,
in the form of receipts or an invoice. Cash withdrawals should
never be made via Automatic Teller Machine (ATM) cards.
Managing Restricted Funds
Restricted contributions are a form of revenue unique to the
nonprofit sector. Money which has been restricted by the donor for
a specific use (such as buying a new building, starting a new
program, building an endowment, etc.) should only be used for the
purpose for which it has been given. However, most nonprofits find
themselves tempted to borrow against restricted monies when facing
a cash shortage. In cases where the funder clearly prohibits such
borrowing, such action clearly violates the funder's trust and
instructions and may lead to revocation of the grant. In other
cases, donors allow temporary borrowing as long as the money is
replaced within a certain period of time, usually within the grant
year.
Ultimately, it is the role of the board to ensure that the
organization fulfills its obligations to donors. Therefore, in
cases where borrowing against restricted funds is permitted, the
board should establish policies which describe the circumstances
under which such borrowing is allowed. These policies might
include how often borrowing may occur, who may authorize the
interfund loan, and how much can be borrowed (such as a percentage
of the total grant). In addition, a repayment plan should be
established and the board should be advised regularly on the
status of any interfund loans.
Check Signing
There is some debate regarding the number of signatures required
on a check. In many cases, it is useful to require two signatures
on checks, especially for purchases over a certain amount. This
amount will vary with the organization's budget; your accountant
may be able to help you determine how much is significant. Even
though checks require two signatures, three or four people might
have check signing authority to ensure that two signers are
available to make disbursements. The number of authorized signers
should be kept to a minimum, while ensuring that daily business is
not unnecessarily hampered.
The purpose of this internal control is to make sure that there
are deliberate decisions made about who to pay, how much to pay,
and when to pay bills. If you habitually have one or more checks
that are pre-signed by one of the two required signatories, it
defeats that purpose. If more than one signer is not regularly
available, and this inhibits your ability to meet your
obligations, you might consider having an imprest checking
account. This means that the board establishes a policy regarding
the amount of money which can be available in the checking account
at any one time, say $500. All other money is kept in a separate
account which the check signer does not have access to. The check
signer is allowed to pay bills until that amount is substantially
depleted. At that time, the treasurer or other board members may
review the disbursements and make sure that they are within the
guidelines established by the board. Once these disbursements have
been reviewed and accepted, the authorized board representative
then transfers enough money to bring the imprest account back to
its $500 maximum balance.
Seek to balance your internal accounting control in such a way as
to ensure public confidence and maintain the integrity of your
financial systems and assets, without unduly inhibiting your
ability to get on with your work.
Internet Accounting Controls
Checklist
The following questions reflect common internal accounting
controls related to paying bills. You may wish to use this list to
review your own internal accounting controls and determine which
areas require further action.
- Are all disbursements, except those from petty cash, made
by pre-numbered checks?
- Are voided checks preserved and filed after appropriate
mutilation?
- Is there a written prohibition against drawing checks
payable to Cash ?
- Is there a written prohibition against signing checks in
advance?
- Is a cash disbursement voucher prepared for each invoice or
request for reimbursement that details the date of check, check
number, payee, amount of check, description of expense account
(and restricted fund) to be charged, authorization signature,
and accompanying receipts?
- Are all expenditures approved in advance by authorized
persons?
- Are signed checks mailed promptly?
- Does the check signer review the cash disbursement voucher
for the proper approved authorization and supporting
documentation of expenses?
- Are invoices marked Paid with the date and amount of the
check?
- Are requests for reimbursement and other invoices checked
for mathematical accuracy and reasonableness before
approval?
- Is a cash disbursement journal prepared monthly that
details the date of check, check number, payee, amount of
check, and columnar description of expense account (and
restricted fund) to be charged?
- Is check-signing authority vested in persons at
appropriately high levels in the organization?
- Are the number of authorized signatures limited to the
minimum practical number?
- Do larger checks require two signatures?
- Are bank statements and canceled checks received and
reconciled by a person independent of the authorization and
check signing function?
- Are unpaid invoices maintained in an unpaid invoice
file?
- Is a list of unpaid invoices regularly prepared and
periodically reviewed?
- Are invoices from unfamiliar or unusual vendors reviewed
and approved for payment by authorized personnel who are
independent of the invoice processing function?
- If the organization keeps an accounts payable register, are
payments promptly recorded in the register to avoid double
payment?
- If purchase orders are used, are all purchase transactions
used with pre-numbered purchase orders?
- Are advance payments to vendors and/or employees recorded
as receivables and controlled in a manner which assures that
they will be offset against invoices or expense vouchers?
- Are employees required to submit expense reports for all
travel related expenses on a timely basis?
Return to the List of FAQs
|
  |
|
|
|
