Spring 2015 issue of Horizons

NOT-FOR-PROFIT

the separation of duties associated with the personnel function (e.g. new employee set up, rates of pay). These include pay increases and employee withholding as well as removal of terminated employees from the roles associated with the actual accounting function (e.g. timesheets, recording payroll, distributing payroll checks and reconciling the payroll bank account).

∙ Mailing checks immediately, preferably by someone not involved in the cash disbursements process

∙ Reviewing vendor payment history and establishing controls over new vendor set up

Internal Controls Over Cash Receipts To prevent misappropriation of cash receipts, at a minimum, those tasks surrounding collection and handling of funds, recording donations and maintenance of donor records should be segregated.

The following include recommended internal controls surrounding the payroll process:

∙ Use a separate, zero balance account for payroll disbursements

Additionally, general internal controls around revenue and cash receipts should include:

∙ Maintain detailed payroll registers that include gross amounts, withholdings and net pay amounts ∙ Review payroll registers, W-2s, payroll tax reporting and 1099s by someone not involved in the cash disbursements process

∙ Discouraging cash payments, if possible

∙ Immediate restrictive endorsement of checks received

∙ Timely deposit of funds received—including cash and checks

∙ Require approval of all salary and wage rates by a financial officer or management

∙ If daily deposits are not possible, utilization of an overnight safe with limited access

Tone at the Top The topic of who “owns” fraud frequently arises at the management and board levels when discussing fraud. No one single position or department can solely be responsible for detecting or preventing fraud. Establishing a superior “tone at the top” and conducting regular employee training will help ensure that each person understands his or her role and responsibility to help prevent fraud within the organization. Additionally, the organization should institute a code of conduct as well as a conflict of interest policy. The importance of these policies should be communicated, and compliance should be monitored. A whistleblower policy should also be adopted. Employees should be periodically made aware of the policy’s existence and how complaints and concerns can be reported.

∙ Maintenance of a cash receipts log of amounts received, including payor name and amount, form of payment and description of what the payment is for

∙ Periodic reconciliation of cash receipts log with deposits made to bank

∙ Periodic reconciliation of cash receipts log with recorded revenue in accounting records ∙ Periodic distribution of statements to donors including identifying a person responsible for receiving notification of concerns should statements not contain all donations made (this person should not be involved in the accounting function)

Internal Controls Over Payroll While there are many ideal payroll-related internal controls, the most critical involve

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